If you’ve ever wondered what trillions of dollars in monetary and fiscal stimulus looks like, it appears you got your answer. Everything is up right now. Stocks are up. Earnings are up. Consumer spending is up. Commodities are up. Food prices are up. Home prices are up. Car prices are up. Cryptos are up. This week marked President Joe Biden’s 100th day in office. Since Inauguration Day, the S&P 500 has increased an impressive 8.6%. Those are the best returns for the start of a presidential term since Kennedy in 1961. All those stimmy checks have to go somewhere. With the Federal Reserve signaling it will keep accommodative measures in place for some time longer, and Biden making the case for trillions more in government spending, is this what we can expect going forward? And with
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If you’ve ever wondered what trillions of dollars in monetary and fiscal stimulus looks like, it appears you got your answer. Everything is up right now.
Stocks are up. Earnings are up. Consumer spending is up. Commodities are up. Food prices are up. Home prices are up. Car prices are up. Cryptos are up.
This week marked President Joe Biden’s 100th day in office. Since Inauguration Day, the S&P 500 has increased an impressive 8.6%. Those are the best returns for the start of a presidential term since Kennedy in 1961. All those stimmy checks have to go somewhere.
With the Federal Reserve signaling it will keep accommodative measures in place for some time longer, and Biden making the case for trillions more in government spending, is this what we can expect going forward?
And with everything up, where are the value buying opportunities?
Pain at the Car Lot and Grocery Store
Before I get into that, it’s important I point out that not every example of price appreciation is being driven strictly by stimulus checks and money-printing. Pandemic lockdowns are still having a massive effect on the global supply of everything from building materials to semiconductor chips, which is driving up production costs that are being passed on to consumers.
Take lumber. Because sawmills have had trouble ramping up production to meet demand, the price of framing lumber has skyrocketed 250% over the past 12 months to around $1,200 per thousand board feet. This has added close to $36,000 to the price of a new home, according to the National Association of Home Builders (NAHB).
Indeed, home prices surged 12% in February compared to the same month last year, S&P Dow Jones Indices reported this week. That’s the fastest annual pace since 2006, soon before the housing bubble burst.
Or take the ongoing chip shortage, which has been exacerbated in recent months by the winter freeze in Texas and a fire at Japan’s Renesas Semiconductor Manufacturing plant. According to Goldman Sachs, the shortage has impacted a whopping 169 industries, most notably carmakers. This week General Motors President Mark Reuss told Fox Business that the crisis “is probably the worst crisis I’ve seen in the auto industry, at least in my career, in terms of supply chain.”
As a result, the price of used vehicles, as measured by the Manheim Used Vehicle Value Index, has increased 52% over the past year. Preowned pickups have jumped an unbelievable 75%.
And then there’s food and consumer staples such as diapers and toilet paper. Recently I shared with you that corn prices have almost doubled over the past year, and this week Bloomberg reported that corn has gotten so pricey that some farmers are feeding their livestock wheat intended for human consumption. A host of consumer goods giants, from Procter & Gamble to Kimberly-Clark, have all announced they’ll be raising their prices in the coming months as commodity prices continue to soar.
Copper Near Record Highs
Iron ore and copper are both near record highs on tight supply and strong demand from China. Copper traded above $10,000 per tonne this week, its highest level in 10 years, as investors anticipate further supply constraints on global efforts to decarbonize and electrify everything.
To give you some idea of what I’m talking about, the NAHB this week recommended to homebuilders that they should start pre-wiring new houses for electric vehicle (EV) charging. That calls for more copper wiring in the home as well as the vehicle.
Several car manufacturers have already announced they’ll be phasing out internal combustion engine (ICE) vehicles in favor of EVs between 2025 and 2040. As I’ve mentioned before, EVs require three to four times as much copper wiring as a traditional vehicle. Morgan Stanley reports that ICE vehicles use around 50 pounds of copper on average, compared to 85 pounds for a hybrid and as much as 183 pounds for an EV.
Ivanhoe Mines remains our favorite way to play the copper rally. The company, which reported phenomenal production results in early April at its Kamoa-Kakula project, has yet to report first-quarter earnings. However, other copper companies have, and results so far have been amazing. Brazil’s Vale, for instance, reported incredible net income of $5.6 billion, well above Wall Street estimates.
Gold Miners Should HODL
The chart below says it all. Every commodity subindustry of the S&P GSCI is up double digits for the year, with the one exception of precious metals.
