Monday, 14 November 2022 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[5 min read]

Dear Reader,

Without a doubt, you’ve heard about the breakout in Aussie stocks on Friday.

The market made a huge move to lift nearly 3% in one day.

What you might not know is that gold stocks were already roaring from last Monday. Friday was just further icing on the cake.

What’s interesting about this is the background to the surge.

It was only two weeks ago that Fed Chair Jerome Powell gave his press conference and spooked the market with further tough talk on inflation.

Gold stocks tanked 6–10% the following day.

I know that acutely because I’d just bought two gold stocks earlier that week!

I held on.

And it seemed to me there were clear signs of accumulation happening as volume came into the sector on the dip.

It’s been straight up since.

Check out the top five Aussie stocks last week. Four are gold stocks:

The only share to do better was Origin — and it’s under a takeover offer.

What’s going on with gold stocks?

The least we can say is there is value there.

One of the discrepancies in the gold market in Australia is that the stocks have done much worse than the Aussie gold price lately.

You can see that via this chart here:

Part of the explanation here is that gold stocks are still companies with expenses.

And those expenses — labour, diesel, etc. — have been inflating at a high and fast rate.

And rising interest rates were another headwind for sentiment.

Now the gold price is catching a bid in US markets.

That would suggest the market is expecting rate rises to cool off and the US to be in recession in 2023.

Hint: Investors are making a defensive move!

Many of the Aussie producing gold stocks were down 50–70% over the last two years.

It’s a simple equation sometimes: cheap stocks and a rising commodity price = bull move!

However, one week doesn’t mean much in the grand sweep of the year.

Can the gold sector keep running?

Truth be told, your guess is as good as mine. One complication we have is the US dollar.

A rising US dollar is, generally speaking, a headwind for gold.

The US dollar has pulled back in recent trading. But whether it keeps falling is not so clear…and it’s to do with oil.

There’s a shift happening in the markets right now that most investors won’t appreciate because the change is so huge but also barely noticeable.

The US dollar is now linked to oil inversely to the way it’s traded for the previous 20 years.

It used to be that a rising oil price would correlate with a falling US dollar.

That’s because the US imported so much energy from overseas, mostly the Middle East. Oil also made US trade deficit worse than it already was. The dollar weakened when oil went up.

But the world changes…

A rising oil price is now BULLISH for the US dollar.

The US is now the premier energy country in the world, with staggering oil and natural gas resources.

It’s also capturing market share from Russia as the EU diversifies its supply away from Ukraine.

That means a rising oil price needs to be watched for gold investors too.

As it is today, oil is still a very healthy US$90 a barrel. That can drive huge revenue through energy producers.

So there’s opportunity in energy stocks as well.

Now put this in the context of the general market. Growth is very hard to find for most sectors.

A lot of companies are battling rising costs, and there’s a muted outlook for consumer spending as rate rises bite. Housing has cooled. Unprofitable companies are on the nose generally.

That puts resource stocks in the spotlight as the place to be.

It only took a hint of China ‘reopening’ this month to send BHP, FMG, and RIO firing back up.

Then we have the ever-present trends of decarbonisation and electrification in the undercurrents as well.

I’m thrilled that my publisher, Fat Tail Investment Research, is launching a dedicated advisory to tackle all the opportunities here.

Our latest Editor, James Cooper, is a trained geologist. I can hardly think of a more exciting runway over the next five years. Make sure you check out his upcoming presentation on what he calls ‘The Age of Scarcity’ by registering here.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

The local Ford dealership turned out to be a good place to find out what the deplorables are thinking.

‘To tell you the truth, I didn’t even bother to vote yesterday’, said a wiry man with slicked-back wavy hair. He wore a shiny black jacket advertising his participation in the Vietnam War…and sunglasses that might have been used there during the Tet Offensive.

‘I figure it don’t make any difference.’

‘You’re right’, said another, a stout man, nearly bald, with a hunting jacket on.

‘I’m losing faith in them all. Trump was my man. But he seems more interested in himself than in anything else. He should have stayed out of it.’

