Below are Evergreen Gavekal's Likes/Dislikes for October 15th, 2021.
OUR CURRENT LIKES AND DISLIKES
Changes highlighted in bold.
Another week, another down, then up, stock trading pattern. Even perma-bears have to give this market credit for its remarkable resilience. Could it be that the Fed’s many trillions of synthetic dollars are continuing to support prices? That’s a reasonable conclusion but with $120 billion still being created by Powell & Co. each month, that ballast is not going away anytime soon. Even once the Fed does “taper” (finally!), it will continue to whip up fake money from its Magical Money Machine at what should still be over a trillion-dollar annualized pace. (Do you remember when a trillion dollars seemed like a lot of money?)
On the fundamental front, it’s a different story. Investors are waking up to the reality that corporate profit margins are likely to take a hit—possibly, a serious one—from input prices that are rising at almost the same speed as William Shatner did earlier this week. (Nicely done, Captain Kirk!). There are also rapidly mounting concerns about China and it’s bursting real estate bubble. Based on how vital the property market is to the Chinese economy—some have pointed out it is by far the world’s largest asset class—the severity of the price and sales weakness is a serious threat. Relevant to this week’s main EVA section, China is also being hammered with rocketing energy cost increases. Because China’s economy is now so large, and it has typically been the planet’s main growth engine, this does have significant negative global repercussions.
Encouragingly, Delta continues to fall off the front pages. On the not so sunny side, Merck’s promising Covid anti-viral, Molnupiravir, is being attacked over safety concerns by some scientists (which the company vehemently denies). It continues to be my belief that the US is on the verge of another reopening surge, albeit less dramatic than the one produced by the Covid vaccine rollouts.
The benchmark 10-year T-note has stabilized in the 1.5% to 1.6% range and, despite a rough Friday session, yields fell slightly for the week. My expectation is for further price weakness and, accordingly, higher yields over the balance of the year.
The slight easing by interest rates saw gold move up slightly, with silver doing its usual more volatile thing by rising nearly 3%. Gold miners had an excellent week, up about 5 ½%; this was, once again, notwithstanding a rough day today. Energy and related stocks had another robust week, continuing a truly remarkable year. Both the primary energy ETF (XLE) and the main MLP ETF (AMJ) are up over 50% for 2021, from a total return perspective. In the case of crude oil, it is now around $85, at least based on Brent, the main European benchmark (US West Texas Intermediate, is bouncing around the low 80s). Brent is up 64% for the year and nearly 3% this week. A near-term correction seems probable though I continue to be bullish on oil prices for the rest of this year and into 2022.
Copper has popped 11% this week and the leading US producer of the red metal has risen by over 13%. Usually, miners move more than the underlying metal but this is nonetheless a nice rally for one of our favored market niches. Hopefully, some EVA readers acted on our suggestion to accumulate copper miners during their recent weakness.
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.