Jacque's Post Archives

January 8, 2025

(PLAYING GAMES AT THE END OF EACH ADMINISTRATION)

January 8, 2025

Hello everyone

(This is a brief look into the work of Lawrence McDonald’s text How to Listen When Markets Speak: Risk, Myths, and Investment Opportunities in a Radically Reshaped Economy. We learn what some of his research shows, and this piece here is via his blog, The Bear Traps Report.

Over the last 250 years or so, all American political parties have played “games” at the closing stage of each administration. Take 2000, for instance, when the incoming George W. Bush team discovered that every keyboard in the White House and other administrative officers was missing the “W” key.

The outgoing Clinton staff had removed all the “W” keys to annoy the new administration after an extremely contentious election.

The damage was no big deal – around $15,000.

The outgoing Biden administration will be no different. But their mischievous acts may be a little more unpalatable. Under the existing budget, Bien is opening the floodgates with spending.

Spending for 2025 is expected to exceed $2 Tr by the time Biden leaves DC on January 20^th. This is over 30% of the annual budget, and Trump will have to cut spending for the rest of the year to stay within the limits of the allocated budget. This could mean a notable slowdown in GDP growth in the first quarters of 2025.

The government’s fiscal year started on October 1^st, and Biden could be on course to spend almost $2TR by the end of December and a deficit that may exceed $800bl (+60%y/y).

So, when Trump steps in on January 20^th, he has three-quarters left of the government’s fiscal year; by then Biden has possibly spent more than 30% of the total allocated budget.

Lunatics – as Usual – on Capitol Hill

Congress, in its usual fashion, has failed to agree on the next budget, so the government is currently operating under a “continuing resolution” (CR). This continuing resolution means the government is allowed to spend the same amount of money they spent last year, which is $6.75TR. The government’s fiscal year started on October 1^st, and Biden is on a run rate to spend almost $2TR by the end of December and a deficit that may exceed $800bl (+60% y/y). So, when Trump comes in on January 20th, he has three quarters left of the government’s fiscal year, but by then, Biden has spent more than 30% of the total allocated budget. This forces Trump to cut spending right off the bat. We estimate spending could drop by $500bl quarter over quarter, or 25% from Q4 to Q1. This is an estimate, and the timing of spending can change. But the fact is that Biden is emptying the coffers before Trump gets in. Every week, more money and weapons are sent to Ukraine, more subsidies are given to semiconductor makers to build plants in the US, and more government employees are hired.

US Yields Surge While Others Languish

Since September, US Yields have surged over 20% on Biden’s sugar high, while Canadian and German yields are down since then, Chinese yields have collapsed, and UK yields are only modestly above the September level.

Government Job Growth Twice the Rate of the Private Sector

Private sector job growth has lagged government job growth significantly in the last year as the government keeps hiring people.

Why is this so Bad?

We believe that this spending deluge by Biden on his way out is partially to blame for the surge in bond yields in Q4. Some may say it’s because of Trump and his promised tax cuts, but the Republican House majority is so slim that it’s unclear how much of a fiscal stimulus Trump is actually able to get through Congress. Also, the incoming Senate majority leader Thune (R, SD) has said he will only get one bill through reconciliation in FY 2025 and another one in FY2026. His priority is on immigration and energy legislation, so a fiscal spending bill might not come until late 2025 or early 2026 if anything. But if yields are being pushed up by all this spending in Q4, then what will happen if spending falls back in early 2025? And what will happen to GDP growth? A $500bl drop in government spending from Q4 to Q1 is the equivalent of 1.7ppt of growth. So, if Q4 nominal growth comes in at 5.7% annualized, this could drop to 4% in Q1 if government spending slows down accordingly.

Treasury’s Reliance on Short-Term Debt Exploded in Recent Years

Election Rigging? We are witnessing a Covid era like spending in 2024 without a pandemic. The Treasury Department has come to rely on short-term bills to fund the government. But with $36Tr of debt, the Treasury has to issue bills almost every day to keep funding the government and to refund maturing debt.

Interest Payments on the Federal Debt Load

2026: $2.1T?
2025: $1.5T?
2024: $910B
2023: $658B
2022: $475B
2021: $352B
2020: $224B

*CBO data, Bloomberg. The average weighted coupon on the U.S. debt load is about 2.7% vs. over 4.5% for 10-year U.S. Treasuries. As bonds mature, they get refinanced at much higher yields.

$10Tr of Debt Refinancing Next Year

In 2024 Treasury faced around $10Tr of maturing debt. To refinance this debt, it issued a whopping $26Tr of bills and bonds. More than 84% of that paper was short-term bills with a maturity of 6 months or less. Treasury keeps re-issuing bills with a maturity of 4 to 8 weeks or 3,4 to 6 months, which are the most popular maturities in a continuing, ever-increasing roll down of the debt, day after day, month after month.

Apple Long-Term Bonds and Interest Rates

ALERT – By issuing nearly a colossal load of extremely short-term bills, Janet Yellen succeeded in suppressing bond volatility in an election year and, in our view, strategically placing that bond market volatility into 2025 after the election. You can “why” see above, she wanted LESS long-term paper in circulation markets in the election year. Now, in 2025 – this paper has to be rolled over and termed out into longer-dated bonds. The USA is behaving like a financially trapped emerging market country. Living on the “front end” of the yield curve is a VERY dangerous game. The Apple AAPL 2.55% bonds due 2060 are trading down at 57 cents on the dollar. If long-term bond yields go to 6%, take a guess where this bond will trade. Near 47 cents on the dollar? Now think of the trillions of USD loans issued in 2017-2021 on bank balance (commercial real estate, mortgages, corporate debt outstanding). Losses are in the trillions of dollars with higher incoming interest rates.

Interest Rates UP – Bond Prices DOWN

Never, ever forget that 6% today is equivalent to the destructive capacity of 10% twenty years ago. Interest rates up, mean bond prices down. A 1% move in interest rates higher today is an entirely different, far more lethal equation.

Incoming Stress Points

In 2025 the U.S. Treasury faces $9.6Tr of maturities in their so-called publicly held debt. In Q1 alone — the government faces $5.58Tr of maturities (bonds coming due, redemption), but 86% of those are short-term bills that the Treasury department rolls over into new 4-week, 8-week, 3,4, or 6-month bills, among others. As a result, almost daily bill auctions are coming to a theater near you, as the Treasury Department mindlessly keeps pushing new paper into the market to pay back the colossal amount of maturing debt.

Is There Any Reason to Buy Treasuries?

The new Treasury department under Scott Bessent may reduce bill issuance a bit and increase coupon paying issuance, just to alleviate some of the pressure on the bills market and extend the duration of outstanding US debt. Now that the big slush fund that bought all these bills, the so-called Reverse Repo Facility (RRP), is close to being depleted, it will be harder to sell all that short-term paper. In addition, Goldman Sachs expects that the Federal Reserve will stop the run-off of treasuries from its balance sheet by the end of January and begin buying treasuries again with the proceeds of the maturing MBS on its balance sheet. As such, the Fed becomes a modest buyer of treasuries next year, which allows the Treasury to increase coupon issuance without disrupting the long end.

