Bullish or Bearish? I really believe that being bullish or bearish on the overall “markets” could be dangerous at this time. I say that mainly because there is so much uncertainty out there and, in addition, I believe that things have been kept fairly tame because of the upcoming elections. Those “in charge” have, throughout history, tried to put the best look they could going into elections to enhance their chances of holding on to their power. This time appears to be no different.
I do believe, however, that there are some major questions that we should be asking at this time.
#1 What will the impact be of the OPEC cartel reducing production by 2 million barrels per day be on our economy? In addition, when our strategic oil reserve releases end (November also) what may that do to our costs of heating, traveling, and delivery of the goods we need to survive?
In my opinion it is most likely to cause a large spike in the prices of oil and natural gas in the near-term so, in regards to oil and oil-related stocks, I am BULLISH.
With regards to companies that have exposure to higher interest rates like many over-indebted companies and other industries that rely on financing I believe that higher rates appear to remain in the cards and because of that I am Bearish.
In regards to real estate and, in particular commercial real estate, I am extremely bearish because the sector was overbuilt to start with and now with many companies allowing employees to work from home, office vacancy rates are very high. In addition, the massive inflation we are seeing is putting a crimp in the discretionary purchases that have propped up our retail locations for decades. My opinion: Look out Below!
#2 What will the impact be of rising interest rates on various assets?
I am also Bearish on long-term bond funds and almost all long-only bond funds. Rates have risen enough where we can get a decent return on short-term treasuries, etc. where the risk of not having an expiration date and the risk of rising rates is mostly a moot point. Bullish short-term Treasuries- Bearish on most other bonds.
I am also of the belief that we are headed for MAJOR inflation after the elections. The food processing and fertilizer plant destructions from earlier this year, the rising cost of inputs (fertilizer, diesel, etc.) and the pathetic harvest that we are now witnessing along with the rise in fossil fuels (transportation costs) point to FAR higher food inflation. Also, don’t forget that most of our modern society is based upon crude oil. It is used in plastics and in most of the things that we use in our daily lives so it is not only transportation costs that will rise but the input costs in manufacturing will also be moving far higher.
I guess what I am trying to say is that picking sectors and picking companies that have strong balance sheets may be what you need to do to give yourself the best chance at surviving and thriving in this environment. The usual 60/40 portfolio is, in my opinion, Dead on Arrival. The days of riding the indexes based upon easy money and Fed “printing and propping” appear to either be over or at least near the cliff.
On the other hand, it is pretty easy to see that any pullback or talk of a pullback in central bank accommodation causes the “markets” to fall. The reason for this is that we are in a debt-based system that needs debt to be created and to grow exponentially to keep the system functioning. We are getting to the point where the numbers are so staggering (likely hundreds of times what we actually see) that the games can’t even be hidden anymore.
What this says to me is that there are only two ways out of this. Stop “printing” and an immediate collapse is the most likely outcome. Keep “printing” and the total destruction of the currencies is the most likely (100% success rate throughout history) outcome.
In either case, the one asset that I see winning is GOLD. The reasons are simple. It has a 5000 year track record. Central banks have 2 assets that they can list as “riskless” on their balance sheets- US Treasuries and GOLD. Gold has NO COUNTERPARTY RISK which means it is an ASSET that is not someone else’s liability. In the case of a deflationary collapse, it is likely that nobody will trust counterparties to repay- most likely because they won’t be able to. In an inflationary spiral (most likely in my opinion) the price of all hard assets will likely rise to catch up to the actual VALUE that has been suppressed by those “in charge” for decades.
While it gets monotonous watching gold and silver flail around in a scenario where they should be skyrocketing, I can only say one thing. Be patient. As the central banks and major banks corner the “market” they also know what is coming. I believe that gold and silver will, at some point explode higher. If that were not the case, those “in charge” would not be buying it all.
The writing is on the wall.
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
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