That’s where I see the opportunity right now. Not only is gold on sale, but so are the gold and precious metal miners, particularly the royalty and streaming companies. Whereas the NYSE Arca Gold Miners Index is down close to 5% for the year, the big three royalty and streaming companies have performed relatively well, with Franco-Nevada up 12%, Royal Gold up 6% and Wheaton Precious Metals essentially flat.
As for the producers, I would like to see them “HODL” gold as we wait for higher metal prices on unprecedented money-printing and fiscal stimulus. (HODL, in case you’re not aware, is crypto-trading lingo to describe a buy and hold strategy.)
Between the U.S., Europe and China and others, we’ve spent a collective $17 trillion (and counting) to combat the coronavirus and the economic havoc it’s wreaked. Gold has historically tracked the growth in money supply, and in March, the amount of money circulating the global economy expanded more than 17% in March compared to last year, according to Haver Analytics.
Crypto Prices Are Up, but What About the Miners?
Speaking of cryptos… Ether, the number two cryptocurrency by market cap, hit an all-time high of nearly $2,800 this week, outperforming Bitcoin, which is still off its recent high of over $63,000. Ether’s price surge could be related to reports that DeFi, or decentralized financing, is now a $100 billion industry. In fact, according to calculations by CoinGecko, the market cap for DeFi coins, which includes Ether, now stands at more than $128 billion.
Ether, Bitcoin and other coins also continue to benefit from Metcalfe’s law, which says that a network’s value increases geometrically as the number of users within that network increases. Visa, Paypal and Venmo have recently announced they will allow their hundreds of millions of customers to use cryptos as a method of payment, while PayPal also permits trading of Bitcoin, Ethereum, Litecoin and Bitcoin Cash.
With cryptos up big right now, you may be wondering why the miners aren’t. HIVE Blockchain Technologies, the only miner that mines both Ether and Bitcoin using 100% green energy, is currently off about 44% from its 52-week high of C$7.25 in February. That’s after a nearly 30% gain on Friday alone, its best single-day jump since December. It goes without saying that the crypto-mining ecosystem remains highly volatile.
There may be a number of contributing factors to the discrepancy between cryptos and miners, but as I see it, one of the biggest involves Coinbase. As you know, the crypto exchange went public in mid-April in a direct listing. This had the effect of siphoning off billions in investor flows that may have instead gone toward shares in the crypto miners. On the first day of trading alone, Coinbase CEO Brian Armstrong sold nearly $292 million in shares. Other directors and executives sold even more, with one pocketing more than $1.8 billion.
It’s important to keep in mind that Coinbase hasn’t been listed for more than 30 days right now, so it still has that new car smell. I believe investors will rotate back into the miners such as HIVE once they see a jump in earnings.
For more on cryptos and Metcalfe’s law, watch my video here or by clicking below. Be sure to give it a thumbs up and subscribe to our YouTube channel!
This week spot gold closed the week at $1,769.13, down $8.07 per ounce, or 0.45%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 4.99%. The S&P/TSX Venture Index came in up 2.65%. The U.S. Trade-Weighted Dollar rose 0.49%.
|Apr-26||Durable Goods Orders||2.3%||0.5%||-1.2%|
|Apr-27||Hong Kong Exports YoY||15.8%||26.4%||30.4%|
|Apr-27||Conf. Board Consumer Confidence||113.0||121.7||109.0|
|Apr-28||FOMC Rate Decision (Upper Bound)||0.25%||0.25%||0.25%|
|Apr-29||Germany CPI YoY||1.9%||2.0%||1.7%|
|Apr-29||Initial Jobless Claims||540k||553k||566k|
|Apr-29||GDP Annualized QoQ||6.7%||6.4%||4.3%|
|Apr-29||Caixin China PMI Mfg||50.9||51.9||50.6|
|Apr-30||Eurozone CPI Core YoY||0.8%||0.8%||0.9%|
|May-4||Durable Goods Orders||—||—||0.5%|
|May-5||ADP Employment Change||888k||—||517k|
|May-6||Initial Jobless Claims||540k||—||553k|
|May-7||Change in Nonfarm Payrolls||970k||—||916k|
- The best performing precious metal for the week was palladium, up 2.85%. Palladium surged above $3,000 an ounce for the first time ever as the global shortage for the precious metal deepens on strong demand from automakers. Palladium is up over 20% so far this year, building on five straight annual gains, according to Bloomberg data. Gold production is forecast to grow 6% in 2021, according to S&P. Gold production had fallen to a six year low in 2020 due to pandemic lockdowns.