One big bullish catalyst for treasuries would be a regulatory change to exempt treasuries from the Supplemental Leverage Ratio (SLR). It is unclear if and when this would be implemented, although Bessent was hinting at regulatory relief for banks to boost banks’ treasury holdings. Exempting treasuries allows banks to hold more Treasuries on their balance sheets without needing to hold additional capital against them, freeing up the capacity for banks to participate more actively in the Treasury market. It’s unclear how much treasury demand that would create, but in 2021 when the temporary SLR exemption was reinstated after COVID, prime dealers reduced their Treasury holdings from $250bl to $125bl in 2 months. A change in the SLR ratio may come but is going to take months before the rules are changed. A phase-out of QT for treasuries would be a more immediate, albeit more modest, relief for the bond market. According to this timeline, the Fed will end up buying $100bl of treasuries in 2025, a big change from the $500bl of treasury sales in 2024.

¹https://www.latimes.com/archives/la-xpm-2002-jun-12-na-clinton12-story.html

The Fed has been Politicized.

We have been very critical of Yellen’s term at the Treasury, but upon some further reflection, we think it’s really the case that Yellen’s only real issue was acting in the short-term interests of her boss and her party as opposed to thinking longer-term about how the government finances itself on a sustainable basis.

Her decision to fund the government with T-bills over duration securities and violate long-standing Treasury Department “norms” was incredibly short-sighted, but as someone who works for the President, ORDERS to follow.

Many have been super critical of her for these decisions because she should know what they would lead to and how really what she (and Powell together) has done is favor asset owners and the wealthy over everyone else in America, exacerbating wealth inequality to precarious levels in this country while still not bringing inflation back down to target. So ultimately, her decisions got her team knocked out of office anyway.

Looking forward, though, the issue is that there is no one in the government who is really thinking about and acting on behalf of the longer-term interests of the country when it comes to how much debt we are raising and how we are financing the government. The myopia about these decisions to get the existing political party in control through the next election is incredibly concerning.

The Fed has said this is not their lane; however, they are elected to 14-year terms and are supposed to be above politics. There are things they could have done to offset the politicization of the Treasury. They chose not to, they continue to protect asset holders and the Treasury market, decisions that really just make them become political as well. They could have better neutralized Treasury’s political decisions through more active QT, actually selling securities instead of just rolling them off, not adding to their duration holdings such that the weighted average maturity (WAM) of their positions is longer than Treasury’s own WAM. Powell’s Fed needs to be getting way more criticism than they are currently about these decisions which have made it harder to bring inflation down for the average American.

So, if the Treasury is not going to think long-term and the Fed is not going to either (the Fed actually is complicit because they don’t allow any real treasury market dysfunction to exist, which would be the way to deal with these long-term issues by having the market/bond vigilantes do their thing), then who will? This is a problem, the bond market is starting to figure it out, term premiums are starting to normalize, and the new administration will have to make some big decisions early on in their term.

Maybe @elonmusk and @DOGE can look into this as well. Someone has to!

QI CORNER

NVIDIA just dropped Project DIGITS, a $3,000 personal AI supercomputer that looks like a Mac Mini but packs 1,000x the power of your average laptop

Powered by the Nvidia GB10 Superchip and based on the NVIDIA Grace Blackwell architecture, this supercomputer can run AI models with up to 200 billion parameters.

The crazy part? You can link two units to handle 405B parameter models.

From this perspective, OpenAI's GPT-4o is around 200B parameters while Grok-1 by xAI has 314B parameters.

Jensen Huang is single-handedly bringing data center-class AI computing to individual users.

Reported by Linas Beliunas

Cheers

Jacquie

January 6, 2025

Jacque's Post

(IN 2024, THE TRADITIONAL SANTA RALLY DIDN’T APPEAR, SO WHAT DOES 2025 AND BEYOND LOOK LIKE?)

January 6, 2025

Hello everyone

Happy New Year! Wishing you all good things for 2025.

I’m back on deck for a new year. I hope you are all well-rested and ready for another year navigating the markets.

So, what can we expect for 2025?

In Australia, economists indicate that 2025 offers no solutions to the economic problems of the past year. However, we can expect an easing of interest rates and inflation.

China’s sluggish economy has the potential to weigh down Australia.

US President-elect Donald Trump will be inaugurated for a second term later in January, with the full extent of his promised tariffs a key factor for the economic outlook.

He’s pledged the mass deportations of migrant workers and a huge reduction in government regulation of different industries.

For the economy, the biggest impact will likely be from tariffs imposed on goods from foreign countries, including steep taxes on Mexico, Canada, and China.

It is yet unknown whether Trump will follow through on the announced rate of tariffs on these countries.

(DOGE) leader Elon Musk could trim the fat in government departments, making the system work more efficiently.

Unemployment begins to rise in 2025.

Interest rates are finally cut in Australia in the first half of the year.

In the last two decades, in Australia, migration increased to about 60 percent of growth in an average year and natural increases were the other proportion – about 40 percent.

Migration is now up to 83 percent of our growth … so, record population increases in Australia.

Demographer, Mark McCrindle, believes Australia’s population could reach 50 million by the 2050’s.

He also points out, that Australia is not keeping up with a heightened population demand on critical infrastructure such as housing.

McCrindle argues that the “population growth is greater than the built environment growth and that’s really what’s driving the housing affordability challenges, that demand is exceeding supply.”

So, as you can imagine, no relief yet on Australia’s housing crisis. (It is a similar story in the U.S.)

People will continue to move to regional areas away from the big cities – Sydney & Melbourne – to look for affordable living options with flexible working conditions.

Globally, McCrindle predicts the population will grow as high as 10 billion by the 2080’s, before stabilizing. He said the world was already experiencing increased rates of population contraction – meaning fewer people are being born annually – and this trend was likely to continue.

We will continue to see technological innovations. AI technology is on our doorstep, but Australians appear to be slow to take up new technologies. An attitude of distrust seems to be an issue. The AI “big brother” lens is not palatable for everyone. Nevertheless, AI will no doubt increase efficiency and cut costs in many sectors & industries, which will likely be passed on to the consumer. The chip industry and the main heavyweights will continue to do well as demand will not go away. Quantum computing is not far away.

Geopolitical conflicts have been increasing in intensity in the last few years. Strategic Analysis Australia founder, Michael Shoebridge, argues there is a credible scenario “There could be a global war this decade and that can be because of the rise of nationalism we’re seeing, particularly in places like Russia and China.”

