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Massif Capital 3Q20 Commentary: Gains From Ivanhoe Mining, Turquoise Hill And Lithium America

Massif Capital commentary for the third quarter ended September 2020 discussing their largest contributors Ivanhoe Mining, Turquoise Hill and Lithium America. Q3 2020 hedge fund letters, conferences and more Dear Friends and Investors, The core portfolio for Massif Capital was up 6.2% during the third quarter of 2020. Year-to-date, the portfolio has returned 29.5%. A […]
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This article was originally published by Value Walk

Massif Capital commentary for the third quarter ended September 2020 discussing their largest contributors Ivanhoe Mining, Turquoise Hill and Lithium America.

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Q3 2020 hedge fund letters, conferences and more

Dear Friends and Investors,

The core portfolio for Massif Capital was up 6.2% during the third quarter of 2020. Year-to-date, the portfolio has returned 29.5%. A detailed report on individual account performance will be provided to investors in the coming days.

Portfolio Attribution: Ivanhoe Mining, Turquoise Hill and Lithium America

The third quarter was a volatile one for the portfolio, with a significant move to the upside in July and August (roughly 12% gross of fees) followed by a sharp September sell-off (roughly -6% gross of fees). The long book drove the gains with a total contribution of approximately 11%. The short book dragged on results throughout the period, contributing -4% to the overall performance. Returns were once again driven primarily by our basic materials exposure and its heavy concentration in mining businesses.

Our two copper mining positions, Ivanhoe Mining and Turquoise Hill, and our investment in junior lithium miner Lithium America were three of our five largest contributors, producing a roughly 9.5% gain for the portfolio. Vestas Wind Systems was our second-largest stand-alone contributor, yielding a 2.8% gain for the portfolio. The book’s short side produced no positive returns for the quarter, with our positions in US railroads, agriculture, and questionable cleantech companies all moving against us.

Our tail risk hedge, which helped us weather March and April’s storms, created a greater than normal drag on quarterly returns. Since the fund’s inception, however, it has produced a positive return due to the extreme volatility in February 2018 and the significant sell-off earlier this year. As important as the offsetting gains produced by the position during significant market events has been, the hedge has also provided an influx of cash at opportune times. The cash generated from this year’s early sell-off was reinvested in our copper and lithium investments which have roughly doubled in the intervening months.

Risk Management

It was a relatively quiet quarter in terms of portfolio turnover. We added two equity positions on the portfolio’s long side, gold miner Lumina Gold Corp and European utility RWE. Those interested in a more detailed look at our Lumina Gold thesis should read our recently published report on the firm. Also, we reestablished our short exposure to a basket of cleantech companies we think are of questionable quality and suspect staying power, having exited the same positions in the second quarter. This time around, we choose to add the exposure via long-dated out of the money put options. As we continue to improve our approach to risk management iteratively, we expect a more thoughtful use of options on the short side may play a productive role in the portfolio.

The basket of cleantech companies we have shorted are all profitless with uncertain business models that hinge on dubious management claims and concerning balance sheets. Nevertheless, they are helmed by managers skilled at telling their stories and capable of tapping debt and equity markets for cheap funding. That one or more of these firms is a bankruptcy candidate in short order in anything, but the most favorable financing environments is all but certain. The current combination of easy money and their bold green narratives have created a tendency for volatile but somewhat parabolic moves to the upside. As such, they make for difficult firms to comfortably short via equity. We believe that the opportunity to retain exposure to our negative outlook for this basket of firms while fixing the downside risk via options presents us with a better risk-reward opportunity than an outright equity short.

We also used call options this quarter to fix our downside in the portfolio’s two US railroad shorts. US railroad equities have continued to appreciate despite nearly two years of contracting volumes. Although we find the idea of margin improvement via the outright shrinking of the business a questionable route to long-term value creation, the market continues to disagree with us. Companies should be sized and scaled appropriately to be economically sustainable. Still, a near-continuous shedding of employees and mothballing of assets seems an unsustainable and managerially questionable approach to improving margins.

By fixing our downside with long-dated call options, we admittedly shrink our possible gain from the short positions, but we also extend our time horizons and enhance our ability to endure upside moves. As an example, one of our railroad shorts could potentially produce a return for us of 48% should it fall to what we believe is a more realistic valuation with the addition of the call options, that potential gain is reduced to a 43% return. Between a wager with a known downside that costs us a small percentage of the potential upside and an uncapped downside with only slightly more significant upside, we are more comfortable with the former.

Changing Business Models

In August, we initiated a position in the German utility RWE. RWE is transitioning from one of Europe’s most polluting and carbon-intensive electric utilities into a leading renewable energy producer, a transition that we believe the market has yet to appreciate fully. Three years ago, RWE was a coal operator, with a lignite mining and energy trading arm contending with significant uncertainty from an unsettled German regulatory environment. Following a complicated asset swap with E.ON that was completed last year, the firm has emerged as one of Europe’s largest renewable energy producers and has financially ring-fenced their coal phaseout liabilities.

