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American Exceptionalism Is Real

Summary:
Nearly 120 years ago, an American engineer named Willis Carrier invented the very first electrical air conditioner. The device was such a hit that he founded the Carrier Corporation in 1915 to meet demand, making it the world’s first HVAC (heating, ventilating and air conditioning) company. Fast forward to today, and Carrier Global, as it’s now called, is one of the largest HVAC manufacturers in the world. Last year it did some .6 billion in sales, close to half of it overseas. The Florida-based company employs approximately 53,000 people across six continents. The reason I bring up Carrier now—besides the fact that, this being July, most of you reading this likely have your air conditioners running full blast—is because the company was the best performing S&P 500 stock for the first

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Nearly 120 years ago, an American engineer named Willis Carrier invented the very first electrical air conditioner. The device was such a hit that he founded the Carrier Corporation in 1915 to meet demand, making it the world’s first HVAC (heating, ventilating and air conditioning) company.

Fast forward to today, and Carrier Global, as it’s now called, is one of the largest HVAC manufacturers in the world. Last year it did some $18.6 billion in sales, close to half of it overseas. The Florida-based company employs approximately 53,000 people across six continents.

The reason I bring up Carrier now—besides the fact that, this being July, most of you reading this likely have your air conditioners running full blast—is because the company was the best performing S&P 500 stock for the first six months of 2020, up 67.9 percent.

Carrier’s stellar price action should come as no surprise. With millions of people around the globe following stay-at-home orders, HVAC services have become a top priority. There are few things worse than being cooped up in a building with a busted air conditioner.

What’s more, the company offers a number of air filtration solutions for hospitals, malls and other indoor areas. Its OptiClean air scrubber features high-efficiency particulate air (HEPA) filters that pull the air in, remove contaminants and discharge the air back into the room cleaner than it was before.

“Coronavirus Stocks” Were Winners in H1 2020

The stay-at-home line of thinking doesn’t end at air conditioning, of course. In your head, list some other things you probably couldn’t have done without during lockdown.

Whatever product or service you name, there’s a fair chance that shares of the company or companies behind it also performed well in the first half of 2020. That includes disinfectant products (Clorox, up 45.3 percent in the six months ended June 30), home entertainment (Netflix and Activision Blizzard, up 42.1 percent and 29.7 percent), online retail (Amazon and eBay, up 49.4 percent and 47.7 percent) and—because restaurants were shut down—groceries (Kroger, up 17.7 percent).

These names are what some analysts have been referring to as “coronavirus stocks,” and they helped the market notch its best quarter in more than 20 years. The S&P 500 ended the June quarter up nearly 20 percent, the most since 1998.

American Exceptionalism Is Real

America Drives Global Innovation

There’s another reason why I opened with Carrier. Like many other essentials and creature comforts people all over the world enjoy on a regular basis, the air conditioner—named the 10th greatest engineering achievement of the 20th century by the National Academy of Sciences (NAS)—is an American invention.

American ingenuity is something to take pride in this weekend as we (safely) celebrate the Fourth of July.

Until recently, the U.S. held the largest number of international patents. China became the biggest source of applications in 2019 for the first time since the global system was set up more than 40 years ago. But as Bloomberg reported in 2018, most of the country’s patents are “worthless,” with many Chinese patents being discarded by their fifth year.

The U.S. is also the world’s leading country by far for receiving Nobel Prizes. As of last year, the U.S. held an astonishing 385 Nobels, or close to three times as many as the second-place country, the U.K. Or as the American Enterprise Institute’s Mark Perry observes, “American laureates have received more Nobel awards (385) than the 372 prizes awarded to laureates in the next five countries combined (U.K., Germany, France, Sweden and Japan).”

American Exceptionalism Is Real

Tesla Now the World’s Most Valuable Car Company

Among the biggest American innovation success stories of the past few years has been Tesla. Shares of the electric vehicle (EV) and battery manufacturer soared past $1,200 this week and are now up close to 190 percent so far this year, making CEO Elon Musk $25.8 billion richer.

Thanks to a much better-than-expected second quarter—Tesla reported more than 90,000 vehicles sold in the same three months that major Detroit auto manufacturers reported dramatic sales declines—the Palo Alto-based company is now the world’s most valuable carmaker. Tesla ended Wednesday with a market cap of $207.2 billion, pushing it ahead of the now-former leader, Toyota.