Shoebridge comments that just like before World War I, the world in 2025 is witnessing a “revolution in warfare” with newly innovated weaponry, and leaders like Russian President Vladimir Putin, Chinese President Xi Jinping, and the United States president-elect Donald Trump blindly moving closer to a full-scale war.

S&P500

2024 was a stellar year for stocks, but in 2025 Equities may pause for a period this year before another major rally takes place.

Over a period of 6-9 months, the S&P500 could possibly fall towards $4,800, or even lower, but will then rally in the final part of the year. 2026 and 2027 could be good years for the market.

If the markets do take the bear path, FANG stocks could fall 20% or more.

Of course, these predictions depend, somewhat, on what Donald Trump actually does when he enters the White House. If nothing changes, then a rally could well take place, and stocks could rise into nosebleed territory. Time will tell.

PRECIOUS METALS

Gold and silver will remain financial safe havens. As confidence in fiat currencies erodes amidst economic instability, gold, silver, and cryptocurrencies are emerging as pillars of financial security. With geopolitical tensions rising, central banks hoarding reserves, and inflation fears mounting, many analysts project gold could rally toward $3,500 per ounce – and possibly higher. Unlike fiat money, gold isn’t tied to the whims of governments or central banks, making it a trusted store of value during crises.

I see gold and silver continuing to range in the first instance this year and then, possibly, gradually moving lower towards $2,400 and even $2,200 is possible. In the second half of the year, we could see a rally towards $3,000. Late last year I suggested selling calls on gold and silver stocks. At the moment this is still a good play.

THE CRYPTO REVOLUTION

Crypto should shine this year. The election of Donald Trump has shaken up the markets, particularly in the cryptocurrency space. His administration has swiftly installed crypto-friendly leaders in key positions, including Vice President JD Vance, National Security Advisor Michael Waltz, Commerce Secretary Howard Lutnick, Treasury Secretary Scott Bessent, SEC Chairman Paul Atkins, FDIC Chair Jelena McWilliams, Dept of Govt Efficiency (DOGE) leader Elon Mush, and HHS Secretary RFK Jr., who has become the face of the MAHA (Make America Healthy Again) movement. These appointments signal the end of anti-crypto policies while positioning Bitcoin and other digital assets as strategic components of the U.S. economy.

Bitcoin is expected to rally well this year. With increasing institutional adoption, corporate treasuries diversifying into Bitcoin, and even nation-states taking on board the idea, Bitcoin could easily reach $150,000 and beyond this year. Some are even predicting $250,000 by December.

Why is this happening now?

Many factors:

Greater regulatory clarity, the launch of Bitcoin exchange-traded products (ETPs), and institutional players continuing to pour large amounts of capital into Bitcoin. These developments not only seem to set Bitcoin’s position as a store of value but signal that it’s well on its way to becoming a dominant force in the global economy.

Bitcoin isn’t the only crypto that will rally this year. Investors and/or traders should also be looking at Ethereum. This coin has a valuable ecosystem of decentralized applications (d’Apps) and smart contracts. The introduction of Ethereum 2.0, which promises faster transactions and a more energy-efficient proof-of-stake mechanism, combined with Ethereum’s role at the heart of decentralized finance (DeFi), may well incentivise mass adoption. With more institutions and businesses adopting Ethereum-based platforms, the token could rally strongly, riding the wave of growing trust in blockchain technology. There is potential for Ethereum to rally towards $8000.

Another coin that could have a bright future is Ripple. Some experts are predicting that XRP could hit $10 in 2025. Faster, cheaper transactions offer banks and corporations a more efficient way to process payments across borders, making it a preferred choice for many in the financial world. Further igniting its popularity is the endorsement by high-profile figures like Elon Musk, who recently mentioned XRP in the context of his support for decentralized technologies. Musk’s influence could boost XRP’s visibility and attract new investors and institutional partners. As blockchain technology continues to reshape the global financial landscape, Ripple’s XRP could become the backbone of cross-border payments, setting its place as a key player in the future of global finance.

Utility coins, too, are gaining acceptance and popularity. These coins go beyond mere speculations, offering real-world value by supporting initiatives and candidates committed to preserving liberty and individual rights. For example, USA Unity Coin (UUC) empowers Americans to back pro-freedom political leaders while participating in a decentralized financial ecosystem. Coins like UUC are providing a unique opportunity to drive change. UUC, in particular, is on a mission to safeguard the principles of freedom in the digital age.

ENERGY

Energy was one of the worst-performing sectors last year. Will it be the same this year? Much depends on supply and demand, and the ongoing conflicts around the world.

Geopolitical risks threaten investment, environmental regulations, and infrastructure.

In 2025 oil prices could keep ranging for a period before the market finds a low and a bullish move begins.

Hold on to traditional energy stocks like (XOM)Exon Mobil, (CVX) Chevron, and (OXY)Occidental Petroleum. They should do well in the future.

By 2030, the use of renewables will probably increase by over 430%. Nuclear energy and hydroelectricity will expand by 54.5% and 48.5% respectively.

So, nuclear energy stocks should definitely be on your list. Look at (CCJ) Cameco Corp. (VST) Vistra Energy (a good buy now- scale in), (CEG) Constellation Energy, (SMR) Nu-Scale Power Corporation (A good buy now –scale in)

Santa didn’t deliver at the close of 2024

In contrast to what had been a very strong 2024 performance, the year ended without any fanfare at all. The S&P500 rose more than 23% last year but ran out of puff at year's end. Does the absence of a Santa rally mean a lacklustre market or a period of underperformance lies ahead for stocks? Some analysts believe the returns may not be as robust as in years when we did enjoy a Santa rally. On average then, we can expect around a 6.5% return. At any rate, January usually sets the tone for the rest of the year, so we need to take note and see what markets are telling us. History reminds us that when January is positive, the S&P500 averages a 6.9% gain on a six-month forward basis. When it’s negative, the index falls 0.6%.

The December jobs report is released this Friday. And with inflation data released later this month, we could get a much clearer picture of the path of interest rates going forward. A slowdown in job growth is expected. This week will be a good test for the dollar, with employment statistics and Fed speeches.

WEEK AHEAD CALENDAR

Monday Jan. 6

9:45 a.m. PMI Composite final (December)

9:45 a.m. S&P PMI Services final (December)

10:00 a.m. Durable Orders final (November)

10:00 a.m. Factory Orders (November)

Tuesday Jan.7

8:30 a.m. Trade Balance (November)

10:00 a.m. ISM Services PMI (December)

10:00 a.m. JOLTS Job Openings (November)

9:00 a.m. Euro Area Inflation Rate

Previous: 2.2%

Forecast: 2.4%

Wednesday Jan. 8

8:15 a.m. ADP Employment Survey (December)

8:30 a.m. Jobless Claims (week ending 12/28)

2:00 p.m. FOMC Minutes

3:00 p.m. Consumer Credit (November)

Thursday Jan 9

10:00 a.m. Wholesale Inventories final (November)

NYSE is closed to mourn the death of President Jimmy Carter.

