A Peek Behind the Curtain
Here's something we've never done before...
Wednesday, September 14, 2022
By Dan Denning
Greetings from the high plains of Laramie, Wyoming. Our fearless leader Bill Bonner is somewhere between Paris and London right now. We’re not quite sure where, although we did hear from him and all is well. You can expect normal service to resume tomorrow.
In the meantime, we’ve decided to do something we’ve never done before and ‘unlock’ some of the research normally available to paying subscribers. It’s not something we plan on doing often. It wouldn’t be fair to the paid-up readers. But given yesterday’s market action, and since Bill is incommunicado at the moment, we’re giving you a small peek behind the curtain.
First is Investment Director Tom Dyson’s note last week, Final Act of the ‘Super Bubble.’ Tom writes every Wednesday (a condensed version of his research notes also goes out once a month to some of our Joint Venture partners). When you read his note you’ll see why we remain in ‘Maximum Safety Mode’ for the rest of 2022.
Second, in the research note I published on Friday (The Cycle of Life and Wealth), I looked at how higher interest rates would impact house prices and the real estate market, and why long-term cycle analysis suggest that stocks, bonds, and housing are now all falling in sync (just as they rose together in the era of low rates.)
Please enjoy this rare look behind the paywall. We expect Bill to be back at his post tomorrow.
Until next time,
P.S. Yesterday’s Consumer Price Index (CPI) reading of 8.3% caught a lot of investors with their pants down. The Nasdaq fell by 5.2%. Every single member of the Nasdaq 100 was in the red. The Dow Jones Industrials fell over 1,200 points.
It wasn’t much better on the S&P 500. Only five stocks closed in the green (four of them in the ‘basic materials’ sector.’ One chart I periodically share with paid subscribers is the ‘heatmap’ of the S&P 500. The larger the box of the company, the bigger its market capitalization. The redder it is, the bigger its loss on the day. The greener it is, the bigger the daily gain. Check out the chart below.
Apple alone lost $155 billion in market value yesterday. That was the sixth-largest one-day destruction of value in US corporate history. But if you’ve been reading our work for the last eight months, it’s not that surprising. Why?
The mainstream financial press has consistently underestimated how high inflation will go and how long it will stay there. They expected smaller rate rises and a Fed ‘pivot’ to lower rates later this year (the Fed next meets on September 20th and 21st). Almost no one wants to reckon with the effect of a smaller Fed balance sheet (Quantitative Tightening) on liquidity and stock prices.
Higher interest rates are bearish for growth assets. That’s why the mega cap tech stocks took it on the chin yesterday. And it’s why we believe there is more pain to come. There’s nowhere safe to hide in the stock market, which is why we have large allocations to cash and gold in our investment strategy (and none to bonds). Paid-up subscribers can expect Tom’s latest research note later today, after the market closes.