TradeSmith Daily

July 2020

Copper is Heralding a Rise of FDR-Style Public Works Projects

July 20, 2020John Banks

Copper, like many other assets, has been on a tear lately. From the March 2020 lows through mid-July 2020, the copper price (as represented by Comex front-month copper futures) rose almost 50%. There is a widespread belief that rising copper prices are a signal for global growth. This makes sense historically because of copper’s natural role in the world. Copper has a nickname, “Dr. Copper,” because it is “the metal with a Ph.D. in economics.” The idea is that copper

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How to Quickly Calculate Real Yields (Which Are Currently Negative)

July 21, 2020John Banks

In a June 1 TradeSmith Daily, we explained why, in a deflationary environment, the price of gold tends to go up. You can read that piece here. The short version is that, when things turn deflationary, the real yield on Treasuries turns negative. A negative real yield, meanwhile, is worse than a zero yield. If you are earning a negative amount, it is like going backward instead of forward. In these conditions, a yield of zero is better than a

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DENIAL: Deflation Exists Now, Inflation Arrives Later

July 22, 2020John Banks

In terms of a multi-year, big-picture forecast, there is a simple acronym to remember: DENIAL, as in, “DENIAL ain’t just a river in Egypt.” DENIAL stands for “Deflation Exists Now — Inflation Arrives Later.” Today the U.S. economy — and the global economy, too — are subjected to powerful and persistent forces of deflation. There is a combination of moderate deflationary forces that, when all put together, create a very strong force. The forces of deflation are so strong right

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Valuation Multiples May Not Matter Anymore — but Only Up to a Point

July 23, 2020John Banks

When someone says U.S. equities are historically expensive, what do they mean? It depends on the measurement being used. Different yardsticks will measure different things — and come back with different results. For example: It has been pointed out that, in 2020, there were 28 stocks in the S&P 500 trading above 10 times sales. That is a staggeringly high valuation. In the heat of the dot-com bubble, prior to the year 2000 bust, there were only 29. One could

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The Market is Moving On From Intel

July 27, 2020John Banks

With all of the top-down influences on markets these days — from central bank policy to COVID-19 realities to smartphone trading apps — it’s nice to remember that fundamentals still matter sometimes. Then, too, there isn’t really a monolithic “market,” per se. Different areas of the market are behaving quite differently and showing wide divergences in performance. The tech juggernauts have been on fire, for example, but so have precious metals stocks. The energy sector, meanwhile, is trying to recover

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On Gold’s Relationship to Quantitative Easing

July 28, 2020John Banks

For a whole host of reasons, the gold price is hitting new all-time highs this week. This is happening in “nominal” terms, meaning not adjusted for inflation. To reach a new inflation-adjusted high, and break the 1980 ceiling once and for all, gold will have to challenge the $2,500 per ounce level. At the rate things are going, that could happen soon enough. We’ll have plenty more to say on gold in the coming days. We will also explain why

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How the Gold Price Could Go Parabolic in a “Reverse Bank Run”

July 30, 2020John Banks

If you think the recent moves in gold and silver are wild, buckle up. There is a realistic scenario where the gold price goes full-on parabolic, and it could happen at any time. If this scenario takes hold, we could see the gold price blast through the $2,500 level, or even the $3,000 level, within a timeframe of weeks or even days. If this happens — again, the scenario is not at all guaranteed, but plausible — silver would likely

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August 2020

Big Tech is the Zero-Coupon U.S. Treasury Substitute

August 3, 2020John Banks

As U.S. Treasury yields fall toward zero, and the Federal Reserve deliberately erodes the value of U.S. debt, investors will be forced to seek new safe havens. A broken and dysfunctional U.S. Treasury market, no longer appealing in terms of yield income or downside protection, will create a bond-sized hole in a great many investor portfolios. That hole will have to be filled with something. Precious metals and Bitcoin will be clear winners in this environment and will benefit greatly

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