Inflation, Commodities Crackdown Spook Wall Street. 8 Dips to Buy
Mainstream financial media is once again struggling with ADD as they grasp at straws — headlines are all over the map.
CNBC in particular is casting the net awfully wide, with Federal Reserve Chair Jerome Powell’s comments yesterday taking center stage amidst a rip in interest rates and the U.S. dollar.
Source: CNBC
Just look at these random tape bombs…
“Bitcoin’s drain!”
“Commodities fall!”
“Reddit loses momentum!”
And yet amazingly, they also managed to work in “Market ‘still fine’.”
Either the world is collapsing or it’s not, folks… and I’m going with the latter.
As I noted to Fortune Research subscribers Wednesday, the most important thing to watch this week is how interest rates react to the Fed meeting.
And it didn’t take long to find out, as the second question of the conference got straight to the point…
“The [FOMC] Committee’s median forecast for inflation seems to assume a pretty tame outlook for the rest of the year. As you know, the three-month annualized rate was, I think, 8.4% on the CPI. And I’m just wondering, sort of how much longer we can sustain those kinds of rates before you get nervous?”
In response, Powell deadpanned: “So, umm… Inflation has come in above expectations over the last few months.”
Well of course it has… I’ve literally been talking about it here for almost a year!
And no sooner did he say that than interest rates ripped up by almost 10 basis points.
Source: Bloomberg
And so did the U.S. dollar…
Source: Bloomberg
In turn, that meant that anything negatively correlated to either asset class would head in the opposite direction.
And as it turns out, that draws my attention to a couple “old friends”…
Source: Bloomberg, Seawolf Research
That’s right, gold and silver are back on our radar as longs after a sizable stint as persona non grata in the Venture Society portfolio.
Silver is a no-brainer, as it behaves much more like a commodity than gold does, and commodities are some of the best investments during periods of high inflation.
Moreover, it gapped way lower at the open Thursday, giving us a huge opportunity to pick some up on sale.
Source: Bloomberg
As such, let’s dive in with a half-tranche of the leveraged silver ETF, ProShares Ultra Silver (NYSEArca: AGQ).
Gold is a little more touch-and-go. It behaves more like a currency than a commodity. And moreover, it doesn’t do that well during periods of high growth — whether that growth is accompanied by inflation.
But that said, it is incredibly oversold at its current level, and I’m interested in picking up as much as possible all the way down to long-term support at $1,650.
Source: Bloomberg
Our preferred instrument here is the leveraged ProShares Ultra Gold (NYSEArca: UGL), and while we want to pick some up, we would suggest just a quarter-tranche for now.
Other commodities like copper are also breaking down due to China’s supposed crackdown on high commodity prices.
Source: Bloomberg
While I’d like to wait and see how that ultimately shakes out, I don’t see why we can’t speculate with an even smaller stake (one-eighth tranche) in our three copper plays — Freeport McMoRan (NYSE: FCX), Ivanhoe Mines (OTC: IVPAF) and the United States Copper Fund (NYSEArca: CPER).
In addition, a bunch of plays we like went on sale today while Wall Street deals with their fears and performance problems.
Tuesday’s “long experiences” play in Boyd Gaming Corp. (NYSE: BYD) traded below $60 per share this morning. I said I wanted to pick some up below $60, and I’m a man of my word. Now’s the time… quarter tranche today.
Our back-to-office play on dress shoes — Designer Brands Inc. (NYSE: DBI) — also traded down to a level too good to pass up. Grabbing a quarter tranche there is an easy decision as the economy continues to open and people return to work.
And finally, DBI competitor Caleres Inc. (NYSE: CAL) also traded down to levels we haven’t seen in weeks. I like the idea of diversifying exposure in the sector here, especially since Caleres has just as strong a market position. Let’s wade in there with a quarter tranche as well.
That’s a lot of conclusions to draw from a single move in interest rates that has already retreated to prior levels.
But I don’t analyze the gifts we get… I just take them.
Just FYI, the Venture Society team is traveling next week, so content may likely once again be a little lighter. If there’s important news, however, we’ll alert you quicker than normal, so still keep an eye on those inboxes.
All the best,
Matt Warder
