Author: Andrew Packer

Commodities

Sprott Radio: Showdown – In Gold We Trust 2023

Posted on by Andrew Packer

The past year has seen rising political tensions. The fallout from Russia’s invasion of Ukraine has included the company’s expulsion from the global payments system, and a boycott on oil. That in turn led to surging energy prices in Western Europe.

In the meantime, there’s still concern over how central banks have acted over the past few years. In hindsight, central banks over-stimulated economies during the pandemic. The resulting inflation is being felt today, even with interest rates surging.

For the United States, there’s a third issue. That’s dedollarization. The US dollar is losing its demand as a reserve currency. That’s due in part to the power the US has over the global financial system, and the Fed’s handling of monetary policy.

As a result, there may be a potential showdown in the markets.

Part of the showdown would simply mean a reversion to more trade between countries without a reserve currency such as the dollar.

Another part could mean more moves to try and prevent inflation from staying higher for longer. Or, it could also mean more stimulus on the next perceived emergency. That could even include a slight recession from possibly overtightening the economy with the rising interest rates underway now.

Either way, that could bode well for gold prices. The metal is near its highs from the summer of 2020. And any negative outbreak on the geopolitical or monetary front could mean a surge higher.

 

To listen to the full podcast, click here.

Economy

Bryan Kuderna: What Is Inflation Still Sticking To?

Posted on by Andrew Packer

While inflation has been on the forefront of consumers and investors for the past two years, it’s heading down. The numbers through May slowed to 4 percent year-over-year from nearly 10 percent at their peak. However, there are signs that inflation may be “sticky” in some areas.

That may keep overall inflation higher for longer. And it may also mean the Federal Reserve has to keep interest rates high, which could curb future economic growth.

For the Federal Reserve, consumer price inflation isn’t the preferred metric. Rather, it’s inflation with food, energy, and shelter stripped out.

So even with housing prices finally starting to dip on a year-over-year basis, there’s a long way to go.

Inflation remains high, and therefore sticky, in other key areas, notably transportation-related expenses.

For instance, auto insurance premiums have risen by an average 17.1 percent year-over-year. That’s partially due to inflation. But the lack of replacement parts and vehicles from supply chain issues have driven that prices up.

Higher parts and labor costs have also led to a jump in auto repair prices. They’ve logged a 13.5 percent rise year-over-year.

Finally, auto leases have soared. That’s due to rising interest rates. If they remain higher for longer, the cost of leasing a vehicle will remain high as well.

For investors, the inflation data shows that there’s still rising prices in the automotive market, even as used car prices have dropped. Investors may fare well in auto repair store or replacement parts companies if inflation here remains high.

 

To read the full analysis, click here.

Stock Picks

Data Driven Investor: How Artificial Intelligence is Transforming the World

Posted on by Andrew Packer

The phrase artificial intelligence (AI) has been a buzzword for traders this year. Companies talking up their AI plans have seen shares jump. Companies involved in AI more directly have been the big market winners.

But what does it all actually mean? The sudden interest in artificial intelligence comes from the fact that it can transform and improve nearly every industry today. That could lead a productivity boom similar to the one in the 1990s as the internet rolled out.

Today’s AI isn’t fully intelligent. Rather, it’s known as generative AI. It takes prompts given and follows the most likely paths.

Companies like privately-held Instacart have used this type of AI over the years to improve the customer experience. That includes offering personalized as, and assisting customers with alternative items. Technologies like generative AI can be seen in every online bot that can answer  basic questions… and eventually connect you to a human if needed.

Larger retailers, such as Walmart (WMT) have been able to use AI to improve inventory management. That’s helped reduce issues at the company when disruptions in the supply chain occur. And optimizing product availability and inventory have helped improve customer satisfaction.

Those are just some of the changes AI is adding in the retail space. Small changes over time can snowball into billions of dollars in added value. Multiplied throughout the economy it’s clear that we’re still just scratching the surface with AI’s potential power.

 

To read the full analysis, click here.

