Obama era comes to an end, RIP MSM
Finally, the Obama era in the US has come to an end. We can only to smile to the army of “orange man bad” enthusiasts imagining their ship only just starting to sink. The most amazing aspect of the last 2 months of US election activity is the fact that most “orange man bad” enthusiasts seem to have never properly bothered to even try to understand what the alternate team “Kamala” was trying to say.
Perhaps this is because it was an impossible task. If you really put your thinking cap on when Harris, Waltz or Biden spoke you could only conclude they were operating some type of parallel universe. Whilst we really miss the entertainment, it has been painfully bizarre to deal with those that simply follow mainstream media dribble. And, how did Joe Biden get 81 million votes in 2020?
Americans waited 4 long years to reject the magnificent crock of woked up crap fed to them over the last 4 years, and they did it in overwhelming fashion. Naturally, readers of these pages may conclude that our words support bad orange man. Wrong, our concerns are economic, the politics are a noisy input.
Nature has taken its course, investors will now assess the effects of this political change. In our view, wise investors will not be expecting too much change in US fiscal conditions for some time. It’s big ship to turn around after so many years of mismanagement, from all sides of politics.
However, we can now assess the knee jerk market gyrations (the Trump trade) of the last 2 weeks and start to look at how this “new” US administration may attempt, or not, to unwind the massive twin deficits whilst promising tax cuts to all.
We have little doubt the gargantuan 36TRILLION dollar (as of last week) .gov US debt number will continue to grow as is, as the main components of the yearly 2TRILLION spending deficits are genuinely untouchable.
Whilst Trump seems to have learnt much from an ineffective previous 4 year term, the only way he could touch welfare, defence, health and the size of .gov would be to actually level with the public, tell them he didn’t mean what he promised and the economic situation is far more dire than they realise.
Never, ever going to happen, not unless the market (long end rates) does it for him. Do you think they’ll let that happen?
As fantastic as it is to see the American public request change the way they have, we fear it has come around 16 years, or more, too late.
The global economy was already slowing pre US election with equity valuations at all time highs, the little bit of election “change euphoria” effect on equities will soon be tempered by corporate reporting continuing to confirm a global economic slowdown. A global economy choking on debt, staring down the stagflation barrel.
It’s at this point one should ask what may a central bank response look like when confirmation of a slowing economy combines with a threat of stock price deterioration? The wait was over weeks ago in the form of a now 75 basis point downward move in US fed funds rate in the face of rising yields at the curves long end.
Why, in the land of “best economy ever”, would this be necessary? Why would one implement an emergency 50bp rate cut in best ever economy? What was/is the emergency?
The emergency can’t be in stocks as the Euphoriameter has never been higher in US stocks!
EVER
Last weeks record high in US equities highlights the most extreme valuation in US history.
As we stated above, even though there is plenty of “euphoria” in US stocks right now, other global indicators are flashing slow down, such as copper, earnings of consumer staple’s like Nestle, all luxury brands excluding Ferrari and a plethora of other consumer discretionary companies.
Some well-known investors are not so oblivious to the risks and have been using this most recent euphoria to raise cash.
Abandon Ship?
There can be no question Warren Buffet knows the devastating effect of inflation on cash and spending power, which makes the reasoning for these cash levels more intriguing. Where might he be thinking rates are going? You’d better be concerned if he thinks rates are going up with inflation.
Buffet and co certainly know, based on 5000 years of human behaviours, that the only mathematical solution politicians (ON ALL SIDES) can accept on the massive private and .gov debt levels is inflation, more of the same. Trump or no Trump, only the pace differs, and not by much.
Place your bets accordingly. We’ve increased our cash position over recent weeks and will look to re deploy post January inauguration (or not!!).
In precious metals land, Gold found a bottom soon after the US election knee jerk sell off that had nothing, nothing at all to do with physical demand. It’s all highly levered Comex and LBMA positioning.
In fact, we view the Trump win as a major positive for gold, and, most importantly, there is absolutely zero sign of euphoria in gold stocks! Proposed Trump policies, in particular tariffs, deportations, reshoring manufacturing in the US and tax cuts will be inflationary.
And, none of Trumps policies will change the course of many central banks and other sovereign entities around the world continuing to increase golds role in foreign reserve holdings.
The confusing part for investors will be, as it’s been in recent months, gold rising with the USD. Gold will hold its purchasing power and act as the store of value its always been.
When investors get around to valuing gold producer and explorer gold in the ground correctly the “euphoria” for those already invested will be a just reward. Until then hold tight or use the opportunity to invest.
Is Gold too expensive? You decide.
For the reasons outlined many times to loyal followers, gold is already in a bull market and gold equities are left behind, for now. If precious metals go up as much as they did in the last two bull runs, we have a long way to go for both asset classes.
We also think it’s hard to go wrong with Platinum right now either. It has never been this cheap relative to gold and long-term structural demand outlook is strong. Platinum has no store of value built into its price right but now.
We’re not sure if Sovereign entities will buy Platinum in the same way they’ve been buying gold over the last 2 years but we’ve been happy to buy at this current long term 50% discount, relative to gold.
Finally, in our view, investors constantly underestimate the fragility of the financial system we live in. On one hand, the system can unwind rapidly from a number of different directions, making it very hard to prepare one’s exit strategies whilst staying invested. On the other hand, we do understand the warm blanky of .gov waiting to do “whatever it takes” when the wheels start to fall off. The only question is, will it be enough?
Think about where it is you want to be invested under the “whatever it takes” scenario.
Peace.
