I remain quite surprised at the massive rebound in commodity prices from COVID-19 lows last year. For instance, lumber is up >500% and iron ore, crude oil, soybeans, tin and copper are up 285%, 170%, 150%, 130% and 125%, respectively. Gold at $1,840/oz (up +25%) might seem unimpressive by comparison.
However, in August as gold roared past $2,000/oz, reaching at an all-time [nominal] high of $2,067/oz, there was real excitement in the air. Hundreds of gold junior stocks soared.
Today's gold price is 11% below its high tick, yet many high-quality gold juniors are down three to five times as much. In the chart below are 10 well-known gold juniors down an average of 48% from 52-week highs.
To be fair, some gold junior valuations might have traded too high last summer, but the sell-off appears to be overdone, leaving some really good opportunities. Readers should note that $1,840/oz is a spectacular price.
In the seven-years from 2013–2019, the average of year-end closing prices was $1,245/oz. Most PEAs, PFS/DFS reports done in that period used a long-term gold price assumption of $1,200–$1,350/oz.
Therefore, even without a higher gold price, juniors with gold properties in safe, prolific jurisdictions like Canada, near highly respected producers or world-class projects, offer very compelling risk-reward propositions. And, if the gold price fights its way back above $2,000/oz, all bets are off on how high some juniors might fly.
With that in mind, one such company with tremendous blue-sky potential, albeit with commensurate high risk, is Marvel Discovery Corp. (MARV:TSX.V; IMTFF:OTCQB). Last week it spun out some REE and battery metal assets, leaving it with four gold properties and a few others, including a nickel, cobalt, copper project in Quebec.
It has four gold properties spread across Newfoundland and the Red Lake/Atikokan areas. To learn more about the re-focused Marvel Discovery, I spoke at length with its CEO and large shareholder Karim Rayani, who continues to be an active buyer of shares in the open market.
Peter Epstein: Please give readers the very latest snapshot of Marvel Discovery Corp.
Karim Rayani: This is a great time to be looking at Marvel Discovery. Over the past several months the company has undergone a management reorganization and rebranding. We have acquired a number of gold assets that have tremendous potential and are adjacent to multimillion ounce discoveries in both Newfoundland and northwestern Ontario.
We think that discovery potential is high across our gold portfolio. We're adjacent to, or nearby, great producers like Agnico Eagle and Evolution Mining, and very well-respected juniors including New Found Gold, Great Bear Resources, Marathon Gold, Premier Gold Mines and Pure Gold Mining. Evolution is expanding in the district, having recently acquired Battle North Gold.
Peter Epstein: There's been a lot of excitement in Newfoundland lately. Can you talk about that, and about Marvel's properties in the province?
Karim Rayani: Newfoundland is one of the hottest areas for exploration these days. New Found Gold Corp. is achieving great exploration successes, its market cap has rocketed to C$1.4 billion. This has sparked a gold rush in the province. Marvel has been staking and acquiring new ground in key areas.
With our Victoria Lake and Slip gold properties, we're now one of the larger landholders around New Found Gold, Exploits Gold and Marathon Gold—host of the North Atlantic's largest gold deposit (aggressively drilling and looking to acquire more ground).
Victoria Lake shares structural settings with Marathon's world-class Valentine Lake project. Historical grab samples at Victoria Lake returned up to 15.5 to 24.9 g/t gold plus 18 to 140 g/t silver. Slip has similar structural settings as New Found Gold's Queensway project, and has historical surface samples as high as 44.5 g/t gold.
Peter Epstein: Please update us on the Blackfly Gold project.
Karim Rayani: Yes, Blackfly is very exciting. It's in the up-and-coming Atikokan gold mining camp, ~13.6 km southwest along strike of Agnico Eagle's 5.6 million ounce Hammond Reef Gold project. This year's exploration program follows up on last year's compilation of historical info and high-resolution airborne magnetics/time-domain EM data collection. Prospecting, bedrock mapping and rock sampling are underway.
We recently received a work permit allowing for trenching, line cutting and drilling. Diamond drilling of 16 holes is planned for the summer. Historical intervals include 1.1 meters at 15 g/t gold and 2 meters at 11 g/t gold.
