"Freedom of the press is only true if you own a press," said A.J. Liebling, a famed journalist for the New Yorker.
Global Market Comments
October 27, 2023
Fiat Lux
Featured Trade:
(SIX REASONS WHY GOLD WILL CONTINUE RISING),
($GOLD), (GLD), (IAU), (NEM), (GOLD), ($TNX),
(A CONVERSATION WITH THE BOOTS ON THE GROUND)
If you are a current gold investor, you have to love the latest monthly statistics just published by the World Gold Council.
After years of a death by a thousand cuts inflicted by endless redemptions of gold ETFs and ETNs, recent reports showed a sudden influx into the barbarous relic.
North American ETFs led the charge, with some 28.8 metric tonnes valued at $1.3 billion pouring into the funds.
The SPDR Gold Shares (GLD) took in the most, 22.4 tonnes worth $1.03 billion, followed by the IShares Gold Trust (IAU), which added 4.6 tonnes worth $266 million.
Europe followed with 6.4 tonnes worth $321 million.
Asia was a net seller of 2 tonnes worth $80 million as investors pulled money out of precious metals and placed it in Bitcoin, Ethereum, and other cryptocurrencies.
Global gold-based ETFs collectively hold 2,295 metric tonnes of gold valued at and have picked up 143.5 tonnes so far this year.
For those used to using American measurements of precious metals, there are 32,150.7 troy ounces in one metric tonne.
The figures augur well for continued cash inflows and higher gold prices.
My experience is that sudden directional shifts of fund flows like this are NOT one-offs. They continue for months, if not years.
Of course, the trigger for these large inflows was the yellow metal’s decisive breakout on big volume from a two-year trading range.
Not only did now longs pile into the market, there was frantic short covering as well.
Too many options traders had gotten comfortable selling short gold call options just above the $1,800 level.
Once key upside resistance was shattered, gold tacked on another $50 very quickly. Bearish traders were smartly spanked.
Gold plays that did well, including Van Eck Vectors Gold Miners ETF (GDX), Barrick Gold (ABX), Newmont Mining (NEM), and Global X Silver Miners ETF (SIL), turned profitable.
There are six reasons why gold has gone off to the races.
1) Ten-year Treasury bond yields are peaking out at 5.0%. The opportunity cost of holding gold is about to drop sharply.
2) Falling interest rates guarantee a weaker US dollar, another big pro gold development.
3) The last of the pandemic stimulus is fading fast.
4) The new conflict in the Middle East has poured the fat on the fire.
5) General concerns about the increasing instability in Washington have driven nervous investors into EVERY flight to safety play.
6) The collapse of trust in crypto has propelled a lot of assets back into gold.
Inflation has historically been the great driver of all hard asset prices.
After such a meteoric move, I would expect gold to consolidate here around this level for a while to digest the recent action. It may drift sideways, or fall slightly.
That’s when I’ll pick up my next basket of longs.
I have spent many hours speaking at length with the generals who are running our wars in the Middle East, like David Petraeus, and James E. Cartwright.
To get the boots-on-the-ground view, I attended the graduation of a friend at the Defense Language Institute (DLI) in Monterey, California, the world's preeminent language training facility.
As I circulated at the reception at the once top-secret installation, I heard the same view repeated over and over in the many conversations swirling around me. While we can handily beat armies, defeating an idea is impossible.
With the planet's fastest-growing population (Muslims are expected to double from one to two billion by 2050), terrorists can breed replacements faster than we can kill them. The US will have to maintain a military presence in the Middle East for another 100 years.
The goal is not to win, but to keep the war at a low cost, slow burn, over there, and away from the Americans.
I have never met a more determined, disciplined, and motivated group of students. There were seven teachers for 16 students, some with PhDs and all native Arabic speakers. The Defense Department calculates the cost of this 63-week, total immersion course at $200,000 per student.
They are taught not just the language, but also the history, culture, and politics of the region as well. I found myself discussing at length the origins of the Sunni/Shiite split in the 7th century, the rise of the Mughals in India in the 16th century, and the fall of the Ottoman Empire after WWI. This was with a 19-year-old private from Kentucky whose previous employment had been at Walmart! I doubt most Americans his age could find the Middle East on a map.
Students graduated with near-perfect scores. If you fail a class, you get sent to Afghanistan, unless you are in the Air Force, which kicks you out of the service completely.
As we feasted on hummus and other Arab delicacies, I studied the pictures on the wall describing the early history of the DLI in WWII, and realized that I knew several of the former graduates, now long gone.
The school was founded in 1941 to train Japanese Americans in their own language to gain an intelligence advantage in the Pacific war.
General 'Vinegar Joe' Stillwell said their contribution shortened the war by two years. General Douglas MacArthur believed that an army had never before gone to war with so much advanced knowledge about its enemy.
To this day, the school's motto is 'Yankee Samurai'.
My old friends at the Foreign Correspondents' Club of Japan will remember well the late Al Pinder. He spent the summer of 1941 photographing every eastern-facing beach in Japan. He? successfully smuggled the photographs out hidden in a chest full of Japanese sex toys.