‘You can’t trust none of them. Say one thing. Do another.’

We sat in the waiting room as our truck was being serviced, listening to the conversation around us.

Almost all the people in the waiting room were retired factory or construction workers. This was East Baltimore, hon, and all the denizens have pick-ups, notably the US’s most popular model — the F-150.

And with the midterm elections winding up in the usual mix of comedy and disgrace, ‘The People’ try to make sense of it.

Nonsense politics

Predictably, The New York Times worried about diversity: ‘How Diverse Are the Candidates in the Midterm Elections?’. 

What the Times is really concerned about is that the voters and the candidates all share the delusions and prejudices of today’s elite — including ‘diversity’. Yesterday’s elite might have had very different ideas, but who cares about them? They don’t buy newspapers…or vote!

Pennsylvania was the focus of press coverage. The key race featured a tattooed, billy-goateed candidate with recent brain damage…up against a Muslim doctor who served in Turkey’s army to maintain his Turkish citizenship and later went on to TV stardom in the US.

A local political operative explained that Pennsylvania was a ‘diverse and welcoming community’. He meant that the voters did not shy away from choosing misfits and weirdos.

But the voters in Pennsylvania’s 32^nd district took diversity to a whole new level. Green Party challenger Zarah Livingston must have been the weakest candidate ever to mount a soapbox. She was overwhelmingly trounced by a corpse. Here’s Business Insider: ‘Pennsylvania state lawmaker won big in the midterm elections despite being dead’:

‘Rep. Tony DeLuca, who died at the age of 85 on October 9 from lymphoma, crushed Green Party challenger Zarah Livingston in Tuesday's midterm elections.’

Yes, the voters wisely preferred a dead Tony to a live Zarah. And had we been a voter in the district, we would have voted for Tony DeLuca too. Voters there proved they were the most open-minded in the nation. They elected a man to represent the most dissed, ignored, and despised group in the country — the shades. Their books are banned. Their monuments are torn down. Their heroes are shamed.

The corpses must chuckle to themselves: ‘Damned jackasses!’.

Status and dissatisfaction

But the Old Gray Lady need not fret. The guys in the waiting room explained:

‘I’m sick of them all. You know what George Wallace said about the Democrats and the Republicans?  He said “there’s not a dime’s worth of difference between them”. He was right.

‘You know what really gets me. I remember back in the old days, I was working down at Sparrows Point [steel mill]. But the politicians would all come and try to get us to vote for them. There were a lot of us there… and over at GM [General Motors also had a nearby assembly plant].

‘At least they would pretend to care about us. Now, nothing. They get their money from Wall Street. I guess they don’t need us.

‘No, they don’t need us anymore. They certainly don’t.’

No, they don’t need the common man. Or dead men. They’ve got each other. Right here. Right now.

From CovertAction:

‘Two former CIA officers, Abigail Spanberger and Elissa Slotkin, won reelection on Tuesday night…

‘Spanberger, a Democrat, defeated her Republican challenger Yesli Vega with 51.9 percent of the vote in Virginia’s 7^th district, while Slotkin, also a Democrat, defeated Tom Barrett, a former army pilot, with 50.8 percent of the vote in Michigan’s 7^th district.’

The US’s wealth…and, indirectly, its status as well as the satisfaction of its people…comes from its Main Street economy, which was largely built by people who are now dead. But few of the candidates have had anything to do with real work or the real people who do it — past or present. One might now represent gay men. Another might be a stand-up for Asian-American cripples. One is in the pocket of the trial lawyers. Another was bought by the ‘defence’ industry. But where are the steelworkers? The longshoremen? The auto repairmen? The philosophers, bakers, and Thai masseuses? Where are the captains of industry…and the hewers of wood?

Nope. These candidates were almost all ‘government men’…and eager to make government even bigger. They don’t represent ‘The People’; neither those of the past nor of the present. They represent the people who rip ‘The People’ off. 

Regards,

Bill Bonner,
For The Daily Reckoning Australia

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