Geological mapping indicates alteration/mineralization for up to 5 km. Grab samples at the historical shaft area include 85.6 and 167 g/t gold. With the work we've done this year and last, we're zeroing in on high priority targets.
Peter Epstein: You recently spun out two properties into a new entity. Where does that leave Marvel Discovery in terms of ongoing involvement in the assets that were spun out?
Karim Rayani: Good question, thank you. We're very excited to have spun out the Pecors and Wicheeda projects into a new entity named Power One Resources. This leaves Marvel as a more focused entity. However, Marvel retained ~25%–30% of the new entity. The remainder will be distributed to shareholders as a special dividend.
We plan on implementing the arrangement on or about May 13, 2021. Holders of Marvel shares as of the close on May 7th will get a common share of Power One for every five shares held in Marvel. Power One will also issue 5 million Power One Shares to Marvel.
Moving forward, Marvel and Power One will be sister companies with common goals. In fact, we recently picked up additional ground contiguous with Power One's Wicheeda REE property. To the extent that Power One advances Wicheeda and Pecors in coming years, shareholders of Marvel will benefit as well. Equally important, Marvel will be in a position to help Power One expand if/when they are successful.
We recently acquired a 100% interest of a 5,352-hectare property east of Elliot Lake, Ontario, that's contiguous to Grid Metals Corp's and Canadian Palladium's East Bull Lake Intrusive (EBLI) palladium (Pd) projects.
The new property is also near New Age Metals' River Valley deposit, which hosts a 4 million troy ounce Pd Eq. resource. Our EBLI property hosts a possible extension of palladium-platinum mineralization onto our property.
The Pecors property that we spun off, west of the newly acquired Marvel Discovery ground, has been recognized as a large (25 km long x 6 km wide) magnetic anomaly. A regional magnetic feature between the Pecors anomaly, and the EBLI to the east, suggests these intrusive suites may be connected. This possible connector and the southeast extension of the Pecors anomaly is hosted within the Marvel Discovery claims.
Peter Epstein: Can you tell us about your Camping Lake property in Red Lake?
Karim Rayani: In the Red Lake district we're earning into a 51% interest in the Camping Lake project. Camping Lake is within 20 km of Great Bear Resources' blockbuster Dixie Gold project. Historical exploration on the property was done by Kinross Gold, Laurentian Goldfields and Anglo Gold, incl. drilling and (rock, soil and lake sediment) samples.
Peter Epstein: Finally, how significant is your Duhamel battery metals project in Quebec?
Karim Rayani: Our 2,300-hectare Duhamel property is prospective for nickel, copper and cobalt. As a frame of reference, the best drill intercept we had was in 2000. A 3.0 meter interval graded 1.27% nickel, 0.33% copper and 0.12% cobalt. So, yes, we think Duhamel could be significant.
Those grades might not sound too sexy, but given that copper is at an all-time nominal high, and nickel and cobalt have significantly bounced off of last year's lows, that 3-meter intercept equates to ~5 g/t gold equivalent, and the mineralization is near surface.
Peter Epstein: Thank you, Karim. As always, a great update. I look forward to seeing progress on your gold prospects this year.
Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University's Stern School of Business.Sign up for our FREE newsletter at: www.streetwisereports.com/get-news
Disclosures / Disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Marvel Discovery, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Marvel Discovery are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.
At the time this article was posted, Marvel Discovery was an advertiser on [ER] and Peter Epstein owned shares and warrants in the Company.
Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he's diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts and financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events and news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.
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( Companies Mentioned: MARV:TSX.V; IMTFF:OTCQB, )tsx otcqb tsxv gold cobalt ree nickel copper iron diamond palladium
Nova’s Christopher Gerteisen talks gigantic gold hits, lithium exposure, and the path to production at Estelle
The Tintina gold province in North America is tremendously fertile, with over 200 million ounces of documented discoveries and production. … Read More
The Tintina gold province in North America is tremendously fertile, with over 200 million ounces of documented discoveries and production.
