TradeSmith Daily

May 2020

Conditions are In Place for an “Inflationary Depression”

May 14, 2020John Banks

Robert Skidelsky, an economic historian and member of the U.K. House of Lords, believes the conditions are in place for an “inflationary depression.” On May 6, he told Bloomberg the following: This is going to be a depression and an inflation at the same time, or an inflationary depression if you like, which is very, very unusual. It’s a bit like what we had in the 1970s, when we had something called stagflation — high unemployment and inflation at the

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Are U.S. Equities the Second-Most Overvalued in History?

May 15, 2020John Banks

Are U.S. equities at their second-most overvalued point in history, behind only 1999? That is the opinion of multi-billionaire David Tepper, one of the top hedge -fund managers in the game. The U.S. equity market prior to the May 13 decline was “maybe the second-most overvalued stock market I’ve ever seen,” Tepper said in a CNBC interview this week. “I would say ’99 was more overvalued,” he added. Tepper went on to say valuations of certain Nasdaq stocks were “nuts,”

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It’s Shocking How Much We Still Don’t Know About the Coronavirus

May 18, 2020John Banks

The novel coronavirus is still a mystery to us. This is surprising given the sheer amount of research and intellectual firepower being thrown at the virus worldwide. In dozens, if not hundreds of countries, doctors and scientists and researchers are working around the clock to figure out what the novel coronavirus truly is — and how it does what it does. And yet, as of now, we still don’t know how the virus really works, or what it is fully

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Liquidity, Solvency, and Zombies

May 20, 2020John Banks

“Free money from the Federal Reserve” sounds fantastic for stock prices. Picture a giant firehose of liquidity, just spraying cash in every direction, as the Fed expands its balance sheet by trillions. How could U.S. companies — and stock prices — not benefit from that bonanza? Pretty easily, that’s how. It has to do with the difference between liquidity and solvency, and the rise of “zombie” companies. To explain the difference between liquidity and solvency, we’ll start with these two

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Physical Gold Has a Centralization Problem

May 22, 2020John Banks

Physical gold has a centralization problem. It tends to gather in centralized places, and be guarded by centralized forces, under the strict administrative control of some centralized political authority. In regard to this topic, Ed Seykota, a legendary trend trader, made a spot-on observation in his late 1980s Market Wizards interview: “Gold tends to be dug up, refined, and then buried again. The geographical entropy of all gold on the planet seems to decrease over time. A lot has been

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Why Buffett Sold Berkshire Hathaway’s Goldman Sachs Position

May 27, 2020John Banks

When Warren Buffett explained his logic for dumping airline stocks, he was blunt. “It turns out I was wrong,” Buffett said via teleconference at the Berkshire Hathaway annual meeting. “The airline business — and I may be wrong and I hope I’m wrong — I think it has changed in a very major way,” he added. For an investor whose favorite holding period is “forever,” the exit was a big pivot. In 2019, Berkshire Hathaway was one of the biggest

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“Deflation World” is Coming — and It Will Be Like Nothing You’ve Experienced

May 28, 2020John Banks

“Deflation World” is coming. For many, if not most, it is going to be a bizarre and disorienting experience. Most investors will fail to understand what is happening, or to process the consequences of what deflation will mean. And many of the “normal” financial relationships investors have come to expect will seem to run backward, like a movie playing in reverse. It is going to get weird. Deflation will be a bizarre experience in part because investors today, of all

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Goldman Sachs Had an Embarrassingly Bad Take on Bitcoin

May 29, 2020John Banks

On a May 27 video call discussing the U.S. economic outlook, Goldman Sachs tried to dismiss cryptocurrencies in general, and Bitcoin in particular. The Goldman powerpoint slide, which made the rounds on Twitter, was titled, “Cryptocurrencies Including Bitcoin Are Not an Asset Class.” The whole thing was deeply embarrassing — for Goldman Sachs. In fact, the power point bullets advanced against Bitcoin (and crypto) were so lame, they almost seemed like a joke, or a high schooler’s effort to rush

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