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#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…

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This article was originally published by Global Macro Monitor

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Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls.

This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.

In general, there are two types of assets,

  1. They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or baseball cards or
  2. They can generate cash flows over time  – GaveKal

Creating An Illusion Of Scarcity

Scarcity relative to the money stock is what its all about now, folks. 

It probably won’t be long before the Fed has to bailout the baseball card market, no?

Full disclosure,  I do own a Mike Trout rookie card

Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to justify, rationalize, and drive speculation. 

Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain and super charge the price ramp by snapping a few pictures of each sample, converting them to NFTs to load up to the internet.

Then again, maybe all this is signaling the start of a big, big inflation cycle and the markets are looking to get out of cash and protect their purchasing power.   But that’s too rational.  

Can you believe what markets have become, folks?   It is hard to see clearly when everybody is making money. 

 

 





Author: macromon

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Economics

Think Big: The market and the RBA disagree on interest rates — so what happens next?

Throughout Australia’s pandemic emergence, the RBA has remained steadfast on its outlook for interest rates – no rate hikes until … Read More
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Throughout Australia’s emergence from the pandemic, the RBA has remained steadfast on its outlook for interest rates – no rate hikes until 2024.

But as UBS researchers pointed out this week, the post-COVID global economic rebound “has been faster than any time in history”.

In turn, investors are betting “the monetary policy cycle will also be faster”.

Markets are now pricing for around 70 basis points (0.7%) of hikes by the end of 2022.

That’s a fair bit earlier than 2024, and raises the question of what the RBA will do next.
 

The unwind — step 1

Before any rate rises, economists are turning their attention to the first phase of the RBA’s unwinding plans; the roll back of its bond-purchasing (QE) program.

In the wake of the east coast Delta lockdowns, the bank extended its monthly bond-buying program through to “at least February (2022)”.

But in UBS’ view, markets are still being “too complacent” about possible changes to the program.

The UBS analysts’ base case is for the bond-purchase program to be halved in February — from $4bn per month to $2bn — before stopping in May.

However, “we see a risk that the bank may opt for an earlier hard-stop of QE at the February meeting”, UBS said.

At that point, the central bank will own around 35% of all Australian government bonds outstanding.

Such a stake is starting to skirt the edges of an RBA-influenced paradigm that could disrupt the orderly functioning of the bond market, UBS said.

The RBA will also take its monetary policy cues from offshore.

Most commonly in central banking, all roads lead to the US Fed — which has flagged plans to start tapering its own QE program in November.

“We think the RBA will be uncomfortable owning such a large share of the market; especially if global central banks have started the taper (or even stopped),” UBS said.
 

The unwind — step 2

Next up is what the RBA will choose to do with its yield-curve control (YCC) program.

Currently, the YCC anchors three-year government bond yields at the same level as benchmark interest rates (0.1%).

Recall that markets are pricing for rate hikes as early as 2022.

Such a scenario would create a “policy difficulty”, CBA strategist Phillip Brown said this week, in terms of what the RBA does with its YCC program.

In response, markets sent the yield on government bonds with a maturity date of April 2024 to almost 0.2% this week.

Then the RBA turned heads on Friday, when it waded back into the market and bought $1bn of Apr-24 bonds in a range between 0.105% to 0.12%.

Brown and CBA rates strategist Martin Whetton also drew attention to an inflation reference in a speech this morning from RBA Governor Philip Lowe.

“Whether inflation in a given year is 1.7% or 2.3%, most people in the real economy rightly don’t focus too much on this,” Lowe said.

His remarks suggest the RBA remains “relatively indifferent to inflation risk”, Whetton and Brown said.

And combined with the RBA’s YCC bond acquisition today — its first since February 26 — “neither action was one that suggests the RBA is about to about-face on policy”, the pair added.

At the same time, they noted that today’s bond purchases didn’t do much to change the market’s mind about the pace of future rate hikes:

The chart shows markets are still pricing for 2022 rate hikes, even following today’s bond purchases. Source: CBA

So for now, the standoff continues as markets price in 2022 rate increases while the RBA looks to be holding firm to its 2024 stance.

In his analysis earlier this week, Brown said there are a couple of technical options the RBA could take on the YCC program, such as bringing it into a range (rather than a fixed number).

But realistically, if the RBA is going to raise rates in 2022 or 2023, it will most probably have to abolish the YCC program on 2024 government bonds, Brown said.

When’s the best time to do that? Either late-2022 or early-2023, Brown said.