And while operations like Kinross Gold’s ‘Fort Knox’ run at grades well under a gram of gold per tonne (g/t), they are highly profitable, producing more than 200,000 ounces of gold a year at all-in sustaining costs (AISC) of US$1,000 ($1,300) an ounce.
This is the type of bulk mining operation Nova Minerals (ASX:NVA) envisages establishing at its flagship Estelle gold camp in Alaska.
In 2019, Nova ran its first drilling program at Estelle and came out with a maiden 2.5Moz resource from the ‘Korbel’ deposit.
Since then, the explorer has been drilling nonstop, increasing that maiden resource to 4.7Moz in two short years.
That’s all from Korbel, one of ~15 known targets on Nova’s tenure.
Last week, the explorer hit 132m at 10.1g/t gold at the newly drilled ‘RPM’ deposit.
Outrageous numbers. That must be up there as one of the gold hits of the year, if not the decade.
Stockhead chats with chief exec Christopher Gerteisen about gigantic gold hits and the path to production at Estelle, as well as some very interesting lithium exposure.
How does RPM now fit in with your development plans at Estelle?
“The Korbel deposit has always been our focus, but it is just one of 15 known prospects across our 324sqkm project area,” Gerteisen says.
“Next cab off the rank was always RPM, which sits 20 miles along mineralised strike due south of Korbel.
“We had a historic drill hole there of 120 metres at 1g/t. Not too shabby of a result, so we always wanted to go there, do some follow up drilling on that.
“This year we decided to go out there and start drilling, focussing on RPM North first.
“The first two holes came out a month or six weeks ago and looked pretty good. They confirmed the original historical drilling — we got similar results like 120 metres at 1g/t in those holes.
“This current hole — RPM five — hit the bullseye.
“People have thrown out all kinds of numbers — like it’s in the top 30 intercepts in the world ever; one person told me its top 10 in decades on the ASX.
“Either way, it is certainly world class.
“The thickness, the consistency and continuity of the grade, through those 130 metres is very impressive. And then it’s also right on the surface. Very happy with the result.
“I’m still waiting for results on hole three, four and six. At that stage, we’ll send all the data over to our resource estimation people and get a maiden resource out on RPM.
“I think it is going to be a ripper.
“By the size and shape of this thing we think this can be quite a large, large system.”
How does RPM compare with Korbel?
“They’re both intrusive related (IRGS) deposits,” Gerteisen says.
“These things can vary in tenor. When you are in the intrusive itself, like we are at Korbel, they tend to be lower grade.
“When you get into the contact and into the hornfels or sedimentary contact rocks they tend to be higher grade. And so that’s what we’re seeing in RPM.
“It seems to be a relationship at most deposits. At Korbel we just don’t see any of the contact areas; if we keep stepping out maybe we’ll eventually hit it.
“But Korbel is a beauty in its own right.”
And the metallurgy at Korbel is simple? An easy to mine, easy to process orebody?
“Yes. On surface, very low strip ratio,” Gerteisen says.
“It’s not one narrow vein or fault or structure you’re following — it’s basically sheeted veins throughout the entire intrusive.
“It’s just a sea of veins, a sea of mineralisation. The shape of the ore body, the geometry, is more like a big ‘blob’ like a large ellipsoidal shape.
“And so when we go to mine our strip ratio will be very low, approaching zero really, because everything you dig up is basically paydirt.”
How big is the resource going to get before you hit the button on a feasibility level study?
“This was our dilemma,” Gerteisen says.
“Our 4.7Moz resource is at what we call the Korbel Main deposit, but throughout the Korbel valley where the deposit sits we currently have numerous other geophysical anomalies to test.
“Plus, the Korbel Main orebody currently has a strike length of 1.8km and it is still open in both directions. We think we are on one of these 10Moz whoppers just at Korbel alone.
“With RPM [and all the other targets] who knows how big this could be.
“We are unlocking the district. So — do we drill for the next two years, five years to just keep increasing the resource? We are on the path to production here.
“About a year ago we decided our strategy would be to have a starter operation, something that Nova can do on their own.
“The sweet spot would be a 100,000oz to 150,00ozpa, something that has a 10-year mine life, something like a year to a year-and-a-half pay back, ~$200m to $250m capex to build.
