Alan's Alert 6-17-2021

 

Did someone get the number of the truck that just ran over my portfolio? 

 

The Fed FOMC met yesterday and made a very technical change on the interest rate on their reverse repo facility.  They have been having difficulty explaining what was exactly taking place and they hoped that by bringing up the rate, that use of the facility would relax.  There was talk about inflation, as expected, and chairman Powell said the Fed would stand ready to do what was needed to anchor inflation expectations at 2%.  Nothing surprising there.  There was no tapering of asset purchases and the soonest we are looking at raising the Fed Funds rate is 2023.  That’s two years down the road! The market’s reaction was that the reflation trade was back on (QQQ up), and sold off any asset that was inflation related (gold and silver down).  To me this is crazy talk.  The Fed announced no changes to their current policies and that we are only “talking about, talking about tapering”.  The Fed intends to buy $120 billion in asset purchases over the next 18 months (the approximate date of raising the Fed Funds rate).  This is $2.2 trillion in dollars that didn’t exist before and they will continue these asset purchases until “substantial further progress” has been made towards the Fed’s maximum employment and price stability goals.  Substantial progress was not defined.  This could mean that the Fed is buying even as it is lifting the Fed Funds rate.  The is recklessness.  So, what does that mean for me today?

I’m adding to my collection of PSLV, PHYS, UGL, AGQ and the precious metal miners CDE, FSM, and AUY.  I’m also looking at options on SLV.

 

Alan's Alert 6-14-2021

 

I have a difficult time going with the crowd.  I was once asked; would I jump off a bridge if my friends did.  It’s one of those Zen Koans like, “if a tree falls in the woods, would it make a sound” or “what’s the sound of one hand clapping” or “if nobody showed up to a politician’s speech, would they still lie”?  It is supposed to snap your brain into thinking for itself instead of going with the crowd. 

As I’ve grown older, I’m less interested in the news and more interested in their sources.  I’ve found that the news is more infotainment and less data (and I’m a data nerd).  Maybe this is why I’ve had a hard time with masks (they don’t work), lockdowns (they really don’t work), and hydroxychloroquine (Fauci, the definitive paper was written by the National Institute of Health that it works, right here!), but I digress.

 

The first book I read on investing was Benjamin Graham’s “Intelligent Investor”.  He is considered the father of value investing and had a very contrarian view on investing.  His goal was to find businesses that other investors weren’t paying attention to and which were trading at a discount.  He shaped many investors after him including Warren Buffett and Seth Klarman.

 

I say all this because I’m having a hard time as the mainstream press is getting involved in the inflation story.  Usually when the mainstream press gets on the boat, it’s time to get off.  It’s not just the mainstream press either, it is also some big hedge fund names, big-wig economists, and bank CEOs/CFOs.  It seems everyone is of the belief that inflation is going to be running higher. 

 

So, what’s a contrarian to do?  There’s a popular idiom in the investing world, “don’t fight the Fed”.  When the Fed wants something to go a certain way, you can be contrarian but you’ll lose your portfolio betting against them.  They have more money than anyone in the market (heck they print it) and it gives them the ability to force things in a certain direction.  

Over the weekend Michael Shedlock of mishtalk.com put out an important graph.

He’s of the mind that inflation is transitory but is a big believer in holding gold.  His theory is that negative real interest rates (in this case 3-mo treasury bills minus y/y CPI) lead to gains in gold.

 

I’m still a believer in the gold, silver, and oil story.  I’m nervous about the mainstream press and I’m of the mind that inflation is here, but can it be transitory, only time will tell.

 

If you want to see the source give Mish’s work a good look at his blog mishtalks.com.

 

 

 

Important and Potential Market Moving Events This Week

Tuesday, June 15
5.30am Retail Sales (May)
5.30am Producer Price Index (May)
6.15am Industrial & Manufacturing Production (May)

 

Wednesday, June 16
5.30am Housing Starts and Building Permits (May)
7.30am Gas, Distillates and Crude Oil Stocks/Production Changes
11am FOMC Economic Projects & Interest Rate Decision
11.30am Fed Press Conference

 

 

Alan's Alert 6-4-2021

By Alan Baerlocher

Employment Reports Volume 2

Today the unemployment rate and labor force participation rate were posted.  Now, something to keep in mind is that the market is keeping a very close eye on the employment picture.  The general consensus is that a good employment number means that the Fed will begin to taper its asset purchases and increase the interest rate, reducing liquidity.  So, bad news on the employment front mean good news for the stock market and good news on employment means bad news for the stock market.  Crazy world we live in, right?  You can see this play out in the last two days.  When employment looked to be on the rise according to the ADP report, the market sold off.  Now that the picture doesn’t seem as rosy, the market is up.  Looking at the payroll/employment picture, the economy needs to add 1M jobs per month to reach the pre-pandemic trend by late 2022.

 

The unemployment rate is at 5.8%.  Still well above the pre-pandemic low of 3.5%.