Earnings: Constellation Brands

Friday Jan10

8:30 a.m. December payrolls

10:00 a.m. Michigan Sentiment preliminary (January)

Earnings: Walgreens Boots Alliance, Delta Air Lines

QI CORNER

HISTORY CORNER

On January 3^rd

Cheers

Jacquie

January 3, 2025

Jacque's Post

(THE GLOBAL FINANCIAL SYSTEM COULD BE REVOLUTIONIZED WITHIN THE NEXT DECADE)

January 3, 2025

Hello everyone,

In the NYSE, investors make upwards of 1 billion trades per day. Many of those trades appear to happen in milliseconds, except when you investigate further, that’s not the reality.

Trades on Wall Street take days to settle, and lots of people to make them happen. Take market makers, for example. They are the middlemen handling all those trades on Wall Street, and the top 5% of market makers handle nearly 30% of all trades. The fact is these intermediaries help with volatility, but they create a gap between buyers and sellers in the markets, and there are a lot of gaps in the financial system (which are beyond our control.)

Have you ever noticed how long some bank transfers take?

Some of the big banks think they may have a solution. JP Morgan, Citibank, and Goldman Sachs want to push the financial system into the next generation and to do that, they need to borrow a tool from crypto – blockchain. Presently all large-scale global financial infrastructure is highly warehoused or functions through different silos. In other words, money moves on one set of rails, assets move on a different set of rails. They operate independently, and information cannot be shared because of system limitations.

But being able to move money 24/7 365 is what we are moving towards.

These banks believe it could become a 5 trillion-dollar industry. In other words, we could see 5 trillion in combined tokenized asset-trading volume by 2030.

Why do these big banks think blockchain can turbo-charge the financial system?

Wall Street still operates in T+2. Trade + two days. That’s how long it takes for the standard securities settlement – for cash and assets to change hands. So, for instance, if you sell some stock on Tuesday, the cash won’t hit your bank until Friday.

Electronic trading and modern payment processing have accelerated the global financial system to move assets much faster. You don’t have to be an investment banker to feel the lag in the financial system. ACH transfers, credit card refunds, and all kinds of money that move in our economy take time to go from one person to another. Part of the slowness is how many steps and people are involved. On Wall Street, for example, brokers help set up a transaction, and they can charge a commission. Then market makers connect brokers to the assets they are trying to buy or sell. They charge a fee, too, on the difference or spread of the asking price of an asset and what someone is willing to pay. Very large transactions will need to go through even more steps for security and fraud prevention.

Some big banks are hoping that tokenization on blockchains can streamline the process of trading assets and maybe make it cheaper. It would revolutionize and rewrite financial market infrastructure.

To understand how tokenization works, we need to talk about ownership in the digital era. Right now, it’s hard to transfer ownership of real-world items over the web.

We all know that you can buy a car through an online marketplace, but the title that proves your ownership of this car only arrives in the mail a few weeks later. Inefficient in the modern world, wouldn’t you say? In the hope of bringing ownership online, developers are creating tokens that represent real-world items. You can do this with any kind of asset: stocks, bonds, or a token that could represent ownership of a building or a car. Banks backing this believe that it may create new investments altogether, and that’s why they are putting their money behind it. For example, JPMorgan has Onyx, a blockchain platform they launched in 2020. In the short time since then, it’s handled 700 billion in short-term loans through its private blockchain. JPMorgan describes it as a “killer app” for the future of finance. Larry Fink, the CEO of BlackRock, called digital asset innovation and tokenization the next generation for markets.

A blockchain is basically a database of all the transactions. There are many copies of the database, which helps to keep it secure. Each block is cryptographically signed so that any tampering is immediately evident. Additionally, you have a consensus mechanism to control how you update that database.

If technology provides you with the capability to use one rail line to transfer value, assets, and information, a lot of the inefficiencies and friction that exist in the regular financial infrastructure start to disappear.

Blockchains are meant to be transparent, cutting down the need for intermediaries that could charge fees or the need for extra due diligence. Proponents say it could enable P2P transactions across many parts of the economy.

In addition, this technology would allow for brand new forms of ownership, like splitting, fractionalizing ownership of property through real estate tokens, or tokenized deposits in bank accounts to allow for quick transfer of money between people using P2P transactions.

The IMF said in February that tokenising stocks and bonds could cut trading costs but requires the money paying for those assets to be tokenised as well, which would lead banks to make tokenised cheque accounts for faster payments.

The global financial system is one of the most regulated systems in the world and making any changes will be slow going. There will be a gradual movement forward in small steps.

Citibank has recently introduced Citi Token Services, which is a new blockchain-based service that will transform how institutional clients deposit and trade assets. In the evolving world of blockchains and smart contracts, Citibank has enhanced its products and services, including digital money, trade, securities, custody, asset servicing, and collateral mobility.

Cheers

Jacquie

December 30, 2024

Jacque's Post

(THE HOUSING CRISIS IN YOUR FUTURE IS BROUGHT TO YOU BY CLIMATE CHANGE)

December 30, 2024

Hello everyone,

Most of us know about the changing climate. But few of us realize the implications of these changes on housing over the next 30 years and beyond.

We know about interest rates and the cost of housing, but what about the relationship between climate and the cost of housing?

It’s another crisis which is going to spread its tentacles worldwide. No country will escape.

Dave Burt, CEO of investment research firm DeltaTerra Capital, believes an overlooked and unpriced climate risk could see a repeat of a financial crisis in housing, albeit on a smaller scale in relation to the 2008 crisis. But still, it’s a damaging real threat to exposed communities.

Dave Burt was among the few skeptics who recognized the housing market was on the brink of collapse in 2007. He helped two of the protagonists of Michael Lewis’ bestselling book “The Big Short” bet against the mortgage market in the lead-up to the 2008 global financial crisis. As it turned out, they were right and were estimated to have made millions.

Now, Burt believes an overlooked climate risk could see history repeating itself.
Burt argues that DeltaTerra Capital’s research suggests that 20% of U.S. homes have “meaningful exposure” to a mispricing issue because of flood risk. If realized, he warned the fallout could resemble the extraordinary correction seen during the global financial crisis.

Even though he says that it could be a quarter the size and magnitude of the GFC, it still would be very damaging to exposed communities. Burt argues that there are cracks starting to appear in terms of the cost of insurance. Think about Hurricane Ian in Florida, for instance. The recovery here was an issue, particularly because this storm surge exposed a flood insurance nightmare for homeowners. We can also think about the people in Lismore, Australia, where the residents have endured about three major floods in 18 months. Some residents have left, never to return. Others have offered their house to the market for around 200k. The only way people will be able to live in these areas again is if the houses are built on stilts, if the community is relocated, or if major feats of engineering are undertaken to protect the town.