“That would be the starter operation – we would get some cashflow to just start ramping up.
“The plan is to establish the Korbel mining and processing hub – that’s where our tonnes are – and then through the years have this pipeline of other projects coming through.”
Onto the lithium stuff. You don’t mention the Thompson Brothers project too much but that was your original flagship back in 2016, wasn’t it?
“That’s correct. It’s a great project in Manitoba Canada. Currently has a resource of ~11Mt at ~1% lithium,” Gerteisen says.
“It will be the first zero carbon hard rock spodumene mine in the world. Manitoba runs 100% hydropower.
“One of the reasons we don’t talk about it a lot right now – we want to, because lithium is so hot – is because we are spinning that off [via Snow Lake Resources] and listing it on the NASDAQ.
“That listing is not far off.
— Snow Lake Resources (@snowlakeres) January 22, 2021
“Once we get this listing done the valuation will be about $120m.
“After listing, Nova will probably have 65 to 68% ownership [of Snow Lake].
“Once we get that money we will release the PEA, and drill to get that resource up to 20 to 30Mt.
“If you look at our [lithium] peers that have a PEA and have a similar resource, they are running up to $500m, $1bn valuations.
“We have a lot of people approaching us right now to do a block trade, take some of the shares off us – even buy us outright but we don’t want to do that pre-IPO.
“We want to let it run. We think there is a lot more value to be gained for Nova.”
At what point do you guys think you would be in production at Estelle?
“Our schedule is this: resource update coming out before the end of the year, and then very soon thereafter — based on the new resource numbers — we will release our Scoping Study,” Gerteisen says.
“We are hoping to get that out before the end of the year, early next year.
“We have already started our next level of PFS test work. The PFS will continue through the next year, and we would like to release that in mid-2023.
“Then we will go straight into the BFS and we would like a decision to mine around 2024, 2025 timeframe.
“I would like to be digging first dirt by 2025, 2026. That is very ambitious but there are number of things going for us and I think we have a good chance of hitting those targets.”
Weekly Market Pulse: Perception vs Reality
It was the best of times, it was the worst of times… Charles Dickens, A Tale of Two Cities Some see the cup as half empty. Some see the cup as half…
It was the best of times, it was the worst of times…
Charles Dickens, A Tale of Two Cities
Some see the cup as half empty. Some see the cup as half full. I see the cup as too large.
The quote from Dickens above is one that just about everyone knows even if they don’t know where it comes from or haven’t read the book. But, as the ellipsis at the end indicates, there is quite a bit more to the line than the part everyone remembers.
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
The book is set during the French Revolution but it does a pretty good job of describing our current condition. How you see the world is a function of your circumstances, some of which you control and many of which you don’t. There has never been one America, one that everyone perceives the same, but it certainly seems that today there are more versions of it than there have been in the past. This is true within a lot of spheres but maybe none so much as the economic one. COVID has made the divide between rich and poor, blue collar and white collar, that much more stark. There is the America of work from home and there is the America of essential workers. There is the America of shareholders and homeowners and there is the America of paycheck to paycheck. Or, increasingly during COVID, from stimulus payment to stimulus payment or unemployment check to unemployment check. The economy is in a very different state depending on your position in this hierarchy. For those of us who are able to keep doing our jobs from our spare bedroom, the last 18 months has, for many, been a boom time. For those in service businesses that were victims of the shutdowns, the last 18 months has been a time of high anxiety.
In truth, for many Americans the high anxiety is not new. COVID merely accelerated trends that were already in place. Economic growth is ultimately about two things: workforce growth and productivity growth. Both have been weak for at least a decade and really quite a bit longer. The workforce has grown pretty steadily but the participation rate has been in decline for two decades. It did stop falling for a period from about 2016 to 2020 and had even started to rise again but COVID brought that short term trend to an end.