Today, offshore wind makes up about 69% of the group’s earnings. Onshore wind and solar make up the rest with a small contribution from hydro and biomass. We expect earnings to rise through 2022 as projects under construction should expand their renewable power base by ~50% over the next two years, and the returns from legacy assets in runoff produce strong cash flows.

Power generation margins should continue to recover after bottoming out in 2018. The company has sold 90% of its expected electricity output for 2020, 65% for 2021, and 45% for 2022 at much higher prices than it did from 2017-2019. This should help offset the broader decline in wholesale prices across continental Europe in part caused by the sharp drop in natural gas prices and the deployment of zero marginal cost renewable capacity. Although the company has a multi-year transition ahead of them, we believe the renewable build-out acceleration, combined with increasing clarity in the European Union around mandated asset closures and clean energy targets, is a powerful tailwind. Earnings quality has improved as they have rotated into lower marginal cost resources, resulting in both an increase in earnings and potentially a higher market premium on those earnings.

Corporate transitions from high carbon footprint business models to low carbon footprint business models represent some of the more intriguing long-term opportunities currently on offer in public equity markets, but they are not without their challenges. Transitioning firms, recently discussed in our white paper on ESG investing, face the challenge of presenting their strategic shift to the market in such a way that the future potential from the transition is understandable and easy for the market to discount.

Although equity markets now appear ready to believe any story startup firms’ management tells them, they remain less willing to discount the changes being made by larger incumbents. In some regards, this is the reason our portfolio is overweight firms that enable a transition and underweight firms that must transition. Over time, we expect this ratio to shift as the value add of transition strategies becomes more accretive to many firms’ bottom lines.

For some industries, the shift is still some years off. We believe the European utility sector may be an exception to the market’s slow recognition of strategic transition value in part because of the more settled (and co-operative) regulatory environment. Some exceptions exist, and several US firms have caught a bid from environmentally concerned investors. However, many utilities are still sorting out their transition strategies, and the market is penalizing them for it. The U.S. utility sector has a 3.5% dividend yield is ~270 basis points above the 10-year U.S. Treasury yield, a ratio nearing historic highs. On average, balance sheets and earnings outlooks appear to support both the current payout ratios and transition strategies, assuming they remain well-sequenced transitions.

From now on, we expect to see developed world utilities focus on scaling their customer base as large as possible and moving aggressively to change the composition and value proposition of supply as they grow their customer base. Sequencing the two changes properly is essential; to date, shifting supply towards renewables in the absence of a growing customer base has eroded the traditional utility earnings power relative to capital expenditures despite improving margins. As renewables become a larger percentage of total capacity, utilities need to decouple the production cost and value of a MWh. Continuing to frame an electricity contract’s value in terms of operating and maintenance cost is deflationary in the presence of renewable generation.

Suppose regulators and management teams continue to peg the value (revenue) of a MWh to the declining maintenance expenditures. In that case, the pricing for electricity will fall at least as fast as the cost curve. Revenue will continue to decline as the need for additional capital expenditures rises. Management teams will be forced to increase their customer base to outpace the assets’ declining revenue-generating ability. Viewed through this lens, the reported NextEra takeover bid for Duke Energy makes a lot more sense. NextEra wants to buy Duke Energy’s 8.9 million customers.

As generation cost drops, utilities will likely need to offer MWh’s for free in exchange for alternative grid services or non-utility revenue sources. With enough renewables on the grid, cost curves will hit a price point that requires some value to be provided other than through the sale of electricity. Volta Charging, an EV charging station network, provides an example of what might be coming down the pipeline – offering free vehicle charging and monetizing advertisement, land value, and partnerships.

Today, the supply composition change is well underway as many utilities switch from fossil generation to renewable generation. Although the switch is often accretive to the bottom line immediately, too much of a good thing is, well, too much of a good thing. Margins expand as high OPEX generation (coal) is replaced with low OPEX generation (renewables). Still, revenue shrinkage can overwhelm margin expansion, and smaller earnings can often be overwhelmed by growing capital expenditures.

Utilities have long played second fiddle to oil and gas companies in the energy system when it comes to value creation, but this is changing. Tesla overtaking Exxon Mobil’s market cap this summer was an interesting story not because Tesla surpassed Exxon in market value but because EVs will enable utilities to surpass oil and gas in value creation. Utilities providing energy to power EVs represent a massive transfer in ownership of the total energy supply from oil companies to electricity generators. It is a generational value transfer we seek to capture.

Electricity producers in Asia, Europe, and North America are not the only ones experiencing pressures to change or attempting to take advantage of new opportunities. In July, we initiated a position in Polaris Infrastructure (PIF), a small-cap energy developer focused on the fractured but growing South American market. The firm currently operates 72 MW of geothermal capacity in Nicaragua and 33 MW of run-of-river hydroelectric capacity in Peru. PIF is conservatively capitalized and trading at a discount to the operating value of its current power contracts. We believe PIF will double their generating capacity over the next five years, financing the transition via organic cash flow while maintaining a strong balance sheet and robust dividend (currently yielding 5.7%).

