Good Thursday Morning
by Jonny Short Side
The combination of Monetary and Fiscal policy initiatives has been so massive over the past few months, taking the US dollar down 10%,- elevating gold (GLD) Silver (SLV), and stocks in general (SPY) (DIA) (QQQ). The markets await another budget-busting bill to combat the virus-related self-induced national shutdown. The US is now on target to run a 4 Trillion-dollar deficit this year alone. As one older and somewhat wiser market participant pointed out. It is highly unusual for gold and stocks to move in the same direction for such an extended period of time. Inflation is percolating below the surface. Base metal inflation is now becoming more evident as the dollar declines and China's economy begins a more sustainable recovery. Keep an eye on materials (XLB) in general and copper specifically (FCX) as the latter appears to have put in a significant double bottom and has breached a down trendline of some significance. The relationship between Gold (GLD) and Silver (SLV) appears to be out of line to some traders, with GLD being considered much more expensive. This may be that silver(SLV) is not only a store of wealth but also an industrial metal. Does it catch up? Or does gold (GLD) come back down? Keep an eye on both. Silver may look overbought, but the most bullish thing a market can do is get overbought and stay that way. The virus had for a period of time shut down all rigs in the Wyoming oil fields Keep an eye on US rig counts. This may be a problem for producers.
There have been a few years where the stock markets in the US have peaked in early August. We now are approaching the political conventions and more interest will be paid to that subject. Talking heads are speaking to a potential contested election predicting it may take weeks to determine an ultimate victor for the presidency. Uncertainty or the anticipation of uncertainty is generally not good for equities. August also starts the period of time when the opposing parties start to play hardball. For us as investors, we should never trade our politics.- BUT, We should be aware of what big macro investment thesis will benefit or not, from either side's election or loss. We will write more on the subject in the coming days and weeks.
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