This, almost by itself, is why US economic growth has been unsatisfying for so long. This is also the genesis of today’s “labor shortage”. We can see the effect weekly in jobless claims which recently dropped below 300k for the first time since the arrival of COVID. I heard someone say a few weeks ago, when the weekly total was 335k, that it was improving but still “elevated”. I’ve been doing this a long time and I’m getting old but my memory has not failed yet and that just didn’t seem right to me. So, I checked the history and indeed a level of 335k is actually pretty average even during the boom of the late 90s. In fact, since 1980 there have been 384 weeks with claims less than 300k and only 25.5% of them happened prior to 2014. There have been 247 weeks with claims less than 275k but only 3.6% of them happened before 2014. And there have been 162 weeks with less than 250k and none of them happened before 2014. That tells me that employers have been very reluctant to fire workers for a long time before COVID and the only reason I can think of for that is that they fear they can’t replace them.
Why is this happening? That is a question with many answers – it isn’t just one thing and I don’t think you can say that all of it is “bad”. Baby boomers retiring is not something that is bad (in most cases) and that is certainly part of this. Some portion of this, especially since the onset of COVID, is about couples reassessing their life and deciding that the cost of a two income household is actually pretty high in ways that aren’t all economic. Some portion of it is due to the opioid epidemic (although I don’t think that is as large a part as is commonly believed). Some of it is due to an increase in the time people spend in collage; 13.1% of the population has a masters degree up from 8.6% in 2000. There is also an anger – call it wealth inequality or elite snobbery or envy or just a sense of fairness, it’s all the same – that manifests itself in the political arena. The election of Donald Trump and the popularity of Bernie Sanders and socialism at the same time are merely two sides of the same populist coin. Both sides of the political aisle recognize that the average American worker is angry and increasingly adopting a Johnny Paycheck attitude toward their employers. Where they differ is in the solutions – although in some areas there seems little difference. The divide between Bernie Sanders’ and Donald Trump’s views on immigration is not discernible to the naked eye. And there is a reason you’ve seen almost no change in trade policy since the election of Joe Biden.
It is ironic too that the provision of fiscal largesse during COVID may have finally pushed the economy to a tipping point. With help wanted signs everywhere, labor appears to have finally gained the upper hand. 10,000 workers went on strike at Deere last week and 1400 are out at Kellogg. There may or may not be an intentional work slowdown/sickout going on at Southwest Airlines. 32.000 nurses are considering a strike against Kaiser Permanente. American Airline pilots are picketing in Miami. A strike was barely averted in Hollywood by backstage workers after they got basically everything they asked for. It isn’t just union workers either as the Quits rate proved last week. I’ve written in the past about the surge in new business formations since the onset of COVID and that is part of this too. There’s a lot going on in the labor market right now and how it impacts the economy is almost impossible to say. At this point rising prices are eating up wage gains but that may not last and if it doesn’t then workers gains may turn into profit margin losses. Or it may be the spur for investments that improve productivity. Companies aren’t racing to perfect self-driving vehicles because they’ll be safer. They’re doing it because truck drivers are expensive and Uber drivers want health insurance.
Productivity growth has also been weak but the change is less dramatic than in the labor market. Since 2000 annual productivity growth has averaged 1.9% down from 2.7% from 1995 to 2000, a period of high investment and innovation. That doesn’t seem like a big change but compounded over many years it has an impact. I think a better way to look at productivity growth is through investment in capital goods. Core capital goods (ex-defense and ex-transportation) show why productivity growth has stalled:
Core capital goods orders peaked in 2000 and didn’t exceed that peak for over 20 years. As you can see though, orders have recently broken through that old top. This may be the most important economic development in two decades.
I included the George Carlin quote above because it describes how I, as an investor, have to think about the economy. I am a pragmatist and have no expectations as to how things will unfold in the future. I don’t know why people are quitting their jobs and not taking jobs that are available. I assume there is some wage level where workforce participation would rise again but I don’t know what that level is other than to say that it is higher than what is being offered today (and it certainly isn’t just about wages). I would also say that if that wage level is so high that businesses can’t stay profitable when paying it, they will do something else, they will substitute capital for labor, they will find ways to operate with fewer employees. Which may be why core capital goods orders are running higher right now. But I don’t know that and to be a good investor I can’t make assumptions. It is what it is.