Labor force participation is at 61.6% and is below the pre-pandemic rate of 63.4%.  I think this is a big reason the unemployment rate fell because today’s BLS jobs report was disappointing.

 

The most interesting chart to me right now is the average hourly earnings chart.

Now earnings are always rising but I think we could be seeing this take-off. 

 

Here’s the earnings chart by percent change:

This gives us a better picture of the increases that are happening.  Typically, the month-to-month increase is in the .25% to .40% range, but what we are seeing now is a jump and stop kind of action.  This tells me those business owners, who need workers, are increasing wage rates to get workers back to work.  As competition for workers heats up, we could see some big jumps.  This leads to more spending money in the workers’ pockets, enticing them to spend more, driving up costs.

 

It’s telling to me that President Biden feels the need to address the nation on the employment picture today.  I’m not quite sure what he is thinking but I don’t intend to tune-in to find out.  Until the left wakes up from the idea that it’s ok to pay people to not work, we are going to struggle to get back to a full employment picture.  I think we could be easily confronted with a stagflation scenario, where employment stays sluggish and the Fed keeps the printing presses running hot.

 

Durable Goods

The financial press may make a lot of the chart above.  It shows new orders placed by manufacturers.  In an expanding and healthy economy, orders will rise.  With material shortages abound, a dip in the orders is of no surprise to me.  The list of commodities up in price and commodities in short supply from yesterday’s alert dovetails easily into the durable goods report. 

 

Gold and Silver

Yesterday we had a good sell-off in the precious metals but after today’s poor employment numbers gold and silver were back on the rise.  This situation is a lot tighter than I thought.  Neither gold, nor silver are at their high for the week but I am shocked to see such a quick turn-around.

 

Portfolio

I’m not comfortable yet giving a model portfolio.  I think there is a lot of factors that should be taken into account for each individual’s situation.  Are you willing to take on maximum risk and trade short-dated options and futures? Are you more conservative and want ETFs or individual equities to trade?  Is your portfolio your retirement nest-egg that should be guarded with great caution or do you have a Robinhood account where you spend your gambling money? Maybe you are somewhere in between?  For now, I’ll post what I’m doing in my own portfolio and you can make up your own mind.  Here’s my current breakdown:

 

39% Oil & oil drillers

30% Silver & silver miners

11% Uranium producers

6% Gold & gold miners

14% Cash

 

Alan's Alert 6-3-2021

 

 

By Alan Baerlocher

 

 

Employment Reports

 

 

This cartoon pretty much sums it up.  We still have a large section of the population that feel it makes more sense for them to stay home than to search for work.  The ADP employment report, the initial claims report, and the continued claims report all reflect the same info. 

 

 

 Bah, what ugly charts.

Payrolls up-ticked, new unemployment claims down-ticked, continued claims stayed flat.

I’m sure the financial press will tout this as a big win (almost 1M jobs added!), but in reality, the economy is struggling to get back to pre-pandemic levels of employment.

 

The increase in employment was led by the services sector (850k jobs added). 440k were added to leisure & hospitality portion of the services sector, which was the hardest hit of all employers with the government shutdowns. The good-producing sector added approximately 128k workers, meaning supply bottlenecks will continue.

 

Tomorrow the unemployment rate will be released.

 

This gets back to what I’ve been saying the past two days.  Labor conditions remain tight.  To coax workers out of hibernation, employers will need to raise wage rates.  The other option for employers, is to wait it out in hopes that your state will end the emergency unemployment benefits early.  There is going to be a red state vs blue state battle with workers and businesses as the pawns.  As a reminder, the first states to end the bonus unemployment payments will be Alaska, Iowa, Mississippi, & Missouri on June 12.

 

I anticipate that the next employment report (due out on June 30^th), will be a lot more interesting.

 

 

ISM Services

The Services PMI came in at 64%!  A record high! This shows expanded activity in the service sector of the economy which is also reflected in the employment data that came out today.  All industries reported growth! Respondents to the survey were experiencing increases in activity with frustrations at delivery delays and labor issues.  Optimism in the services sector is running high with pent-up consumer demand coming back strong. A few respondents also mentioned concern with escalating prices for inputs and material shortages.  The list of commodities up in price and commodities in short supply is shocking.

Gold and Silver

 

Gold and silver sold off heavily this morning.  This looks like a technical pull-back to me.  I always relish the opportunity to add on red days and sell on green ones but I think patience should be used.  A better deal could show up tomorrow or early next week while a new support is found.  I think gold will find that support around $1850.  Consolidation needs to happen before the next move higher. 

 

Silver has gotten stuck at this channel between $26.50 and $29.  The last time we had $30 silver was February of 2013. I think the move higher in silver is going to be soon.  We seem to be slowly marching higher since the low at the end of March.  I think the next time $30 gets challenged, a breakthrough will happen.  I’m looking to add to my positions of CDE, FSM, AGQ, and PSLV.