International Investing

Game of Trades: A Major Housing Collapse in China is Dragging the Global Economy Into the Worst Downturn Since 2008

Posted on by Andrew Packer

The economy is holding up strong this year. While investors were briefly worried about smaller banks in the U.S. banking system, time is allowing the fear to subside.

However, while the U.S. is a big part of the global economy, it’s not the only place that can cause a global recession. And China’s slowing economy may pose a larger danger for investors today. Much like the U.S. economy 15 years ago, the culprit may be in housing.

The past 10 years have shown a strong correlation between China’s credit markets and global market performance. When credit has tightened, so have global markets. When credit has expanded, so have markets.

Currently, real estate is tightening in China. The housing market is dropping sharply, even as the government has stepped in to try and stop the decline with easier monetary policy.

That drop, as China’s economy has reopened this year, is the opposite of what many have expected.

As a result, there’s been less global demand for commodities. That’s partly why OPEC has cut production twice so far this year, as oil demand has dropped. And other commodities such as copper may also trade lower in the months ahead.

In a worst-case scenario, global markets could further decline. And the world could slide into a recession if China’s demand drops substantially.

 

To view the full analysis, click here.

 

Economy

Joseph Carlson: We’re Now In an Everything Bubble

Posted on by Andrew Packer

With markets moving back towards a bull stance, a few bears remain. There have always been a small number of investors who have gone against the grain. Since stocks tend to rise more than they fall, that group is often bearish. They’re even called “permabears.”

But permabears can be right at times. And the reasons for their bearishness can be valid. Understanding that can ensure that investors avoid the worst speculations.

By heeding the bearish voices, investors won’t lose money during a bull rally on a bum stock or idea. The latest warning comes from billionaire investor Seth Klarman.

He notes that we’re in an “everything bubble.” That means all assets are overvalued, not just one sector, like housing in the mid-2000s. Klarman sees the cause stemming from the ultra-low interest rates that started in the late 2000s as housing crashed.

As a billionaire investor, who has profited in part from short-selling, Klarman’s warning carries some weight. Especially given the wild market performance of the past few years, it’s a warning that seems timely.

Klarman’s views are that while things are in a bubble, portfolios should still be structured for long-term returns. That means avoiding short-term moves in the market and getting sucked into a quick move. Earnings and growth power will still matter over time, and drive a stock’s value over time.

 

To view the full analysis, click here.

Cryptocurrencies

Simply Bitcoin: Fidelity Rumored to File Bitcoin ETF

Posted on by Andrew Packer

Cryptocurrencies have been hit hard. Last year saw a major correction. Some cryptos have dropped more than 90 percent from their highs. And at their peak, the big-name cryptos lost more than 65 percent.

Now, just as prices were starting to recover, the SEC has gone after cryptocurrency brokers. That’s led to more uncertainty across the space. And it will delay a recovery in crypto prices.

However, there are some positive trends out there as well, which bode well for long-term buyers today. The biggest is that both BlackRock and Fidelity have announced plans to launch a bitcoin ETF.

While bitcoin ETFs have been rejected by regulators so far, the launch of one would allow for an easy way to invest in bitcoin.

And bitcoin has been largely ignored by regulators, as it is decentralized. In contrast, the SEC has gone after crypto tokens that are highly centralized and prone to potential changes at any time.

The approval of a bitcoin ETF would open up capital for long-term investors to play the trend in bitcoin via the convenience of the stock market. And it would also likely lead to crypto ETFs that hold other cryptos as well. Fidelity in particular could see a huge benefit, as they’re a major player in retirement and 401(k) plans.

The potential to open up retirement accounts to crypto could lead to a massive inflow of cash. And that could help kick off the next bull market.

 

To listen to the full podcast, click here.

Stock market

TFTC: Killer Whale Liquidity Crisis

Posted on by Andrew Packer

While markets have had a strong trend higher so far this year, there’s a limit to how high stocks can go. One measure is in interest rates, which control the cost of capital. Rates have been on the rise, leading to a drop in lending activity.

But there could also be a liquidity crisis underway. That’s what led to the bank failures back in March. The failed banks had enough assets, but not enough liquidity to meet depositor needs.