I would argue that most people do not lose a lot of sleep over the climate crisis in relation to their portfolio. But, a recent study has warned the U.S. housing market could be overvalued by around $200 billion due to unpriced flood risks.

This analysis was published in mid-February in the journal Nature Climate Change. Authored by researchers from the Environmental Defence Fund, the First Street Foundation, and the U.S. Federal Reserve, among others, the study modeled property-level changes in flood risk across the U.S. over the next three decades and warned that low-income households were particularly vulnerable to home value devaluation.

Jeremy Porter, head of climate implications at the First Street Foundation, said it is a huge concern because climate risk is not being priced into the housing market. He goes on to say that the costs now or the valuation of homes don’t consider the realization of that actual flood risk, and that’s not taking into account that there seems to be a huge amount of overvaluation attached to properties across the country.

Insufficient climate risk information when purchasing a home poses a significant financial hazard, as households could lose a large proportion of their property value overnight.
Eventually, Burt argues, there is going to be some sort of national tipping point where there is some type of bubble that bursts.

Presently, the study said that nearly 15 million U.S. properties face a 1% annual likelihood of flooding, with expected annual damages to residential properties forecast to exceed $32 billion.
In addition, the research also warned the increasing frequency and severity of flooding amid the deepening climate emergency could see the number of U.S. properties exposed to flooding increase by 11% and average annual losses jump by at least 26% by 2050.

The vacuum in climate-related information when purchasing property needs to be addressed. People need to understand what the climate-related costs are going to look like and rethink their property location if they cannot meet those costs.

Lower-income property owners are most at risk, and this, in turn, has the potential to widen the wealth gap in the U.S. and exacerbate inequality.

How will local government tax revenues be affected?

They could be hit quite badly, as the total for municipalities typically relies heavily on property taxes. Having that tied to a physical asset that is exposed to climate change introduces a lot of risk to the stability of that revenue stream, according to DeltaTerra Capital research.

This is not just a domestic issue. It is a problem for countries worldwide. And it morphs into a humanitarian crisis when you start looking at the issue through a global lens.

Munich Re, the world’s largest reinsurance company, observed steep economic losses in 2022 as the climate crisis drove more extreme weather events, such as Hurricane Ian in the U.S. and apocalyptic flooding in Pakistan. Reinsurance refers to insurance for insurance companies.

It estimated that these losses amounted to $270 billion last year, of which around $120 billion was covered by insurance. The insured loss total continues a trend of high losses in recent years.
Someone must pay in the end. Whether insured or uninsured, it becomes an increasing economic burden.

So, before you purchase your next property, consider the climate cost also.

Be safe and enjoy time with family and/or friends.

Cheers,

Jacque

“The world is reaching the tipping point beyond which climate change may become irreversible. If this happens, we risk denying present and future generations the right to a healthy and sustainable planet – the whole of humanity stands to lose.” - Kofi Annan, Former Secretary-General of the UN.

December 27, 2024

Jacque's Post

(THE LONG-TERM INFLATION TARGET MAY BE 2%, BUT THE REALITY WILL LIKELY BE QUITE DIFFERENT)

December 27, 2024

Hello everyone

The era of stable inflation is over.

Yes, the Fed might get inflation down to close to 2%, but I believe they will struggle to keep it there.

Let’s check out the reasons why here.

First, demographics.

The U.S. and other Western industrial countries – even China – are facing declining populations that will result in a persistent shortage of labour. Tight labour markets in turn will keep upward pressure on wages as businesses compete for workers.

AND THESE ARE THE TOP 50 COUNTRIES WITH THE LARGEST POPULATION IN 2050.

And then there is the era of global free trade, which is taking a backseat to security concerns in the wake of the Russian war on Ukraine and Western tensions with China after the pandemic. Any tensions between the U.S. and China tend to be costly.

The growing government deficit – does anyone really think about this and its consequences? – is also fuel for inflation. The U.S. has been running trillion-dollar deficits since the pandemic and the national debt is expected to continue to grow by leaps and bounds.

The importance of greening the economy is a concept we all appear to accept. But this is another potential inflation accelerator. And what about the implications here? The U.S. would need to spend trillions of dollars to modernize its electric grid and feed the insatiable appetite of emerging technologies such as artificial intelligence. Lots of older, valuable assets such as coal-or gas-fired could also get stranded.

2% inflation has gone by the wayside for the long term? We’re probably looking at a 3% inflation world.

The only way to get to 2% long term would be to drive up unemployment and collapse the economy. Hands up who thinks the Fed is going to do that?

Cheers

Jacquie

December 23, 2024

Jacque's Post

(SENSIBLE INVESTING TIPS BY BUFFETT TO START THE NEW YEAR)

December 23, 2024

Hello everyone,

While I am taking a break, you will receive past Posts, which you may or may not have read.

Enjoy the festive season.

*************************************************************************************

I want to sink into your psyche today some investing advice by Buffett. You would do well to write these on a piece of paper and stick that on the wall above your computer or your desk and read it every day.

We might know the hard and fast rules of investing, but life has a habit of tipping the scales sometimes, where we temporarily lose our balance and are not thinking clearly, and these are the times we sometimes slip up in our ability to stick to the plan and the rules.

So, let’s jump into those tips.

1. Design a broad portfolio. The goal of the non-professional investor is not to pick winners – but rather own a cross-section of businesses that, in the aggregate, are bound to do well. This is why Buffett always advises investors to invest in a low-cost S&P 500 index fund, which will achieve this goal. He suggests checking out Vanguard. Interestingly, Buffett revealed 10 years ago that he would direct 10% of the cash to go into short-term government bonds and 90% to a low-cost S&P500 index fund.

2. Steer clear of the financial salesperson. Professional money managers and advisors (on Wall Street or indeed anywhere) are incentivized to recommend various securities. The fact is that they rarely beat the market. Buffett’s words here: “You just have to recognize you’re dealing with an industry where it pays to be a great salesperson…There’s a lot more money in selling than in managing…if you look to the essence of investment management.” (I learned this lesson the hard way and am now very wary). And please note that more than 95% of financial newsletters are rubbish, written by people with no investing experience.

3. You don’t need to be a Math genius. Buffett says you don’t need to excel at technical analysis or mathematical calculations to find great stocks. Buffett comments that “if you need to use a computer or a calculator to make the calculation, you shouldn’t buy it” (the stock).

4. When you buy a stock, you own part of the business. Buffett only buys something when he grasps the intrinsic value of an asset or the discounted value today of the cash that a business generates in the future.

