Top of Mind

A few rambling thoughts: Markets, Inflation, Rates, Oil, Gold, Silver, Dollar...Sentiment

May 02, 2023

Housekeeping:

Thank you to my new subscribers. My name is Eric Hyde, author of The Tobin Report…all about money & markets with an emphasis on charts. For those visiting the site but not yet subscribed…you can right here! 😎

Okay, let’s get to work…a few things on my mind…

👉 Inflation & Interest Rates

Inflation not going away like they said it would. Looks like tomorrow will probably bring another 25bps hike barring any major surprise by Jerome Powell.

The Fed’s preferred measure of inflation—the PCE Price Index—indicates there is no reason why the Fed won’t raise another 25 bps, as anticipated.

Inflationary pressures are still very much present with PCE and core PCE rising 4.2% and 4.6% year over year, respectively.

With the last year’s shift in monetary policy, one might expect inflation to come down much faster.

It’s not.

👉 Markets

Over the last 8 tightening cycles, the S&P 500 ended 13% higher a year after the Fed’s last rate hike.

However, with high inflation, corporate profits lower, and the potential for a recession, could this time be different?

If the Fed comes out with a hawkish tone, this could push the expectation for future rate cuts to be further out in time.

And remember….this is important…VERY important:👇

Seems everyone is hoping for rate cuts because this will “save” the market. But you have to understand………………..what would need to happen for the Fed to start cutting rates? I’ll give you a hint…it rhymes with “something not very good”. (actually, it doesn’t rhyme with it…it is it!)

👉 Oil

I am not an expert in oil and gas. I’ll start there.

However, my research indicates that the peak in US oil production is on the horizon. This means higher prices.

Buuut, there’s that whole recession thing which would bring demand lower.

But thennnn (trying to draw it out), the annual increase in US crude output has dropped significantly from previous years and a further slowdown is expected in 2023 and 2024.

So, we shall see.

Combined with efforts to battle climate change and the rise of electric vehicles, I think the result could be higher prices for consumers.

This means bigger gains for those holding oil and gas companies in their portfolio.

So today’s drawdown in crude oil could start creating some opportunities. Longer term, I am bullish oil and oil producers.

Shorter term…the recession fears may create more opportunities like today as we are seeing oil get hammered over 5%.

👉 Gold

My thoughts on gold: higher.

Gold broke through $2000/oz. in March and has been consolidating since. No other time in history has gold done this. The other two times gold broke through $2K (Aug ‘20 & Mar ‘22), it sharply reversed.

This time it’s hovering.

It could be the end of rate hikes (or within a few months)…could be the political risks across the world…could be the fact countries are relying less on the dollar…could be the fact inflation is not coming down…could be the US growth is slowing…could be the lack of trust in the US government.

The answer is YES. All of it.

Ask yourself why the big Central Banks across the world are buying gold at record rates…do they know something we don’t?

What they SAY is less important than what they DO.

👉 Silver

My thoughts on silver: higher.

Similar for silver…consolidating around the $25 and ounce area on support.

Negative for silver: recession fears hold silver back as it is an industrial metal.

Positive for silver: global fears keep it higher as a monetary metal. “Poor man’s gold”.

Fact: silver outperforms gold in a bull market. It just takes time for it to rev it’s engine, so to speak.

If gold goes…so does silver.

Higher.

👉 Dollar

Lower. The chart below says it all.

This doesn’t happen overnight and I’m not saying the dollar is going to zero. It’s still the reserve currency. However, all the factors are there indicating the dollar has topped. Foreign countries are using other forms of payment for oil…for commodities…for trade.

Lower dollar = gold higher.

Final Thoughts:

These are tough times to be investing. No doubt. The idea of where to put your money to beat inflation is no easy task. If you sit in cash, you’re losing 5%-9%+ annually in real terms due to the diminishing purchasing power. $100 today buys less in a year from now. And even much less 5 years from now. This is happening in front of us NOW.

But what are the options?

You can buy physical gold to protect this erosion, but most people don’t understand gold. They will in the coming years.

The bond market…earn 2, 3, 4% on your cash? Still losing in real terms based on inflation. The last year proved to be the WORST for bonds. Earning 3% in coupon payments but losing 40% of its value? PLUS 9% to inflation. Not good.

The general stock market (S&P 500, Nasdaq) should be lower but it’s not. I think it gets there. The risks ARE there…so to be in the general markets, you’re exposing yourself to significant risk. Some argue we are still facing a 15-30% drawdown from where we are today.

Regional banks are failing.

30 year mortgages at intermediate term highs while home prices aren’t really coming down. Frozen.

When you see days like today: S&P 500 down 1.5% and gold is UP 1.75% and pushing all time highs…………

………………it’s your sign that money is rotating.

Final, Final Thoughts

I know I said ‘Final Thoughts’ above but I changed my mind. Final, final thoughts………..starting now.

Sentiment

Investor sentiment is something I study. It’s an odd and peculiar phenomenon. This is why charting works because charts are the sum of investors buying and selling. You can literally see what sentiment looks like on a chart.

When markets dump, everyone (most everyone) is selling. Sentiment is poor. You can see it. The opposite is true when markets rip.

The real money is made when you decide to take the other side of that trade. It pays to be lonely here. Eventually, the selling stops and buyers step in.

When oil plummeted in 2020 due to Covid fears and recession…the trade of your lifetime would have been to buy oil.

When gold and general markets plummeted in 2020 due to Covid fears and recession…the trade of your lifetime would have been to buy gold. This was my trade.

What most people do is the opposite.

Remember these words. When gold is breaking its all time highs in the very near future, more people are going to start to pile into it and want gold…at HIGHER PRICES. What???!! That is not the time to want gold.

Most people will want to buy gold when it’s at $2200. Nobody wanted gold when it was at $1700.

Why sell oil at $70 or $65/barrel out of fear when you should be buying oil at $65 or $70/barrel? Not advice…just ramblings from a guy who writes The Tobin Report. (that’s me)

Warren Buffet was not joking when he said to buy when there is fear and sell when there is greed. It’s true…and it works!

Remember…if you are scared because the market is tanking, this might just be the time to step in and buy. And if you think you are Warren Buffett because you’re killing it…this might just be the time for you to take profits before everyone else does ahead of you.