The move was also enough to beat Exxon Mobil’s $185 billion market cap. Exxon is the world’s second largest energy company after Saudi Aramco, so the achievement should be seen as nothing less than wildly significant. I agree with others who call this a “symbolic energy shift,” but beyond that, Tesla’s success represents just the latest chapter in the ever-growing book of American ingenuity.

American Exceptionalism Is Real

Tesla may very well join the S&P 500 sooner than expected, which would put the 49-year-old Musk on the younger end of S&P CEOs. In 2019, the median age was 58.

Gold Futures Above $1,800 an Ounce

Changing subjects a bit, gold futures rose above $1,800 an ounce on Tuesday for the first time since 2011. As impressively as the market performed in the first half of the year, gold performed better than 91 percent of stocks in the S&P 500.

The precious metal peaked at $1,807 on Wednesday before declining as U.S. payrolls in June beat expectations.

Even so, as I showed you last week, gold is currently trading higher at this time of year than it ever has, and there’s still incredible potential for it to head higher on not just seasonality demand but also unprecedented monetary and fiscal policy. Today, in fact, Bridgewater Associates’ Ray Dalio told Bloomberg that central bank balance sheets will “explode.” The Federal Reserve’s balance sheet now stands above $7 trillion.

To help businesses borrow in the time of COVID-19, the Fed has been buying corporate debt ETFs as well as individual corporate bonds. Through June 30, the Fed has spent an estimated $8.7 billion on such securities and, incredibly, is now one of the top holders of certain corporate debt ETFs.

For example, the Fed is the third-largest holder of the $55 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). As of June 30, its position was valued at $1.8 billion. The ETF itself invests in debt issued by companies ranging from Anheuser-Busch to CVS Health to Microsoft.

American Exceptionalism Is Real

This is a new level of money-printing we’ve never seen in the U.S. In Japan, yes, where the country’s central bank owns some 8 percent of Japan’s entire equity market, mostly through ETFs. But not in the U.S.

Could stocks and equity ETFs be next for Jerome Powell & Co.?

For more on the impact of Fed policy on gold, watch my interview with Kitco News’ David Lin by clicking here!

On behalf of everyone at U.S. Global Investors, I want to wish you a happy and safe Fourth of July!

 

Gold Market

This holiday shortened week spot gold closed at $1,775.38, up $4.08 per ounce, or 0.23 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 3.37 percent. The S&P/TSX Venture Index came in up 4.81 percent. The U.S. Trade-Weighted Dollar fell 0.22 percent.

Date Event Survey Actual Prior
Jun-29 Hong Kong Exports YoY -5.5% -7.4% -3.7%
Jun-29 Germany CPI YoY 0.6% 0.9% 0.6%
Jun-30 Eurozone Core CPI YoY 0.8% 0.8% 0.9%
Jun-30 Conf. Board Consumer Confidence 91.5 98.1 85.9
Jun-30 Caixin China PMI Mfg 50.5 51.2 50.7
Jul-1 ADP Employment Change 2900k 2369k 3065k
Jul-1 ISM Manufacturing 49.8 52.6 43.1
Jul-2 Change in Nonfarm Payrolls 3230k 4800k 2699k
Jul-2 Initial Jobless Claims 1350k 1427k 1482k
Jul-2 Durable Goods Orders 15.8 15.8%
Jul-9 Initial Jobless Claims 1427k

Strengths

  • The best performing precious metal for the week was palladium, up 1.49 percent after falling for previous three weeks. Gold futures rose above $1,800 an ounce for the first time since 2012 on June 30 and ended the second quarter with its best in four years. Bullion also had its longest streak of weekly gains since January, with the week ended June 26 being its third straight. Bank of America head of commodities and derivatives research Francisco Blanch raised his 18-month price target for gold to $3,000 an ounce.