5. Market action is largely driven by emotions. Fear and greed should guide investors on when to buy and sell. Buy when there is fear and sell when there is greed. Simple as that. (For long-term investors, just average in and stick the investment in the bottom compartment of your cupboard). Buffett reminds us of the fact that math and a high IQ don’t necessarily help. So, leave the ego boxed up if you topped your class in Math – it may get in the way here... Buffett’s words: “Higher mathematics may be dangerous, and it will lead you down pathways that are better left untrod.” He goes on to remind us that “we do not sit with spreadsheets…we just see something that obviously is better than anything else around, that we understand. And then we act.”

6. After a loss, move on. Look forward. No extra detail is needed here.

7. Steer clear of declining businesses. When Buffett started on his investing journey, he used to buy cheap, failing businesses that he called “cigar butts.” But that strategy is not beneficial in the long run. Real money is going to be made by being in growing businesses, and that’s where the focus should be. Buffett is now known for seeking out wonderful businesses that he could buy at fair prices. He transformed Berkshire Hathaway from a small, failing textile mill into a near-$800 billion multifaceted juggernaut.

Cheers,

Jacquie

December 20, 2024

Jacque's Post

(WHAT’S THE MARKET’S NEXT MOVE?)

December 20, 2024

Hello everyone

This will be my final Post for the year. I am taking a well-deserved break and will return in around mid-January. I will keep one eye on the markets, and if I see anything that is worth acting on, I will send out an email. But, for the most part, I will be taking a break from screens and market research.

I want to wish you all a very happy festive season and all the good things for 2025.

The Fed meeting certainly has set the mood for the markets. Investors were disappointed with what Powell said about rate cuts in 2025, that there would probably be fewer than first thought. The markets turned up their nose and smacked every sector – basically throwing a hissy fit because they didn’t get what they wanted. But really, this was a good washout – what you would call a very healthy correction. It had been building for a while. I pointed out in Monday’s Post that the technicals were very bearish, and risk was rising.

So now what?

We can now argue that further downside is possible. You should not be trying to catch a falling knife at this stage. We could see another few weeks of consolidation, sort of like a topping action. Nearby resistance is seen at 5935/45 and 5980/90 (both a 50% retracement from the Dec 6^th high at 6100 and the broken bull t-line from August.)

So, what’s possible: eventual downside to that bull t-line from October 2023 (5595/20) but some scope for a few weeks of consolidating as year-end approaches first.

Strategy: too late to sell now. Instead, sell on a close below 5845 (just below support). Stop should be above 5885.

Long-term outlook: further downside is probable to the base of the rising wedge (5595 or so). Rising wedges are viewed as reversal patterns, with a break/close below the base arguing a downside resolution and more major top (for at least a year). We have had an extremely overbought market after the last few years of sharp gains. So, it is important to understand that the potential now for a downside move is increased.

And one more thing in relation to the overbought market. We could see a sub $5000 S&P500 in 2025. It is possible. I have been saying for quite a while now that we would get a correction in 2025. It just started earlier than I had anticipated.

Strategy/position: We could see one more rally to just above $6100. That is where you want to be selling calls on the SPY and/or buying the SDS. (Make sure you have stops in place.) Also, if you want to scale out of any stocks, that is the time you would do it. The market will rest for several months to a year but will come roaring back eventually.

I have already recommended that you sell calls on the precious metals sector. It is possible all sectors will follow the bearish path because the run-up has been so strong over the last couple of years.

After the 2025 year of strong correction, we are likely to begin another rally on to new highs.

Bottom Line: 2025 could be a volatile year.

Cheers

Jacquie

December 18, 2024

Jacque's Post

(PATIENCE IS UNDERRATED WHEN YOU BECOME AN INVESTOR)

December 18, 2024

Hello everyone

It’s the final week before Christmas. The market has been pausing before the Fed’s final meeting of 2024, which may be the catalyst for a year end rally. We will wait and see.

First, let’s look at the difference between patience and impatience. Warren Buffet reminds us that:

“The Stock market is a device for transferring money from the impatient to the patient.”

THIS IS WHAT IMPATIENCE LOOKS LIKE IN THE INVESTMENT WORLD

When I was reviewing the portfolio and wanted to slim it down earlier this year, I recommended to sell this stock as it was underperforming at the time. The lesson here -it is a mistake to interpret a period of underperformance as a reason to sell a stock. My patience hat must have been missing that day.

AND THIS IS WHAT PATIENCE LOOKS LIKE IN THE INVESTMENT WORLD

CrowdStrike (CRWD) suffered a severe crash in August due to a routine update to its cybersecurity software which had a malfunction. It sent around 8.5 million Windows-based computers crashing. The outage cost its largest customers around $5.8 billion. But (CRWD) has recovered.

And we see a similar recovery taking place in Snowflake, after its stock dropped from $240 down to $110 in 2024. In the spring of 2024, a string of data breaches linked to Snowflake sent a shudder through the cybersecurity community. The breach resulted in the theft of a significant volume of sensitive data from various high-profile companies. Analysts have also argued that (SNOW) lags rivals in developing AI related products. Add to this, a new CEO stepped into the company earlier this year. The stock has jumped since November when investors were surprised by the financial results it reported for its fiscal third quarter of 2025. The company had some big customer wins during Q3, which was an encouraging sign. Its customers signed longer-term contracts, and this is something that will continue to provide strong financial results in coming years.

WHERE BITCOIN COULD BE HEADING NEXT

Targets are $109k, $115k, $124k, $127k, $129k right up to $153k

THE PRO-BITCOIN NARRATIVE

Trump’s election promise was to establish a BTC strategic reserve and end Operation Chokepoint 2.0. Gensler has been replaced at the SEC with a pro-crypto Chair, Other sovereign’s/nation states expected to follow suit.

The corporates have dived into Bitcoin. Larry Fink, CEO of BlackRock, who originally ignored Bitcoin, is now a convert and sees it as an asset class. His ETF (IBIT) was launched in January this year and had around $10 billion under management after just a few weeks. Many tech companies are now considering treasury investment, along with 88% of S&P500 companies.

We are seeing more institutional investment in Bitcoin, and this should continue in 2025. Pension funds, Asset Consultants, and Global Asset Managers are now allocating to BTC to diversity Alternatives Exposure – so we could see 3% AuM as an average.

Family Offices and Retail Investors will continue to grow their exposure to BTC, either directly or via ETFs as part of a balanced portfolio included in pensions and endowments.

Crypto and Digital Assets have been legitimized as an asset class and are on track to be included across all investor portfolios.

Consider this:

Corporate Treasuries: S&P500 – 5% allocation => $40,000 increase in Bitcoin price

Institutions: Pensions & Insurance Co’s – 2.5% allocation = > $200,000 increase in BTC.

Sovereign Wealth Funds: 3% allocation => $500,000 + increase in BTC price.

AND WHAT ABOUT GOLD

While Bitcoin is rallying, gold is retracing. As bond yields move up, we tend to see a retracement in gold prices, so, in general, they historically have an inverse relationship.

Inside Edge Capital chart

As I have been saying gold has entered a correction and this could continue for some time. We could easily see the metal drop below $2600 and move toward $2400 area and below. I have suggested selling calls on precious metals’ stocks. Another way to play the bearish move is to buy the DB Gold Short ETF (DGZ).

QI CORNER

MARY ANN BARTELS BELIEVES WE ARE IN “THE GOLDEN AGE OF INVESTING”.

Sanctuary Wealth’s chief investment strategist thinks the market could grow by 20% next year and the S&P500 could be at around 13,000 by the end of the decade. Below I share parts of an interview she gave at the Barron’s Women’s Advisor Summit in December at The Breakers in Palm Beach.

Why stocks can gain 20% next year. “What I’ve studied in my 40 years is that markets don’t make a major peak until all investors are in and the market is levered. I find that through the New York Stock Exchange margin debt and we’re not even close. I believe between now and the end of the decade, we’re still in a secular bull market. My forecast for next year on the S&P 500 is pretty aggressive at 7,200 to 7,400. We can get 10% or 15% pullbacks.”

Super bullish through 2030. “I think the environment is still very bullish for the market to go up. I also introduced a target for the end of the decade for the S&P500 between 10,000 and 13,000. And that’s what I want clients and investors to focus on. I believe between today and the end of the decade, it will be one of the most profitable investment opportunities of our lifetime.”

Reasons for optimism. “At the end of the day, what drives stock prices is earnings, and earnings have been stronger than what most people have even anticipated. I think we’re still trying to figure out how AI is going to impact earnings. I think corporate profit margins will continue to grow. The other amazing thing and why I am so bullish on technology is return on equity. Warren Buffett always talks about return on equity, but Wall Street tends to talk more about P/E ratios. When we look at technology versus the S&P500, the broader index has an ROE of about 18% while tech and tech related stocks’ ROE is growing 30%.”

Favourite and least favourite sectors. “I’m very bullish on bans and capital markets. The Trump administration is expected to have more of a deregulated environment. M&A activity should pick up, particularly in the banks. I think banks will do well, but I’m more positive on capital markets. I’m negative on healthcare…Consumer staples look very weak. But cyclicals look good and that’s a sign that the economy’s going to grow in 2025.”

Expecting more gains for Bitcoin. “Longer term, if we create (government) reserves and make it a true form of a digital asset, it’s going significantly higher, even from where we are today…A hundred thousand dollars was where you kind of bob and weave. Now we’ve busted through that. So, the next target is $113,000 and the target above that is $150,000. Those are my near-term targets.”

Advice for individual investors. “For my entire career there’s always been some concern and what is perceived to be a reason not to invest in markets. And history has shown that staying out of markets is not what you want to do. If you want to grow your wealth, you have to stay invested…If you want to have retirement funds when you retire, you need to invest now and you need to stay invested. Dollar cost average over your lifetime.”

(It seems to me that Mary Ann and I have something in common in relation to our thoughts on the markets, on staying invested and dollar cost averaging).

SOMETHING TO THINK ABOUT

A HACKER’S ADVICE ON PROTECTING YOURSELF ONLINE

Keep all sensitive information (Passwords, seed phrases and so on) on paper and away from online 3^rd party digital storage. Don’t click on random links or download random files.

Cheers

Jacquie

December 16, 2024

Jacque's Post

(THIS WEEK THE FED WILL SET THE MOOD OF THE MARKETS AS WE SIGN OFF ON 2024)

December 16, 2024

Hello everyone

WEEK AHEAD CALENDAR

MONDAY DEC. 16

8:30 a.m. Empire State Index (December)

9:45 a.m. PMI Composite preliminary (December)

9:45 a.m. PMI Manufacturing preliminary (December)

9:45 a.m. PMI Services preliminary (December)

TUESDAY DEC. 17

8:30 a.m. Retail Sales (November)

8:30 a.m. Capacity Utilization (November)

8:30 a.m. Canada Inflation Rate

Previous: 2.0%

Forecast: 2.2%

9:15 a.m. Industrial Production (November)

9:15 a.m. Manufacturing Production (November)

10 a.m. Business Inventories (October)

10 a.m. NAHB Housing Market Index (December)

Earnings: Amentum Holdings

WEDNESDAY DEC. 18

8:30 a.m. Building Permits preliminary (November)

8:30 a.m. Current Account (Q3)

2:00 p.m. FOMC Meeting

Previous: 4.75%

Forecast: 4.50%

2:00 p.m. Fed Funds Target Upper Bound

Earnings: Micron Technology, Lennar, General Mills

THURSDAY DEC. 19

7:00 a.m. UK Rate Decision

Previous: 4.75%

Forecast: 4.75%

8:30 a.m. Continuing Jobless Claims

8:30 a.m. GDP Chain Price final (Q3)

8:30 a.m. GDP final (Q3)

8:30 a.m. Initial Claims (12/14)

8:30 a.m. Philadelphia Fed Index (December)

10:00 a.m. Existing Home Sales (November)

10:00 a.m. Leading Indicators (November)

11:00 a.m. Kansas City Fed Manufacturing Index (December)

Earnings: Nike, FedEx, Conagra Brands, Darden Restaurants, CarMax.

FRIDAY DEC. 20

8:30 a.m. Core PCE Deflator (November)

8:30 a.m. PCE Deflator (November)

8:30 a.m. Personal Consumption Expenditure (November)

8:30 a.m. Personal Income (November)

10:00 a.m. Michigan Sentiment final (December)

ON THE RADAR THIS WEEK

The Federal Reserve policy meeting will set the tone for the markets heading into year-end. It will also shed light on what investors can expect in 2025.

The odds are for a cut in interest rates this week.

But the Fed meeting will also highlight its projections going forward. Markets are pricing in further rate cuts, and if they do take place, we could eventually see the fed funds rate between 3.50% and 4.00%.

In addition to the FOMC, we get the PCE report on Friday. Some investors are concerned about sticky inflation and its effect on the markets, particularly with Trump’s policy promises that include mass deportations and big tariffs imposed on imported goods. We have to wait and see if that talk is real. Even if those policies are introduced, we still don’t know the extent they will be enforced or any detail about the numbers involved. As always, investors need a clear lens into government policies - the devil is in the details – before rational decisions can be made about investments.

THE MARKET PICTURE IN 2025

Strategists are anticipating that the strong rally we have enjoyed in 2024 can continue into early 2025. However, by around mid-year, volatility could return, and a bumpy ride may ensue. I am expecting a 10%-20/25% market correction sometime in 2025. Interestingly, no strategists are suggesting that the market will be lower at the end of 2025 than where it is now. So, that means hold tight and ride the waves.

MARKET UPDATE

S&P500

Uptrend continues. Even though we have plenty of risk hanging over the market, including bearish technical, the market can still trend higher. A short-term pullback would probably find support over the next few weeks as markets traditionally perform well towards year-end.