This problem of perception versus reality is important for investors. Your reality does not necessarily bear on how the economy is perceived by the majority. Even objective reality doesn’t really matter for the markets in the short run – which can be a lot longer than you think. Markets tell us how the majority perceives it, not necessarily its real condition today. We have to invest based on that perception, not on reality, until we believe the gap between the two is so large that the current perception becomes untenable and has to shift to something new. And we need to understand that it is often the perception that creates the reality, the markets that shape the economy rather than the other way round.
At Alhambra, it is Jeff Snider’s job to describe the objective reality of the economy – how it really is. He is, however, human and so his perception of the economy is skewed by his own experiences and relationships. But he knows that and I know that and I think he does a pretty good job of describing the way things really are. We don’t always agree on how he describes it, the language he uses, but in general I think he gets a lot more right than most of the people in our business trying to decipher the myriad human relationships that create an economy. But the reality he describes does not always align with how we invest. It is at turning points, when the gap between Jeff’s reality and the market’s perception get too wide, that his research bears most on our investment choices.
Right now, the dominant narrative in markets is about inflation. Jeff and I agree that what is happening today is not real inflation (a monetary phenomenon) but rather rising prices that are a result of the supply side nature of the last recession. And in particular it is a condition created by government intervention, as first the Trump administration and now the Biden administration applied demand side government solutions to a – mostly – supply side problem. In short, the real problem right now is not actually supply but rather that demand is excessive due to the largesse of government “stimulus” (there are exceptions to that such as semiconductors). It was certainly necessary to support those who were truly hurt by the pandemic shutdowns. Service workers who were put out of work by government diktat certainly deserved a helping hand from that government. But the payments to those who didn’t need it – and that was and continues to be (child tax credits) a large cohort – were unnecessary, counterproductive and now hurting those who actually needed assistance. Rising prices hurt the poorest among us the most.
But the fact that today’s rising prices are from fiscal and not monetary excess is largely irrelevant to the markets and to individuals dealing with them. Investors are reacting to the “inflation” just as they would if it were driven by monetary factors. They are buying commodities, TIPS and other assets they perceive will protect them from it. And in doing so, they change markets in ways that can affect the nature of the future economy. As an investor it doesn’t matter if commodities are rising for the “wrong” reason. What matters is that they are and if you aren’t allocated there you’re missing a source of return for your portfolio. It also doesn’t really matter whether some individual commodity isn’t participating in the rally or if the general commodity indexes are rising mostly because of energy. Investors aren’t focused on whether platinum or iron ore is going up. They are focused on “commodities”, on the idea that in inflationary times “commodities” go up and they want to own them.
There is also an emerging perception, a narrative about economic growth right now, that it is accelerating as the delta variant fades. You can argue that COVID is a hoax or that delta didn’t really have much of an impact or that we’re going to get another wave in winter or whatever you want. But if the majority believes that economic growth is going to accelerate, that’s how they’re going to invest and you’re argument won’t make you a plug nickel. Investors right now are selling gold and buying copper. They aren’t doing that because they think the economy is going to slow. They aren’t selling bonds because they think growth is slowing either. Yes, they aren’t selling TIPS at the same rate as nominal bonds but that makes sense if you are worried about inflation and also think the economy is going to accelerate. We saw this last year when rates rose too; nominal rates initially went up a lot faster than TIPS yields. But eventually TIPS caught up because growth did accelerate. Will we see the same thing again? I don’t know but it certainly isn’t outrageous to think so and a lot of people do.
Our economy, the global economy, is undergoing a profound shift right now. Some of the trends that were in place prior to COVID have accelerated (labor market) and some may be reversing (investment and productivity). I do not believe there is any way to know how these changes will shape our economy and markets in coming years. Periods of economic upheaval like the last twenty years are always disconcerting, disorienting to those going through them. But similar periods in the past have also produced great innovations, big changes to the social and economic fabric of a nation. What those changes are will be revealed by the markets, through the perceptions and actions of investors, long before they are obvious. It’s going to be an interesting time for sure.
