Charts and Trades
We look at some charts and a few actionable trades to balance your portfolio
Hello everyone - thanks again for reading The Tobin Report. Before I get started, I’d like to ask you to share this report with a friend, neighbor, or co-worker. I have lots of ideas moving forward and I’d like to share them with as many people as possible.
This week’s Tobin Report will be all about charts. It’s a quick, easy read and should give you a picture of the current state of our economy. And since this is not a publication in the Wall Street Journal, all typos,: and grammmatical errors are intentionial! (see what I did there? Lol) Errors are common and fun but I try my best!
I hope you enjoy.
Asset Performance YTD
Though Gold is down 1.2% in the chart below, it has ripped higher this week after Jerome Powell gave his press release. The point of this chart is to show relative performance. Broad markets have sold off and gold outperformed the alternatives! Sneaky, sneaky gold. I believe gold will continue to be a top performer in the 2nd half of 2022.
Inflation
With an increase of money supply by 41% (yes, 41%!!) in the last two years, I don’t know how the Fed could push the BS narrative that inflation would be TRANSITORY. I’m not an economist (actually, neither is Jerome Powell) but even I knew it wasn’t transitory. Now they admit they blew that call…..but here are the monthly US CPI numbers, YoY:
What will July, August, and September look like?
Federal Debt as a Percentage of Gross Domestic Product (GDP)
This chart tells us why Jerome Powell cannot raise rates to beat inflation like Volcker did in the late 70s. Total public debt as a percentage to GDP today is 125% as opposed to 30% back in 1980. Again, I go back to the household analogy: If you make $100K per year and owe $125K in credit card debt…your ability to pay down the debt, let alone make the interest payment alone, is significantly reduced with higher rates.
It's much easier when you make $100K and only owe $30K.
See the difference?
Two Centuries of Debt in 27 Months
Chart below. It took 215 years for US debt to reach $7,000,000,000,000,000 (I did that on purpose)…and ADDED ANOTHER $7,000,000,000,000,000 since March of 2020.
How does this not end badly? If the Fed TRULY does what it is “committed” to doing, i.e. raise rates to fight inflation (that they created), the cost of capital increases significantly. If so, we will experience a massive deflationary collapse that would be worse than the Great Depression from the 1930s. Good times.
Or…the Fed realizes that’s not such a great idea and decides to save the world. Lower rates. More money printing (debt). Oh, and that’s also inflationary. Rock. Hard spot.
I believe they will do the latter, but not until something breaks.
US Tech Sector
Chart below. This is market capitalization of the US Tech Sector as a percentage of GDP. Even after the recent 30% selloff, we are STILL at levels seen when tech bubble popped. Markets have ripped higher this week…but I believe this is a highly anticipated bear market rally.
Actionable Trade:
There are several ways to protect your portfolio to the downside. This is not investment advice. I’m merely sharing with you what I personally use when the charts tell me the market is curling over. These are hedges in my portfolio that act as a ballast.
QID
UltraShort QQQ - this is an inverse ETF.
When the Nasdaq goes down, this ETF goes up.
DXD
UltraShort Dow30 - this is an inverse ETF.
When the Dow Jones goes down, this ETF goes up.
SDS
UltraShort S&P500 - this is an inverse ETF.
When the S&P 500 goes down, this ETF goes up.
So much negativity. Where are the opportunities?
With our economy in the shitter and inflation raging at 9.1%, where are the opportunities? Money has flooded to the sidelines (largest ever) and institutional investors cannot sit in cash. With Q2 numbers in the books, big money will be looking to redeploy cash into sectors that have been unloved and seem to have a bright future ahead.
Commodities.
Relative to the Dow Jones…Commodities are just getting started. If you read last week’s Tobin Report, you might recall this chart of where smart money gets in. This is a ratio chart of the price of commodities relative to the Dow Jones Industrial Average.
Relative to the S&P 500. Just getting started.
Gold
Another ratio chart. This is a weekly chart going back 20 years comparing the price of gold relative to the price of the S&P 500. Which one do you think is undervalued? Gold. I use ratio charts to determine value relative to other assets. This tells me I’m better off investing in gold as opposed to the S&P 500, for example.
Energy
Here is a chart of XLE which is a broad basket of energy stocks such as Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP), etc.
Currently we are in a global energy crisis where demand is increasing and supply is dwindling. You can thank Joe Biden for this.
When you add charting (below) to the fundamental analysis, you see the upward trend. Price bounces nicely off the uptrend line in yellow.
Fundamentals plus technicals tell me energy is the place to be.
That’s all for this week. I hope you got something out of this week’s report. Please consider sending this to a friend if you enjoyed it. The more readers I have, the more of my research I share because I know others are benefitting.
Thank you for your time. Next report will include more actionable items to help give you more tools for your portfolio.
Eric