- The World Gold Council (WGC) says China’s demand for gold bars and coins will remain robust and investor interest is likely to be positive in 2021. China, the world’s top consumer of bullion, saw jewelry demand rise 212% year-over-year in the first quarter to 191.1 tons, the highest amount since 2015. Chinese gold ETFs saw inflows of 11.5 tons in the first quarter, contrasting with the global trend of outflows.
- Gold rose on Wednesday after Fed Chair Jerome Powell said it is “not time yet” to start conversations about slowing the pace of purchases by the central bank, reports Bloomberg. Bullion is up from a nine-month low hit in March as bond rates and the U.S. dollar weaken.
- The worst performing precious metal for the week was platinum, down 2.31%, perhaps on investors jumping into sister metal palladium. Auto production cuts, some as much at 50%, on the worldwide computer chip supply chain shortage could weaken platinum demand near-term. After staging a comeback in April, gold saw a weekly loss for the first week in four as bond yields and the dollar firmed up.
- The worsening COVID-19 pandemic in India could hamper its gold demand recovery. WGC reported consumer demand rose 37% in the first quarter but could fall again as the total number of cases rises past 18 million. Many states have reimposed restrictions and shut non-essential businesses such as jewelry shops.
- Newmont, the world’s largest gold producer, reported first quarter production 6% below consensus, which resulted in earnings and cash flow being below expectations. Earnings per share were 74 cents, below the 80-cent estimate for the first quarter.
- Gold Fields plans to set carbon emission reduction and workforce diversity targets by the end of 2021 and aims to become net zero carbon by 2050. Russian producer Polymetal seeks to cut greenhouse emission intensity per ounce of gold equivalent by 30% by 2023. The company announced on Thursday that it will run 100% on renewable power and has already agreed to get 90% of its needs from hydropower. Miners that cater toward more ESG-conscious investors could attract more capital.
- Fortuna Silver Mines is acquiring Roxgold. Fortuna shareholders will own 64% of the combined company. The price offered is a 42% premium to the pre-announcement price but is at 0.88x of NAV. The company aims to have a low-cost platform for gold and silver in the world’s fastest growing metals producing regions. Again, we see another acquisition proposed in the gold space because the target’s share price is too low for the value that can be identified within its holdings. The current synergy is just the surface of the value within Roxgold in the future. Other mining companies in West Africa should consider what their logistical synergies could bring to the table.
- Gold companies with exposure to copper are set to benefit from surging prices for the red metal, especially during periods of weak bullion prices. Newmont, the world’s largest gold producer, is boosting its exposure to copper through “mega projects.” CEO Tom Palmer said copper will account for 15 to 20% of the miner’s total output by the end of the decade. Despite the negativity surrounding bullion, Palmer said in a Bloomberg TV interview that gold prices are at “healthy levels.”
- ETFs sold 755,476 troy ounces of gold on Wednesday, the biggest one-day decrease since 2016, to bring net sales for 2021 to 8.43 million ounces, according to Bloomberg data. Total gold held by ETFs is down 7.6% so far this year, a continued trend that shows investors are moving on from the yellow metal.
- Diamond Foundry received a $200 million investment by Fidelity to fund a lab-grown diamond startup. The goal is to compete with gemstone miners like DeBeers. The immediate goal is to quadruple production at its Washington state factory to 5 million carats per year by 2022.
- Russian miners may face U.S. sanctions, according to former U.S. Government officials and S&P. Sanctions have already been placed on Russia for meddling in the 2020 election, gathering troops on the Ukraine border, sending warships to the Black Sea and having a global cyber espionage campaign. Russia represents 45% of global palladium production and 14% of global platinum production.
- The major market indices finished mostly down this week. The Dow Jones Industrial Average lost 0.50%. The S&P 500 Stock Index rose 0.01%, while the Nasdaq Composite fell 0.39%. The Russell 2000 small capitalization index lost 0.23% this week.
- The Hang Seng Composite lost 1.10% this week; while Taiwan was up 1.54% and the KOSPI fell 1.20%.
- The 10-year Treasury bond yield rose 7 basis points to 1.628%.
Blockchain and Digital Currencies
- Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Polygon, rising 150.67%.
