Stocks Tumble, Oil Erases 2024 Gains, What's Next?
September saw a rough start to the month for equities and energy, will weakness continue?
TABLE OF CONTENTS
ECONOMY: Steve Hanke on U.S. Dollar Strength Following Fed Rate Cut
GOLD: Gwen Preston on What Factors Will Cause Gold’s Next Rally
MARKET RECAP
LATEST NEWS. The U.S. stock market on September 3rd had its worst sell-off since early August, with the S&P sinking 2.1 percent, The Dow falling 626 points, and The Nasdaq dropping 3.3 percent driven by Nvidia and other tech stock declines. Treasury yields also fell after Manufacturing PMI showed a disappointing report on Tuesday.
This, combined with Wednesday’s news that U.S. job openings were at their lowest level since January 2021, appears to signal that a stock market crash or recession is near.
To determine if that is the case, we spoke with Vincent Deluard, Director of Global Macro Strategy at Stonex. Deluard said that a recession is unlikely and that U.S. fundamentals remain strong, citing revised GDP figures which show 3 percent growth over the past year. He believes the U.S. consumer is resilient based on several key indicators, such as the 9% increase in income tax collections, and strong discretionary spending in sectors like travel, noting record numbers of passengers at TSA checkpoints during holidays and the robust performance of cruise lines.
Deluard said that the stock market had, so far, more accurately reflected economic reality than the bond market, which he said had missed “the whole inflation story,” and had failed to predict a recession. While acknowledging recent stock market volatility, he attributed it to technical factors rather than an impending recession. He noted that “the stock market has been up seven of the past eight months,” and expects further growth.
Looking ahead, Deluard expects inflation to stabilize around 3 percent, rather than drop significantly, and believes the Federal Reserve will implement some rate cuts but not to the extent the market is pricing in. Deluard remains cautious about bonds, viewing them as vulnerable to inflation, and recommends investors be wary of expecting significant rate cuts or economic weakness.
In terms of investment implications, Deluard recommended holding cash, as it still offers attractive returns, noting that “cash still pays 5%.” Additionally, he is bullish on precious metals.
Market Movements
From August 28 to September 4, the following assets experienced dramatic swings in price. Prices are up-to-date as of September 4 at 4pm ET (approximate).
Nvidia — down 17.4 percent.
Oil — WTI is down 7.9 percent and Brent Crude is down 8 percent.
GameStop — up 7 percent.
Dollar Tree — down 35.1 percent.
Coinbase — down 16.4 percent.
For major assets, the price moves were as follows.
DXY — up 0.29 percent.
Bitcoin — down 1.9 percent.
Gold — down 0.4 percent.
10-year Treasury yield — down 1.6 percent.
S&P 500 — down 1.8 percent.
Russell 2000 — down 2.6 percent.
USD/Yen — down 0.6 percent.
EQUITIES:
’SUSTAINED’ MARKET SHOCK
Hugh Hendry, August 31, 2024
Hugh Hendry, former Founding Partner and CIO of Eclectica Asset Management, joined the show again to give his outlook on the economy, expressing concern that most asset classes are overvalued. He predicted that a “sustained shock” would disrupt global markets, caused by the weakening of the yuan and yen. This in turn could cause deflation in labor markets, as well as a crash in asset values.
Hendry’s analysis was focused on China’s economic vulnerability. He warned that China’s reliance on its manufacturing sector for growth, combined with mounting trade tensions, could lead to a significant devaluation of its currency, which would ripple across global markets. In his view, such events could lead to a sharp decline in stock prices, with potential corrections of 30 to 60 percent. Investors should prepare for heightened volatility, particularly in risk assets.
On market behavior, Hendry discussed the bond yield curve inversion, where long-term bonds yield less than short-term ones, which often signals an impending recession. He forecasted that within six to twelve months, tumultuous events could affect risk assets, particularly if central banks struggle to control inflation without triggering a deeper recession.
On investment implications, Hendry is bullish on Bitcoin and long-dated U.S. government bonds. He believes Bitcoin could potentially reach $200,000 in value, particularly as global markets face economic turmoil and currency devaluations. When it comes to long-maturity bonds, Hendry suggests using call options or LEAPS (Long-term Equity Anticipation Securities) on the TLT (iShares 20+ Year Treasury Bond ETF). He expects bond prices to rise significantly, seeing the potential for them to recover to around $150-$160 from their current levels.
STOCK IDEA: DOLLY VARDEN SILVER
(Sponsored Post)
Dolly Varden Silver (TSX.V:DV | OTCQX: DOLLF) is emerging as a mining stock with strong prospects as silver demand surges in 2024. Located in British Columbia's mining-friendly Golden Triangle, the company offers high-grade silver exposure in a low-risk jurisdiction, making it an attractive play for investors seeking stability and growth potential. Industry heavyweights back Dolly Varden, with Hecla Mining holding a 15% stake and billionaire Eric Sprott owning 10%, both signalling strong confidence in the company’s future. Additionally, major institution Fidelity has invested 7.5%, further validating Dolly Varden’s potential. Positioned as a pure silver play in a safe environment, the company stands to benefit significantly from the rising demand for silver. With top-tier shareholders and a high-quality asset, Dolly Varden Silver offers a unique combination of reward and security, making it an stock worth watching closely.
Watch my last interview with Dolly Varden Silver CEO Shawn Khunkhun in which he discusses the growing deficit that the silver market faces, as well as the future of the silver mining industry:
ECONOMY:
WILL FED PIVOT CRASH THE U.S. DOLLAR?
Steve Hanke, August 29, 2024
Frequent TDLR guest Steve Hanke, professor of applied economics at Johns Hopkins University, said that a Fed rate cut, expected as early as September, would slightly weaken the U.S. dollar but not significantly, as the market had already accounted for it. He noted that “the dollar remains very strong,” indicating that even with rate cuts, a dramatic shift in the dollar’s value is unlikely.
Hanke was firm in his stance that the U.S. economy was on track for a recession, predicting it would arrive by late 2023 or early 2024. He based this on the contraction of the U.S. money supply, which he emphasized as a critical factor, noting, “Each one of those four [historical] occasions [of money contraction] was followed by a recession or a Great Depression.”
On China, Hanke linked that the country’s slowing economy to its housing market crisis, remarking that China’s massive property expansion from 2010-2020 had run its course. He predicted that this downturn would lead to slower global demand for commodities, particularly those tied to construction and development. Additionally, he said that boosting China’s money supply would stimulate the economy, reducing trade imbalances and benefiting global markets.
On politics, Hanke criticized Kamala Harris’s housing plan, which includes building 3 million homes and offering $25,000 to first-time buyers, calling it “theft” by redistributing taxpayer money. He dismissed it as “baloney of the highest order,” arguing that such policies would lead to increased housing prices rather than solving the affordability crisis.
REAL ESTATE:
WILL COMMERCIAL REAL ESTATE CRASH?
Greg Dickerson, August 30, 2024
Greg Dickerson, investor and entrepreneur, joined the show to provide his real estate outlook. He drew a distinction between the residential and commercial markets, explaining that while the commercial real estate market showed significant stress—citing foreclosures and distressed assets in places like Manhattan and Washington, D.C.—the residential housing market remains resilient, particularly due to a shortage of housing supply. Dickerson said that “the median existing home price jumped 4.2% from a year earlier.”
Dickerson was skeptical about the immediate impact of potential Federal Reserve rate cuts on mortgage rates, clarifying that residential mortgage rates are more closely tied to the 10-year Treasury note than to Fed actions. His view was that lower interest rates would not necessarily fuel an immediate housing boom. However, he did foresee some benefits to lowering rates, which he believed could “free up a little bit of inventory,” and encourage sellers to act.
Despite concerns, Dickerson was generally optimistic about the overall economy and real estate markets. He argued that while certain sectors, like automobiles and durable goods, are seeing slowdowns, the real estate market remains relatively strong.
GOLD:
WHAT RATE CUTS MEAN FOR GOLD
Gwen Preston, September 4, 2024
Gwen Preston, VP of Investor Relations at West Red Lake Gold, said that while inflation may not be a significant factor driving gold prices in the near term, she expects inflation to re-emerge by 2025, largely due to high U.S. spending and growing national debt. This scenario, she argued, would favor gold as investors seek safe-haven assets amid economic uncertainty, including the upcoming U.S. elections.
Preston said that gold's price could benefit from other factors in the short term, such as the seasonal strength of gold in September and renewed Chinese central bank gold buying. She also noted that Federal Reserve rate cuts could push gold prices higher. She expects that even small cuts will have a positive sentiment-driven effect on gold, given the historical correlation between falling interest rates and rising gold prices.
On the mining front, Preston acknowledged the general underperformance of gold mining equities compared to gold itself. However, she expressed optimism that as cracks form in the broader market, attention will shift to gold equities, especially if gold prices remain high. She emphasized that mining companies, such as West Red Lake Gold Mines, could benefit from rising gold prices, particularly if they maintain operational efficiency.
WHAT TO WATCH
Friday, September 6, 2024
Unemployment Rate: The BLS releases this statistic, which shows the percentage of the U.S. labor force which is unemployed.
Tuesday, September 10, 2024
U.S. Presidential Debate: Former President Donald Trump and Vice President Kamala Harris will square off at 9pm ET in their first debate.
Wednesday, September 11, 2024
Consumer Price Index: The BLS will release the CPI, which measures the average consumer’s price for a basket of goods and services.
Thursday, September 12, 2024
Initial Jobless Claims: This measures how many American workers applied for unemployment insurance for the first time during the past week.
Producer Price Index: The BLS will release the PPI, which measures the average producer’s price for their inputs.
European Central Bank rate decision: The ECB Governing Council will meet in Frankfurt to make an interest rate decision for the Eurozone.
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