American Exceptionalism Is Real

  • President Nicolas Maduro’s Bank of Venezuela sued the Bank of England earlier this year to try and retrieve $1 billion worth of gold held in its vaults. This week a London judge sided with opposition leader Juan Guaido, saying that he should be recognized as the country’s interim president, and blocked the attempt to access the gold. Venezuela is in a state of crisis and desperately needs funds to help its economy and people but remains in a battle between Maduro and Guaido. The blocking of gold will prevent Maduro from potentially misusing it.
  • According to the World Platinum Investment Council, sales of platinum bars and cars surged to record highs in the first quarter of this year. Purchases totaled 312koz – an annualized rate five times higher than that in any other year in the last 40 years. “It is widely understood that this increased demand came from savvy industrial and manufacturing buyers – including jewelry fabricators – exercising a value-led response and taking the opportunity to increase stock levels.” Kitco News notes that platinum prices are still lagging compared to gold.

Weaknesses

  • The worst performing precious metal for the week was gold, up 0.23 percent. After rising early in the week, gold retreated on Friday after better-than-expected jobs data. The Bureau of Labor Statistics said that 4.8 million jobs were created in the U.S. in June, above expectations of 3 million. Unemployment fell to 11.1 percent, down sharply from the April high of 14.7 percent, reports Kitco News. Gold also retreated on Thursday after news broke of a new experimental vaccine for the coronavirus.
  • Palladium had a fourth monthly loss in June, the longest streak since 2015, as car sales plummet due to the economic impact of COVID-19. This is in stark contrast to palladium soaring almost 50 percent in 2019 due to stricter environmental standards boosting demand for car catalysts.
  • The Perth Mint said its sales of gold products declined 30 percent in June from a month earlier. Gold coin and minted bar sales fell to 44,371 ounces last month, down from 63,393 in May. However, silver coin sales surged to 1,573,752 ounces, up from 997,171 in May.

Opportunities

  • According to Moody’s Investors Service, gold producers are expected to bounce back quickly from COVID-19 related setbacks. Due to higher gold prices and lower operating costs, miners could see greater margins. Moody’s expects second-quarter production to come in lower, but that levels will normalize in the second half of the year. Low fuel and energy process could reduce operating costs by 3 to 5 percent.
  • Anglo American Plc is making a big green shift. The mining giant is advancing plans to convert its fleet of more than 400 diesel-fueled mine trucks to hydrogen power, reports Bloomberg. A pilot project will start next year at Anglo American Platinum’s open-fit Mogalakwena operation in South Africa where a 3.5-megawatt electrolyzer will produce hydrogen on site.
  • Norilsk Nickel was already the world’s top palladium miner, but due to the pandemic it has grown market share even more. Norilsk’s Russian operations have barely missed a beat, while its main rivals in South Africa had to close operations for weeks due to a nationwide lockdown, reports Bloomberg. The miner has so far maintained its 2020 palladium output guidance, despite the pandemic and lower metal prices.

Threats

  • Kirkland Lake Gold was sued on Monday in U.S. federal court for allegedly defrauding shareholders about its business plans before its $3 billion purchases of Detour Gold Corp caused its stock to fall, reports Kitco News. A shareholder accused the Canadian miner of making false statements about its all-in sustaining costs and reserve grade.
  • Commerce Department data released Thursday shows that the U.S. trade deficit increased 9.7 percent to $54.6 billion. The pandemic has pushed exports to their lowest since 2009 and has strengthened expectations that the economy will contract in the second quarter at its steepest pace since the Great Depression.
  • The economic recovery appears further in the distance as COVID-19 cases surge in America. New virus cases rose by nearly 50,000 on Wednesday alone – lead by populous states such as California, Florida and Texas. With the holiday weekend, there’s a risk of even more infections if residents do not adhere to social distancing and protection measures. San Francisco Fed President Mary Daly said on Wednesday that in her best-case scenario unemployment will still be above 10 percent at the end of this year and it could take four to five years to get to a pre-pandemic level.

Index Summary

  • The major market indices were up this week. The Dow Jones Industrial Average gained 0.32 percent. The S&P 500 Stock Index rose 1.50 percent, while the Nasdaq Composite climbed 1.90 percent. The Russell 2000 small capitalization index gained 1.31 percent this week.
  • The Hang Seng Composite gained 1.50 percent this week; while Taiwan was up 1.24 percent and the KOSPI rose 1.09 percent.
  • The 10-year Treasury bond yield fell 1.6 basis points to 0.67 percent.

….

July 2, 2020

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

You can read the remainder of the article at http://www.usfunds.com/investor-library/investor-alert/american-exceptionalism-is-real/

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