- Ether, the native token on the Ethereum blockchain, skyrocketed to new all-time highs of almost $2,800 this week on the back of positive news from the European Investment Bank (EIB). The EIB is set to issue a two-year 100-million-euro digital bond on the Ethereum network, with the sale being led by Goldman Sachs, Banco Santander and Societe Generale. Moody’s and Fitch have awarded the bond with the top triple-A rating. Ethereum’s total market capitalization exceeded $315 billion, topping that of mined platinum which is currently estimated at around $303 billion. Ethereum’s returns are more than twice that of Bitcoin over the past one year.
- Paxos, a major cryptocurrency firm, closed its $300 million Series D funding round that included Oak HC/FT, Declaration Partners, PayPal Ventures and others, that values the company at $2.4 billion. The deal comes on the back of Paxos securing a conditional charter from the U.S. Office of the Comptroller of the Currency (OCC) to spin up the Paxos National Trust Bank, making it the first crypto-native company to win this approval for a national trust bank. CEO Charles Cascarilla said in an interview that the company is planning on using this capital injection to scale their business and make strategic acquisitions.
- Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Celsius, down 1.34%.
- Bitcoin is on track to post its worst month since January, with the cryptocurrency down 10% month-to-date even after retracing roughly 50% of the selloff it experienced in these past two weeks, which ended at a low of around $47,000. On the technical side, Bitcoin remains below its 50-day moving average, a sign of slowing momentum, and is facing resistance around $56,000.
- Hotbit, a Chinese cryptocurrency exchange, reported that it had to shut down all services after an attempted cyberattack. The said the hackers were unable to gain access to Hotbit wallets, but they compromised the platform’s user database. The maintenance could take at least seven days and the investigation and system upgrade could take as long as two weeks.
- WisdomTree Investments reported that it has listed its Ethereum exchange-traded product (ETP) on the Deutsche Boerse’s Xetra market in Frankfurt and the Swiss Stock Exchange (SIX) in Zurich. Trading under the ticker ETHW, the physically backed ETP will track the spot price of Ethereum and has an expense ratio of 0.95%. This listing follows WisdomTree’s Bitcoin ETP, trading under the ticker WBIT, being listed on the Xetra market on April 14. WisdomTree also submitted a filing in March with U.S. Securities and Exchange Commission (SEC) for a Bitcoin ETF that would trade on the Chicago Board Options Exchange’s bZx platform, which is currently under review.
- Mastercard CEO Michael Miebach announced during the company’s first quarter earnings call that the company is planning to help the government evaluate the utility of central bank digital currencies (CBDCs) outside of just payments. Miebach added that Mastercard is exploring applications that can exist on top of CBDCs and is heavily investing in smart contract technology.
- Osprey Funds announced it is launching the Osprey Polkadot Trust, which will be available to accredited investors with a $25,000 minimum and will be listed on the OTCQX market. CEO Greg King said that appetite for next generation crypto investment vehicles is increasing and that their decision to launch a Polkadot trust is both a vote of confidence and addresses consumer demand for access vehicles.
- BaFin, Germany’s Financial Supervisory Authority, has issued a warning to investors that Binance might have violated European securities rules with its stock tokens that track the movement of shares in Tesla, Coinbase, MicroStrategy and Apple and are settled using Binance USD (BUSD). BaFin said that the Binance stock tokens require a prospectus, which was not issued prior to trading, and that the violation constitutes an administrative offense. The company could be fined up to $6 million or 3% of its annual revenue.
- Reuters reported that the Beijing Municipal Bureau of Economy and Information Technology issued an emergency notice to the city’s data centers asking them to report any involvement in crypto mining operations. These operations have come under scrutiny lately due to its consumption of large amounts of energy and subsequent environmental impact. Inner Mongolia, an autonomous region in China, is set to force crypto mining businesses to close shop by the end of April.
- The Ransomware Task Force, led by the Institute for Security and Technology with support from Microsoft, McAfee and various government agencies, reported that better enforcement of cryptocurrency regulations can help address an increasing number of ransomware attacks. In 2020, ransomware victims paid close to $350 million in cryptocurrencies to attackers last year. The task force recommended that existing know-your-customer (KYC) and anti-money laundering (AML) laws should be enforced internationally to help tam down payments made in crypto. The task force also mentioned that attackers prefer being paid in Bitcoin and warns that attackers might use mixing services to obfuscate how the transactions occur.
April 30, 2021
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors