Pro Perspectives 5/29/24






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May 29, 2024

Last Thursday, following another huge earnings event from Nvidia, the S&P futures put in a technical reversal signal (an outside day).  So did the Nasdaq.

And the Russell 2000 (small caps) moved sharply lower, breaking the trend of the past month that described 11% bounce from the April lows.


So, stocks shrugged off the Nvidia news, and all of the related insider insight into the new industrial revolution. 

With that market behavior in mind, we stepped through some notable geopolitical and domestic risks that were bubbling up:  

1) The U.S. Treasury Secretary had just made public comments prior to the G7 Finance Ministers meeting in Italy, where she took some provocative shots at both Russia and China, signaling coordination among G7 partners to transfer ownership of seized Russian assets

2) Adding to that, she vowed a “wall of opposition” to China’s trade practices.

3) And then, as we also discussed yesterday, the date for closing arguments was set in the Trump trial in New York, which put a timeline on a potential conviction.

With all of this, as we discussed last Thursday, the market seemed to be underpricing the rising geopolitical and domestic news risk, if not shock risk — as you can see in the chart of the VIX. 

So fast forward to today, and the Trump trial has now moved to the jury deliberation stage.  Markets were down across the board (stocks, bonds, commodities).

Is this trial “noise” or “signal” for markets?

If it alters (and maybe permanently) market psychology and perception, it’s signal. 

In this case, the potential jailing of a U.S. presidential candidate driven by partisan lawfare should raise concerns for every investor about America’s role in the world as the reliable anchor of law, fairness, and stability.

Add that to the threat of confiscating Russian assets, and it’s not hard to imagine the erosion of trust in the “full faith and credit” which underpins the U.S. Treasury market.  And the dollar (and fiat currencies, in general) works only with trust and credibility of the issuing government.

Clearly these are scenarios we don’t want to see play out.  The vulnerabilities are already well known, particularly after the ramp in debt and deficits in recent years.  Introducing a catalyst becomes very dangerous.

This all strengthens the case for the continuation of the trend in this chart (and commodities, in general — up!) …

We’ve often looked at this longer term chart of gold over the years.

This is a classic C-wave (from Elliott Wave theory). This technical pattern projects a move up to $2,700ish.  The price of gold has continued to make progress along that path. 

How do you play it?

Get leveraged exposure to gold through gold miners, or track the price of gold through an ETF, like GLD.

Full disclosure, we are long gold miners, including Barrick Gold in our Billionaire’s Portfolio