Bad News is Good News Again
Been wondering what’s behind the share market strength of last week and early this week? Dead cat bounce short squeeze or new bull market? Time will tell.
This rally began last week with horrible economic news out of the US and Europe, giving investors exactly what they needed, enough bad news to have some central bank types hint that this tightening cycle may be over sooner than previously indicated. Just like that.
The result, a nice bounce in equities and an Aussie 200 index comfortably back over 7000. Everything is back to “awesome”!
You might recall the days of the 2010’s when the worse the economic news, the stronger markets performed as more stimulus was sure to follow.
So much so that post 2009 the stimulus has never stopped. Particularly in Japan and Europe, where without Central Bank yield controls/bond purchases the day of financial reckoning would already have come and gone, not be in front of us!
In 2020, Central Banks around the world released some serious Kraken, blowing bubbles everywhere with reckless abandon. The most obvious bubbles in Crypto, Tech and Bonds have rolled over on the back of Central Bank jawboning and a couple of rate rises!
But last week, something happened. The sounds of central bank folding (as they always will) started to emanate from the marble corridors of power.
Here it is below:
The reversal in fortunes for share markets this week may be just a “short squeeze”, such is the leverage in the system, but one should not underestimate the will and the ability of central banks to blow more bubbles to keep the cards stacked high, even in the face of soaring food and energy prices.
Remembering, inflation is a feature not a bug. Without it there is no way of dealing with the massive sums of debt currently weighing the system down. And you know how undesirable rising rates are to over indebted players. Just ask a Canadian, Kiwi or Australian property investor.
Stimulate and inflate, that’s been the way since the opportunity to reform “the system” was passed over by spineless leaders in 2008/09.
Pre 2022, Central Banks felt empowered to do whatever they wanted as statistical wonks kept the appearance of no inflation by adding and removing key components as they saw fit. These days, no amount of mystic statistical manipulation can convince constituents that prices are not rising. We’re amazed that markets participants still believe Global Central Banks with follow through with their rhetoric and continue to fight inflation, they won’t.
Market belief that rates are going to rise substantially and a relatively strong USD has led to an underperformance in precious metals, especially the miners. When the market finally wakes up to the reality of “more of the same” as the last 12 years and that inflation is the cost, investors will seek “safe havens” like never before, at the expense of paper currency.
For those that have not included precious metals and associated producers into a balanced portfolio, now is the time. The “safe haven search”, out of paper Fiat into real assets, may not include much of the “safe paper” as the last 50 years.
As we’ve mentioned before, the “seizing” of another sovereign’s Reserves by the US over one weekend in March 2022, without any judicial process, will prove to be the ultimate turning point for many Sovereign’s allocating so called “reserves”
We think this chart below will look very different in a couple of years’ time.
In fact, despite the undisputable performance of the useless yellow metal in the table below, it’s amazing how little gold investment makes up of total global investable assets. Estimates range from 0.5% to 1% of the financial asset pool.
For gold stocks, the percentage make up of global stock markets rates at around 0.2%, about the lowest they’ve been.
If the guys at Incrementum are their usual accurate selves in their May 2022 report, we think there is enormous upside for precious metal producers as well as the metal.
Storing value becomes valuable again!!
Full reports can be accessed here: https://www.incrementum.li/en/ingoldwetrust-report/
Whilst not forgetting about Battery metals in portfolio allocation either!!
Finally:
“The perfect dictatorship would have the appearance of a democracy, but would basically be a prison without walls in which the prisoners would not even dream of escaping. It would essentially be a system of slavery where through consumption and entertainment, the slave would love their servitude.”
Aldous Huxley, (1931)
Peace!
