Chasing Opportunity
The Global Central Bank Economic Frankenstein experiment in bubbles and inflation continues to march on a scale that would have been hard to imagine 10 years ago.
The comment of this week that best summarizes current policy maker mindset, goes to the US Pres himself, Joe Biden (via Bill Blain), “if inflation gets out of control we can just (print) spend our way around it”!
Even the legendary Stanley Druckenmiller commented on CNBC last week, “markets are caught in a raging mania, fostered by trillions of dollars of central banks largesse, this is the biggest set of bubbles, by an order of magnitude, I’ve ever seen”…..
Comments like this should ensure he’s never invited back to that network.
We are not sure how many inflationary indicators we should include in this note to denounce any transitionary claims so we’ll just run with the latest print in the US.
To those that continue to believe Central Banks can get a lid on inflation, they can’t. They cannot possibly do what they did in the 70’s and 80’s, systemic risks due to over leverage and debt are too large.
The fear of any bubble prick, leading to a “wholesale house of cards collapse” is such that policy makers will not risk it (as entertaining as it would be to see them try).
It’s this chart below that investors will all have to get used to. Inflation away, rates stay!!
The real irony of this is, that it may only be the bursting of a/the/this bubble that halts this inflation/stagflation train.
If one was praying for some serious bubble bursting irony one might imagine what happens in crypto land when the curtain is pulled back on the enormous fraud that Tether (and other exchnages) is?
Be real hard to see Central Banks getting the green light to bail Crypto Land out!!
Crypto leads us on to physical assets and the one place we’re confident there is no bubble yet, Gold.
One of the main reasons for the Gold price lagging inflation rates is market belief (with serious heavy lifting from MSM) that Central Banks will raise rates to combat inflation and this will be “bad” for Gold.
It’s this type of market delusion and mismatch that could provide one of the biggest opportunities for investors over coming years.
We even got a nice bullish reverse head and shoulder pattern in the USD Gold appearing price action last week.
Meanwhile, Gold equities continue to remind investors of the brutal nature of the 2012 to 2019 bear market in Gold.
The fact that USD gold price has remained stable for many weeks now is something gold equities now nothing about.
You’d find it hard to believe Gold still trades at AUD2475 an ounce when you look at the performance of the Australian All Ords Gold share index below.
Potentially, this makes Gold equities one of the most undervalued inflation protection destinations around right now.
Even though some of the underperformance can be attributed to some of the “inflationary” effects of input costs and labour squeezes, profits remain elevated. Cost and labour pressures are already “built in” to prices by the look of the chart above.
It seems we are not the only ones interested in “real” assets right now.
Private Equity and Hedge Fund types have been aggressively moving to physical assets over paper assets for several months now.
Commercial Property (Globally), Residential Property and Agricultural property have seen experienced elevated activity.
In the chart below we can see from the data source how “undervalued” hard assets became in this financialised system.
We’d argue that most of the hard assets in the basket below have alrerady started to run in recent times as investors continue to lose trust in financial assets.
Maybe some central Banks are catching on.
Got your morning “paper”?
Peace.