Resistance: $6090/$6120

Support: $6025/$5970

GOLD

Gold is choppy and is undergoing a correction. And this correction could take some time. As I said last week, we could see $2,400 and even $2,200 before a low is found. That being the case, you could look at selling calls on precious metals’ stocks. Barrick Gold (GOLD) is a suggestion here.

Resistance: $2720/$2730

Support: $2630/$2590

BITCOIN

As I write this, Bitcoin is sitting above $105k. Next stop is the $109k area. Last week, Bitcoin thrashed around the $100k mark. Some people believe this zone marks a top for Bitcoin, but I believe it is merely a pit stop on the way to higher targets.

Support: $94000/$94,500/$90,000/$90,750

QI CORNER

Solution: quit buying from these companies and support local businesses.

SOMETHING TO THINK ABOUT

Cheers

Jacquie

December 13, 2024

Jacque's Post

(SUMMARY OF JOHN’S DECEMBER 11, 2024, WEBINAR)

December 13, 2024

Hello everyone

TITLE “Hello Santa Claus”

PERFORMANCE

December +2.27%

Since inception +737.86%

Trailing One Year Return +77.04%

Average Annualised Return +53.87%

PORTFOLIO

Risk On

(JPM) 12/$210-$220 call spread

(NVDA) 12/$117-$120 call spread

(TSLA) 12/$230-$240 call spread

(TSLA) 12/$250-$260 call spread

(TSLA) 12/$270-$275 call spread

(MS) 12/$110-$115 call spread

(BAC) 12/$41-$44 call spread

(VST) 12/$115 - $120 call spread

(BLK) 12/$950-$960 call spread

No Risk Off

METHOD TO MY MADNESS

We are now flip flopping between policy uncertainty and earnings uncertainty.

Earnings will win out, up 10-15%.

All interest rate plays remain pariahs, including gold, silver, homebuilders, bonds, and REITS.

Deregulation and end of antitrust plays will continue to be bought, including banks, brokers, money managers, nuclear, and Tesla.

US dollar rockets at higher rates for longer.

Technology stocks fade on threats to international business and slowing growth rates.

Energy gets dumped on coming overproduction and oil glut.

Buy the election winners, sell the losers.

THE GLOBAL ECONOMY – PREPARING FOR THE WORST

Fed to lower interest rates by 25bps on December 17.

Nonfarm payroll reports beat slightly, up 227,000 versus an expected 224,000.

The headline unemployment rate edged higher to 4.2%, as expected.

Unemployment hits 6.8% in Canada, an eight-year high, opening the way for a 50-basis point interest rate cut.

US GDP stays at a moderate 2.8%, giving it the strongest economy in the industrialized world.

OECD warns of global growth hit from trade war.

Core PCE rises to 2.8%, with robust disposable income gains pointing to resilient spending.

STOCKS – CHASING THE WINNERS

Chasing winners and dumping losers will be the trading strategy for the rest of 2024.

Watch out for profit-taking in January that defers profits into 2025 and taxes into 2026.

Investment banks looking for M&A boom in 2025, driving by the end of antitrust. Investment banking income could leap to $316 billion globally next year, a jump of about 5.7% in 2024.

Money is pouring out of Asia as the certainty of a harsh trade war looms. Foreigners net withdrew $15.88 billion out of equity markets.

SEC Levies a record $8.2 billion in fines in 2024. The SEC filed 583 enforcement actions in the year that ended in September, down 26% from a year earlier.

Governor of Texas Orders State agencies to stop investing in China.

(If called away on one of your option positions, John suggests exercising your long to cover your short so you can get out of the position at max profit).

BONDS – TOP OF RANGE

Is this the top in Bond Yields and the bottom in prices?

December 18 25bps Fed cut is in the price.

A 4.50% yield could define the new trading range for ten-year US Treasury bond prices (TLT), especially with another 25bps cut in overnight rates by the Fed in three weeks.

Bond yield has rocketed 100 bps since September

National debt tops record $36 trillion.

Municipal Bonds are about to take a big hit if the Tump tax cuts get renewed. That lowers the after-tax value of tax dodges like Munis, which are exempt for local, state, and federal taxes.

FOREIGN CURRENCIES

Dollar hits two-year high on rising US interest rates. Ten-year US Treasuries have risen from 3.55% to 4.50%.

Higher for longer interest rates mean higher for longer US dollar.

Don’t sell the US dollar until the next recession is on the horizon.

Russian Ruble hits 100 to the dollar. It was 1:1 when John was in Moscow 40 years ago.

Avoid (FXA), (FXE), (FXB), (FXC), and (FXY).

ENERGY & COMMODITIES – NO FRIENDS

Stabilizing the Middle East and the end of the Syrian civil war is hugely negative for oil prices.

China ratchets up the Trade War, banning the export of crucial metals essential for all tech applications.

Oil fall on Israeli peace deal talks, taking crude down 2%.

Strategic Petroleum Reserve at multi-year lows, but Biden has stepped in as a buyer.

Blame a weak China, lost OPEC discipline, and overproduction by Iraq.

Avoid the worst-performing asset class in the market.

US Oil Production hits an all-time high.

Unlimited new drilling and opening of federal lands will crash oil prices.

PRECIOUS METALS – DEAD IN THE WATER

Interest rates higher for longer are keeping precious metals under pressure, with gold down 8.3% since November 5.

The opportunity cost of owning gold is about to rise sharply.

Gold is up 40% in a year, so it was ripe for profit taking.

$600 million in selling of gold ETF’s last week.

Gold has become the only way the average Chinese can save as they can no longer speculate in real estate or copper and don’t trust the Chinese Yuan, so there is support lower down.

Central banks in emerging market countries are continuing to buy gold, with 693 metric tonnes of buying, or $5.3 billion this year.

Avoid (GLD), (SLV), (AGQ), and (WPM).

REAL ESTATE – MIXED BAG

US home equity hits an all-time high, casting a spotlight on homeowners’ willingness to tap this wealth as expected rate cuts make equity utilization more affordable.

Americans with mortgages held $17.2 trillion in home equity at the end of Q3 2024, or $11.2 trillion of tappable equity – the amount homeowners can borrow against while maintaining a healthy 20%equity stake in their home.

Mortgage demand jumps by 6% as interest rates hit a one-month low.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.69% from 6.86%.

Pending home sales climbed 2% in October on a signed contract basis.

New Home Sales hit a two-year low, down 28% in October.

Existing Home Sales jump 3.4% in October.

TRADE SHEET

Stocks – buy the next big dip

Bonds – sell rallies

Commodities – stand aside

Currencies – stand aside

Precious metals – stand aside

Energy – buy nuclear dips

Volatility – sell over $30

Real estate – stand aside

NEXT STRATEGY WEBINAR

12:00 EST Wednesday, January 15, 2025.

Cheers

Jacquie