TradeSmith Daily

August 2020

How Supply Shocks Create Stagflation (and Why We’re Headed That Way)

August 7, 2020John Banks

Inflation is a funny thing. It comes in different varieties and can show up in different places. As such there is no “one size fits all” version of inflation. The classification really matters. Take the difference between asset price inflation and wage inflation, for example. It is often the case that one exists without the other. Equity and real estate values can go up, while wages stay flat or stagnant. You can also see the reverse — though we haven’t

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Gold, Bonds, and Equities are All Saying the Same Thing

August 6, 2020John Banks

There is a narrative that says the market has lost its mind, and that divergent market signals no longer make sense. The market is broadcasting multiple messages, and the messages are in deep conflict. Through this interpretation, three areas in particular — gold, bonds, and equities — are in direct conflict, and seem to be at odds with each other. Here is how that looks: Gold at nominal all-time highs, surging above $2,000 per ounce, says times are bad and

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Ugly Goldilocks is Turning into Mutant Goldilocks

August 5, 2020John Banks

A number of years ago, long before Jerome “Jay” Powell became Chairman of the Federal Reserve, your editor proposed something called the Ugly Goldilocks scenario. You likely know the children’s story of “Goldilocks and the Three Bears.” Goldilocks didn’t want the porridge that was too hot, or the porridge that was too cold. Instead she ate the porridge that was neither too hot, nor too cold, but “just right.” Wall Street has long used the phrase “Goldilocks Economy” to describe

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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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July 2020

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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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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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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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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