He then spent the rest of the war working for the OSS in China. I know this because I shared a desk in Tokyo with Al for nearly ten years. His picture is there in all his youth, accepting the Japanese surrender in Korea with DLI graduates.
I Guess I Should Have Studied Harder
“The Fed only knows two speeds; too fast, and too slow,” said Nobel Prize-winning economist Milton Friedman to me over lunch one day.
Global Market Comments
October 26, 2023
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE OCTOBER 31 MIAMI, FLORIDA STRATEGY LUNCHEON)
(THE REAL ESTATE MARKET IN 2030),
(XHB), (ITB), (LEN),
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT)
Come join me for lunch for the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Miami, Florida at 12:00 PM on Tuesday, October 31, 2023. A three-course lunch is included.
I’ll be giving you my up-to-date view on stocks, bonds, currencies commodities, precious metals, and real estate.
And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $307.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive hotel in the Coconut Grove sector of Miami, the details of which will be emailed to you with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.
A number of analysts, and even some of those in the real estate industry, think that there will never be a recovery in residential real estate. With 8.0% mortgage rates who can blame them.
Long time readers of this letter know too well that I went hugely negative on the sector in late 2005, when I unloaded all of my holdings.
However, I believe that “forever” may be on the extreme side. Personally, I believe there will be great opportunities in real estate that run all the way until 2030.
Let's back up for a second and review where the great bull market of 1950-2007 came from.
That's when a mere 50 million members of the “Greatest Generation”, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962.
There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices.
When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because my dad was an ex-Marine sergeant. This is where our suburbs came from.
Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xers who earn less than their parents, marking down prices as fast as they can.
As a result, the Federal Reserve thinks that 20% of American homeowners still have either negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs.
That comes to 30 million homes. Don't count on selling your house to your kids, especially if they are still living rent-free in the basement.
The good news is that the next bull market in housing has already started.
That's when 85 million Millennials have started competing to buy homes from only 65 million upwardly mobile Gen Xers. Add these two generations together, and you have a staggering 150 million buyers competing for the same housing at the same time!
Fannie Mae and Freddie Mac will soon be gone, meaning that the 30-year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable-rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world.
For you Millennials just graduating from college now, this is a best-case scenario. People will, no doubt, tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers.
That's what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.
Just remember to sell by 2035 because that's when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, Generation Z homeowners, holding the bag, as your grandparents are now.
Time to Buy?
The focus of this letter is to show people how to make money through investing in fast growing, highly profitable companies which have stiff, long term macroeconomic winds at their backs.
That means I ignore a large part of the US economy, possibly as much as 70%, whose time has passed and are headed for the dustbin of history.
According to the Department of Labor's Bureau of Labor Statistics, the seven industries listed below are least likely to generate positive job growth in the next decade.
As most of these stocks are already bombed out, it is way too late to short them. As an investor, you should consider this a “no go” list. I have added my comments, not all of which should be taken seriously.
1) Realtors - The number of realtors is only down 10% from its 1.3 million peak in 2006. I have always been amazed at how realtors who add so little in value take home so much in fees, still around 6% of the gross sales price. Someone is going to figure out how to break this monopoly.
2) Newspapers - these probably won't exist in five years, as five decades of hurtling technological advances have already shrunk the labor force by 90%. Go online or go away.
3) Airline employees - This is your worst nightmare of an industry, as management has no idea what interest rates, fuel costs, or the economy will do, which are the largest inputs into their business. Pilots will eventually work for minimum wage just to keep their flight hours up.
4) Big telecom - Can you hear me now? Nobody uses landlines anymore, leaving these companies with giant corroding copper networks that are costly to maintain. Since cell phone market penetration is 95%, survivors are slugging it out through price competition, cost cutting, and all that annoying advertising.
5) State and Local Government - With employment still at levels private industry hasn't seen since the seventies, firing state and municipal workers will be the principal method of balancing ailing budgets. Expect class sizes to soar to 80 or go entirely online, to put out your own damn fires, and keep the 9 mm loaded and the back door booby trap for home protection.
6) Installation, Maintenance, and Repair - I have explained to my mechanic that the motor in my new electric car has only eleven moving parts, compared to 1,500 in my old clunker, and this won't be good for business. But he just doesn't get it. The winding down of our wars in the Middle East is about to dump a million more applicants into this sector. The last refuge of the trained blue-collar worker is about to get cleaned out.
7) Bank Tellers - Since the ATM made its debut in 1968, this profession has been on a long downhill slide. Banks have lost so much money in the financial crisis, they can't afford to hire humans anymore. It hasn't helped that hundreds of banks have closed during the recession, with many survivors merging to cut costs (read fire more people). Your next bank teller may be a Terminator.
Out With the Old
And in With the New
Global Market Comments
October 25, 2023
Fiat Lux
Featured Trade:
(AN EVENING WITH THE CHINESE INTELLIGENCE SERVICE),
(FXI), (CYB), (BIDU), (CHL), (BYDDF), (CHA)