The emerging narrative about a Q4 economic acceleration gained some credence last week as the copper/gold ratio rose over 4%. Despite that move, I am not changing our economic environment assessment yet. The current level is about as high as it has been able to get since 2008 and absent a shift to a declining dollar I question whether it can go much higher. I am also skeptical of shifting to rising growth until we see a more decisive move higher in TIPS yields. The emerging economic acceleration narrative is exactly that – still emerging.
Job openings fell in August but are still historically high. Hires also fell but quits continued to rise. None of this is actually news since we’ve gotten plenty of other data on the labor market since August. But it does confirm what we already believed about the labor market.
The inflation data was wholly unsurprising and added nothing to the ongoing inflation debate.
The retail sales data was a big upside surprise though and will feed the accelerating growth narrative even though an inflation adjusted view isn’t as robust. Consumer sentiment continues to support the slowdown view but the idea that we’re near or entering recession – as some prominent economists speculated last week – seems a bit over the top.
We get more housing data this week and it will be interesting to see if there is any pickup. Based on my very unscientific method of talking to realtors and homeowners around the country, the housing market is cooling rapidly.
Stocks were up last week but the inflation side of the portfolio did even better with real estate and commodities both producing higher returns for the week. Non-US stocks also outperformed as the dollar fell slightly.
Growth took the lead for the week but the trend back to value seems intact.
Cyclicals and inflation sensitive sectors (real estate, materials) led the way last week.
Please note that I’ve added some new items at the bottom of this chart.
I have said many times that an investor’s job is not to predict the future but to interpret the present. Predicting the future is impossible but interpreting the present accurately isn’t as easy as it sounds. Today’s debate about inflation and economic growth and labor shortages certainly prove that by my reckoning. Is there a labor shortage? Is this inflation or is it some transitory thing that will fade as fiscal stimulus fades? Are those who had their unemployment benefits run out applying for open jobs? Is economic activity accelerating as delta fades or was the slowdown caused by something else? These are all questions about the state of the economy today, not in the future. And frankly, we don’t have very good answers for them. What markets are doing today, how people react to these things, will impact the outcome. What looks like a supply/demand imbalance causing prices to rise today could shift to something more permanent and monetary if it causes people to lose confidence in the Fed and subsequently the dollar. The long term health of the economy may improve because workers who refuse to work today cause companies to invest in productivity enhancing technology. Perception creates reality. Invest accordingly.
dollar gold inflation commodities commodity monetary markets policy fed inflationary ax copper iron
Russia’s Gold and Currency Reserves Soar to Record-High as Economic Uncertainty and Inflation Accelerate
Russia’s international reserves have soared to unprecedented levels over the past several years, as the country embarks on gold and
The post Russia’s…
Russia’s international reserves have soared to unprecedented levels over the past several years, as the country embarks on gold and foreign currency investments amid rapidly accelerating inflation and economic uncertainty.
Russia has now ranked fifth in the world in terms of international reserves, after China, Japan, Switzerland, and India. According to the country’s Accounts Chamber, Russia’s international reserves have surpassed $618.2 billion at the beginning of September, after the central bank raised its share of gold in its international reserves to 23.3% in December 2020— up from 7.8% at the beginning of 2014. “This is a historic record. No such figure has been achieved before in the whole existence of the Bank of Russia,” read the analysis.
Not only has Russia accumulated a sizeable amount of gold and foreign currency, the country’s reserves also include special drawing rights (SDRs), which are a form of payment issued from the International Monetary Fund. The Accounts Chamber report revealed that Russia’s SDRs have jumped substantially from $7 billion to $24.6 billion as of August. The international reserves are primarily comprised of highly liquid foreign assets that can be accessed by the Bank of Russia, while government reserves are made up of monetary gold, SDRs, foreign exchange funds, and a reserve position in the IMF.
The latest figures come as Russia’s finance minister on Thursday warned that the world risks succumbing to an unprecedented period of stagflation, as prices continue to rise rapidly while economic output slows. “Inflation is running above target in 14 of the G20 countries already and in many developed nations the scale of inflationary pressure is unprecedented,” he said, as quoted by RT News.
Information for this briefing was found via RT News and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.gold inflation stagflation monetary reserve central bank inflationary
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