When just 10 depositors left Silicon Valley Bank, taking $13 billion, the bank was gutted within days. It also didn’t help that the bank invested in long-term Treasury bonds. But the biggest issue was the rapid rate of capital outflow.

That’s also the kind of liquidity problem that could hit any bank at any time. And it’s harder to protect a bank facing rapid and massive deposit outflow.

Investors should prepare for the possibility of more bank failures this year. It may not happen to banks as big as Silicon Valley Bank. And it may not happen until the Federal Reserve raises interest rates again.

But it’s still a strong possibility. And markets could see a small selloff as it happens, much like the March drop in markets. In a worst-case scenario, it could even mean a market correction.

 

To watch the full analysis, click here.

Economy

Longview Economics: Blow Off Top?

Posted on by Andrew Packer

While investors have been transfixed on big-cap tech stocks over the past month, they haven’t been the market leader. Transportation stocks have taken off in recent weeks. So have mid-and-small cap stocks. The good news? That suggests a sector rotation that could mean a long-term move higher for stocks.

However, it’s also a sign that markets may be in a late-stage rally. That occurs when investors buy into stocks on the feeling that they’ve missed out.

By moving towards what looks cheap and piling money in, the market risks a blow-off top. Investors looking to trade in today’s market could see more opportunities on the sell side.

That’s because the short-term rally has moved faster than the economic data. And investors are getting overly bullish, with risk appetites heading their highest levels in nearly a year.

Another sign of that is the high ratio of call buying. That indicates that traders are looking on further market upside and are ignoring downside risk.

With a higher risk for a pullback ahead, investors may want to take some short-term profits. Aggressive traders could even look for plays for a small market drop in the weeks and months ahead.

Bonds have already sold off slightly, another warning sign. That’s taken bond yields slightly higher, which may make for a reasonable short-term entry point that offers some safety now.

 

For the full analysis, click here.

Stock market

A Wealth of Common Sense: How Cheap (or Expensive) Is the Stock Market Right Now?

Posted on by Andrew Packer

There are plenty of ways to value the stock market as a whole. Investors who look at multiple valuation models can best answer the question as to where stocks are trading.

Yes, there are always some bargains in any market. And there are always some overbought stocks. But knowing the overall valuation provides context. And from that context, investors can get a clue as to the market’s next move.

Looking at historic valuations, one measure is to look at the CAPE. That’s the 10-year earnings of the market. It smooths out corporate valuations compared to the current price-to-earnings ratio (PE) that most investors are familiar with.

By this measure, stocks are slightly overvalued. The current CAPE is just under 30. That’s high compared to 17, based on data going back to the 1870s. However, compared to the period starting in the year 2000 to present, the average is 27. So markets may be overvalued, but only by 10-15 percent.

Other metrics looking at growth versus value stocks tell the same story. Despite the big rally in AI companies, valuations are only at a slight premium to their historic average.

That suggests that any market pullback may be short-term in nature. And that those who fear a drop may be disappointed only get a small one.

 

To read the full list of valuation models, click here.

Economy

Game of Trades: Stocks Are Going to Continue Doing This For 12 Months

Posted on by Andrew Packer

Markets have had a strong runup in the past few weeks. The S&P 500 even managed to move into overbought territory for the first time since last August.

Meanwhile, the move higher has been faster than major economic indicators. That divergence suggests that there could be some changes ahead for the market. Investors need to plan accordingly.

Bearish investors have been hit hard in recent weeks. And investors who sat on the sidelines may feel like they’re missing out. But signs suggest that this isn’t a sustainable market recovery.

That’s because stocks have been priced for perfection. Traders are betting that companies can do no wrong. But being overbought may not mean a big market drop ahead. The past few years have seen 5-10 percent drops from overbought levels. And from there, stocks continued a longer-term trend higher.

If we’re seeing a true economic recovery, like the one in 2021, stocks could head higher.

However, the 2021 market rally occurred as economic indicators improved. Without further underlying economic growth, it’s likely that this current rally will stall out.

Investors should expect markets to move to a more sideways trading pattern. That could possibly last as long as the next 12 months, as economic data takes time to catch up to the stock market.

 

 To view the full analysis, click here.