So…what’s next for the markets? Stocks, after more than a decade of massive outperformance (since 2010), look like they have begun a new cycle of underperformance in an inflationary environment. ValueTrend president Keith Richards answers everyday questions on what to do next.
Inflation will come down given the U.S. Federal Open Market Committee’s and Bank of Canada’s monetary tightening. But after that decline, the stage is set to settle for higher inflation than we’ve seen over the past two decades.
Bad for growth stocks. Good for commodities.
Question: What fights inflation? Answer: Hard assets! I’m bullish on hard assets for the coming years. This means materials, metals, including precious metals, energy, nitrates, softs, and more. See my long-term chart of the inflation/commodity cycle below.
Timing the move back to commodities: Assuming you follow my columns here and my blogs (www.valuetrend.ca) – and listened – since 2020 you were into hard assets at cheap prices, then profitably sold out at higher prices early this year. I’ve been suggesting readers remain on the sidelines regarding commodities for much of this year. Now, the argument towards buying back into materials and commodities is becoming stronger. But it’s all about timing that move back in.
Question: When is it time to move back in? Answer: Watch for copper to break out. Copper is a leading indicator. The technical consolidation and recent failed attempt to break out are intriguing. As such, at ValueTrend we took a small position in a metal producer recently. We want to add to that sector aggressively, as we did in 2020. However, we won’t be piling in until wee see a true breakout in copper, and the producers. That may happen very soon.
Also keep your eyes on crude oil. Yes, OPEC and Saudi Arabia recently agreed to open the taps. Or not…if oil gets too low, it’s likely that any OPEC agreement is off the table. They’ll shut down production to meet their price objectives –just as they always have.
According to RBC research, “We believe the group will likely opt for a deeper OPEC cut (between 500,000 barrels of oil a day and 1 million barrels daily) if Brent is poised to break through US$80 per barrel and all signs point to a de minimis Russian supply disruption in December. The producer group could indeed stick to the current production agreement if prices rebound and a serious sanctions-driven Russian outage appears in the immediate offing.”
My technical view: WTI crude has broken support. It’s broken that US$80 point Saudi is supposedly looking at. Meanwhile, Biden needs to restock the Strategic Petroleum Reserves he took down for political points pre-mid-terms. The coming weeks will be telling.
Keep your eyes on gold as well. We’ve got a position in the metal, and hung on when it briefly broke long-termed support, given our view on the USD. Our rules dictate that we need to sell upon a three-week string below US$1680 per-ounce support–so it was antsy as the price moved below, then up through, then below again. Yikes! Glad we held, having seen a rebound after a two-week move below support (whew!). It’s been rebounding with vigour. Just goes to show you why you need rules.
Upside for gold may approach the US$2000 per-ounce range if the momentum builds. A breakout through that level would be very bullish, but first thing’s first. It’s another way to watch for the hard asset trade I keep talking about.
Rising gold typically means falling USD, and entrenched inflation. Heads up!
Marty, whatever you do, don’t buy stocks (in 2022!): Investing is easier for individual investors, and most Investment Advisors, during bull markets. Like we’ve been in for over a decade. But…the future may not be what it used to be. I strongly believe that the coming decade will require an entirely different methodology than currently used by the average individual investor and advisor. Macro market positioning, active sector and global trading strategies, and commodity rotations will prevail.
If you feel your portfolio management strategy or your advisors’ strategy is not as prepared as you’d like, here are two pathways to change that reality:
-Contact ValueTrend. We’ll explain how we can manage your money as profitably, prudently, and conservatively as we do for ValueTrend clients in any market.
-Take my online course, which you can sign up for on the ValueTrend website. Participants tell me it’s the most valuable thing they have ever done towards maximizing their investment success.
This is an edited version of an article that was originally published for subscribers in the January 2, 2023, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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Investor's Digest of Canada •5/11/23 •