Below are Evergreen Gavekal's Likes/Dislikes for July 9th, 2021.
OUR CURRENT LIKES AND DISLIKES
Changes highlighted in bold.
The big news recently was the Fed’s supposed shift to hawkish. Unquestionably, it conveyed a slight tone change and this has caused a mild stock market pull-back. For hard asset/inflation hedge securities the decline has been more severe, accelerating a correction, after massive rallies, that has been in place in recent weeks (excluding energy, which was been extremely resilient).
The Fed’s actions are a different story. If taken at its word, there will be no rate hikes until next year—at the earliest. Moreover, it will continue to fabricate $120 billion per month in order to buy treasuries and US government-backed mortgages (i.e., on-going debt monetization). This is despite that the Fed is now acknowledging what this newsletter has been saying for months: The US economy is rapidly gaining momentum, as well as that both employment and wage growth should be extremely robust as the year progresses. Nonetheless, it is maintaining its incredibly loose monetary policies (printing money to buy mortgages in a white-hot housing market is particularly bizarre).
In some ways, this event is similar to what happened back in 2013 during the so-called Taper Tantrum. Back then, bonds and high-income securities were punished when former Fed-head Ben Bernanke implied the Fed might reduce, or taper, its (much smaller) money printing program. This created an excellent buying opportunity in yield issues which Evergreen wrote up bullishly at the time.
Presently, we believe this is a “fat pitch” chance to pick up the pace of gradual accumulation of US dollar debasement winners such as the main gold miner ETF, which is now down 13% since late May. A wide range of other natural resource-oriented securities have also come down hard and appear to be excellent long-term values. This includes those in the aluminum, graphite, and agricultural sub-sectors, as well as, potentially, platinum plays.
Related to this, the Wall Street Journal reported today that consumer borrowing is at record levels. This strongly suggests that the velocity of money should accelerate markedly before long. If so, it is likely to be highly supportive of the market sectors which benefit from economic strength and rising inflation. Based on the trillions the Fed has created, and are already in the financial system, rising money velocity could have significant implications, such as by making the recent inflation spike much more than transitory.
DISCLOSURE: This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness. Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time.