That’s because Apr-24 bonds will still have a maturity date of more than 12 months — meaning they will still trade in the bond market and not short-term cash markets.

Of course, the next best time to do it would be “right now”, Brown said.

But that looks unlikely, given the bank’s recent commentary.

And perhaps even more unlikely following Friday’s purchases in the bond market.

The post Think Big: The market and the RBA disagree on interest rates — so what happens next? appeared first on Stockhead.








Author: Sam Jacobs

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Economics

3 Safe Stocks to Buy as the Economic Recovery Loses Momentum

There’s growing concern that the economic recovery could falter this winter if Covid-19 cases spike dramatically. Those concerns are not just being felt…

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There’s growing concern that the economic recovery could falter this winter if Covid-19 cases spike dramatically. Those concerns are not just being felt in the U.S. but all over the world, leaving investors to start hunting for safe stocks to buy.

The Organization for Economic Co-operation and Development (OECD) recently lowered its growth forecast for the U.S. economy in 2021 to 6% from the 6.9% it had estimated in the spring and trimmed its forecast for global economic growth to 5.7% from 5.8% previously.

At the same time, other influential institutions ranging from the International Monetary Fund to the European Central Bank continue to sound the alarm on issues likely to impact the global economy, from rising inflation and loose monetary stimulus to supply constraints and the ongoing shortage of semiconductors.

With concerns rising that the economic recovery is losing momentum, we look at three of the best safe stocks to buy now.

  • Berkshire Hathaway (NYSE:BRK.B)
  • Costco (NASDAQ:COST)
  • Amazon (NASDAQ:AMZN)

Safe Stocks to Buy: Berkshire Hathaway (BRK.B)

Source: Jonathan Weiss / Shutterstock.com

The holding company of legendary investor Warren Buffett is one of the most stable and reliable investments around. In good times and bad, Berkshire Hathaway manages to provide consistent and steady returns to shareholders. You’ll want to own the more affordable Class B shares though as the Class A stock is currently trading at more than $430,000 per share (Buffett has never split the stock). At $286 a share, the Class B shares are affordable and profitable. In the past five years, BRK.B stock has gained 98% in value. In the past 25 years, the shares have risen 1,085%.

And while Berkshire Hathaway’s stock does not pay a dividend, they are a great long-term investment for investors young and old. As a holding company, Berkshire owns a range of well-known businesses — from the Dairy Queen restaurant chain to Geico insurance and the Fruit of the Loom clothing company.

Berkshire Hathaway also has a vast and well diversified portfolio of blue-chip stock holdings. The company is one of the largest shareholders of Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO) and Bank of America (NYSE:BAC). Berkshire’s stock holdings are currently worth more than $325 billion and growing. BRK.B is a buy and hold forever stock.

Costco (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.Source: ilzesgimene / Shutterstock.com

No matter what happens with the economy, people will still need to eat. And when it comes to groceries, Costco is king. Stock of the popular warehouse club has risen 28% over the last six months and is up 220% in the past five years. COST stock has continued to trend higher throughout the pandemic. Covid-19 variants and lockdown measures come and go, but Costco’s share price keeps on rising.

And Wall Street remains bullish, with a median price target on the stock of $500, implying a further 11% gain from current levels. Speculation is growing that Costco’s stock could split before year’s end as it continues to reach new highs.

Costco, which today has just over 800 store locations around the world, continues to post impressive financial results and growth metrics.  For all of 2020, Costco’s total sales grew 7.7% from a year earlier, while its e-commerce or online sales rose 50% over the previous year. The company’s membership renewal rate is also the envy of the retailing world at 89% globally.

The average purchase made by a Costco member increased by nearly 6% in the last 12 months. Bottom line is that Costco is the gold standard when it comes to grocery retailers. In uncertain times, COST stock is a bedrock investment that people can count on.

Safe Stocks to Buy: Amazon (AMZN)

Amazon (amzn) LOGO ON THE SIDE OF A BUILDING.Source: Sundry Photography / Shutterstock.com

If we find ourselves back in widespread lockdowns and the economy tanks, investors will want to own stock of online retail behemoth Amazon. In many ways, Amazon has been the company that carried us through the pandemic. With brick-and-mortar retailers forced to close, the world turned to Amazon for online orders ranging from toilet paper to laptop computers.

There’s literally nothing people can’t get online from Amazon today, and the company continues to aggressively expand around the world, adding new warehouses and employees, as well as experimenting with new technologies such as drone deliveries and electric delivery trucks.

The good news is that Amazon stock is on sale right now. Up just 3% in the last six months, AMZN stock is now trading at $3,435. The Seattle-based company’s share price has cooled off after a red-hot gain of 83% in 2020. But it likely won’t be long before the share price stops moving sideways and has another leg higher.

The 45 analysts who cover Amazon forecast that the stock will gain at least 20% over the next year and rise to $4,105. The lowest estimate on the stock is currently $3,775, which would be 10% above where the shares are currently sitting. Should something unexpected happen and we all be forced online again, Amazon stock could move even higher.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Author: Joel Baglole

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Economics

A Correction in GameStop Stock Appears to Be Inevitable

As was the case last month, GameStop (NYSE:GME) stock has managed to perform relatively well. That is, considering how the conditions that enabled the…

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As was the case last month, GameStop (NYSE:GME) stock has managed to perform relatively well. That is, considering how the conditions that enabled the “to the moon” rally earlier this year are no longer in play.

Source: TY Lim / Shutterstock.com

Yes, shares in this video game retailer remain one of the most talked about on Reddit’s r/WallStreetBets subreddit. The “diamond hands” crowd still hasn’t given up on the king of meme stocks. Should you also buy it as GameStop continues to fly in the face of conventional stock market wisdom?

Not so fast.

The proverbial shoe may not have dropped already. But what could cause its ultimate drop in price remains in motion. Risks like slowing economic growth, high inflation and monetary policy changes point to more trouble ahead for stocks overall. What does this have to do with GameStop? These issues will likely lead to further changes in stock market conditions.

These changes may result in an actual correction or crash in stock prices. Those still holding GME stock will finally be running scared. Once that happens, a move to a price in line with its underlying value will occur.

The story hasn’t changed much here. Yet it’s still one you don’t stick around for the conclusion.

GME Stock and the Deflating Meme Bubble

In 2021, the meme stock phenomenon has played out in many waves. First, of course, was the wave that initiated this phenomenon, back in late January/early February. Then, after a lull in the spring, meme madness made a comeback, in late May/early June. Finally, in late August, up until around Labor Day, there was an attempted wave that in hindsight was more of a meme stock “dead cat bounce” than anything else.

Other meme names, like AMC Entertainment (NYSE:AMC) and Clover Health (NASDAQ:CLOV) made their most epic move during this second wave. GME stock, however, didn’t see a secondary boost above that of its incredible run from $20 to as much as $483 per share. All it did during the second and dead cat waves was make a brief return to $300 per share and $200 per share, respectively.

On the flip side, GameStop has fared a lot better than, with the exception of AMC, the secondary meme stock names. Clover today now trades around where it was when it took off in June. Names like ContextLogic (NASDAQ:WISH) have fared even worse. This continued resiliency, even as the meme bubble deflates, may give you the idea that GME stock can sustain, or perhaps add to, its current value.

Unfortunately, this isn’t the case. Possible catalysts that may have helped it stay strong, like possible inclusion in the S&P 500 index, have come and gone. Another possibility, that GameStop grows into its valuation thanks to its transformation from brick-and-mortar retailer to e-commerce pure play, remains debatable as well. GME stock may end up well ahead of where it started just before meme stocks became a thing.

But where shares eventually end up could still be substantially below today’s prices.

How Low Could GameStop Go in the Next 12 Months?

I’m  still sticking to my bear thesis on GME stock. So-called diamond hand holders of this stock are finally going to cash out. The good news for those who got in early is that this is a “take profit” sort of exit.

But for those a little late to the game, it will be a hard drop for GameStop from today’s prices. Investors will have accepting losses and move on. In other words, once the Reddit trader army cashes out, the pool of potential buyers will be made up mainly of investors only willing to buy at a fair valuation.

What’s a fair valuation? Given its e-commerce potential, it’ll likely settle at a level above its pre-meme prices, yet well below today’s prices. Based on prior numbers run by InvestorPlace, a fair value for the company is between $50 and $100 per share.

That’s a big fall from its current price of about $181.

The Bottom Line

There’s not much that hasn’t already been said about GameStop. It’s richly priced, at a valuation that’s well above even its potential value following its pivot to online retail. Its dedicated base of meme investors has not given up on it. Yet at some point, even they’ll decide to cash out. Once that occurs, a dramatic move lower is more than likely.

As it’s clear how this game will end, don’t tempt fate by buying GME stock at today’s prices.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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Author: Thomas Niel

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