Over the summer, PIF completed a debt financing with the Brookfield Infrastructure Debt Fund. While the credit facility was quite expensive, the arrangement structure suggests that Brookfield may use PIF as a platform partner for smaller deals in select South American jurisdictions. PIF would inject equity into a pre-commercial project and extract their capital through an increase in the facility backed by the new asset once stabilized. If they continue to execute, they may have relatively stable, non-dilutive access to non-recourse capital from which to grow.

The renewable energy market in South America is poised for growth, and so the project opportunities for PIF appear plentiful.

Recent reporting by IRENA and the US Department of Commerce noted that many of the top markets for renewable energy investment are in Latin America. Planned renewable capacity in the region represents just 6% of total renewable power potential. This contrasts with Europe, which sits at ~15%, the U.S. at ~13%, and Southeast Asia at ~25%. Solar generation is expected to grow at an annualized rate of 53% over the next decade. Wind and geothermal are also anticipated to expand at 50% and 39% annualized growth rates, respectively. About half of that total capacity expansion is already earmarked and in some stage of the development process.

Furthermore, energy auctions have been adopted across the region, and costs are incredibly competitive with global averages; Argentina has settled contracts at 4 cents/kWh for wind. Brazil has seen solar projects average 2 cents/kWh. The region continues to remain one of the most active and competitive hydropower markets in the world. Low prices combined with land availability has led to increased competition and a wave of megaprojects. Solar and wind assets with capacities ranging from 50 MW to 300 MW have dominated the auction markets since 2018. Lastly, Latin America leads the world in aggressive decarbonization targets, setting a collective mark of 70% renewable energy use by 2030, more than double what the European Union is anticipating.

Utilities and developers are not the only firms in our portfolio transitioning their business models. Altius Minerals, a base metal royalty and streaming firm we have been invested in for eight months, is also hard at work adjusting to a changing operating environment. For several years, the core business has been focused on providing financing to mining firms focused on metals essential for electrification & storage, lower emission steel making, and soil quality and agriculture yield improvements.

Before expanding and increasing the firm’s focus on transition metals, they also had an extensive portfolio of royalties associated with coal. The portfolio of coal royalties continues to produce good cashflows, and management has made the correct decision, in our opinion, to retain those royalties rather than sell them at a loss. Many ESG concerned investors may critique such a decision on a carbon footprint basis but doing so represents a failure to consider how such capital can be redeployed productively by a skilled management team.

As we have touched on previously in Altius’s related discussion, management is recycling coal royalty revenue into a newly formed subsidiary, Altius Renewables. In doing so, they are turning carbon-heavy royalties into long-term green royalties. The strategy has significant positive momentum, and management is in the enviable position of having more project opportunities to deploy capital into then they have capital, allowing for this management team’s excellent capital allocation acumen to shine.

In early October, they announced a joint venture with Apollo Infrastructure funds that acquired a 50% stake in the operating subsidiary, committing $80 million to the joint venture.2 As noted in our initiation report on the firm, Altius is a first mover in porting over the royalty model commonly used as a financing mechanism in natural resource industries to renewable energy development. Apollo expects to invest up to $200 million in the subsidiary.

We remain extremely confident in the management team at Altius and in their transition model. It remains the only publicly traded royalty company that we know of trading below its net asset value. Over the next few years, the firm’s differentiated strategy will result in a unique, and we believe highly remunerative, trajectory for the company relative to its peers.

As always, we appreciate the trust and confidence you have shown in Massif Capital by investing with us. We hope that you and your families stay healthy over the coming months. Should you have any questions or concerns, please don’t hesitate to reach out.

Best Regards,

Will Thomson

Chip Russell

Massif Capital

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Precious Metals

Northern Vertex To Become Elevation Gold, Consolidate Shares As Of Friday

Northern Vertex Mining (TSXV: NEE) last night after the bell provided the effective date for its previously announced share consolidation
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Northern Vertex Mining (TSXV: NEE) last night after the bell provided the effective date for its previously announced share consolidation and name change. The firm has indicated that its name will change to that of “Elevation Gold Mining Corporation.”

The name change, which will also see its stock symbol change to “ELVT” is set to take effect on September 24, 2021. A reason for the change was not provided, however it is assumed that the company is looking for a fresh start within the investment community.

A planned share consolidation, or reverse split, is also set to take effect on Friday. The consolidation will see the firm issue one post-consolidation share for every six pre-consolidation shares held of the company. A total of 60.9 million common shares are expected to be outstanding after the consolidation occurs, with any warrants or options currently outstanding being reduced proportionally as well.

Northern Vertex Mining last traded at $0.275 on the TSX Venture.

Information for this briefing was found via Sedar, 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.

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Precious Metals

Selloff Puts All Eyes on the Fed

Looking for a dovish Fed … the crypto sector suffers another drawdown … will gold ever register a pulse?

Tomorrow, all eyes are on the Fed.

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Looking for a dovish Fed … the crypto sector suffers another drawdown … will gold ever register a pulse?

Tomorrow, all eyes are on the Fed.

It’s the most anticipated Fed announcement in recent memory. Investors are expecting hints about the timing and scope of a Fed bond-purchase tapering.

Economists surveyed by Bloomberg expect the November meeting is when we’ll get a formal announcement on the Fed reducing its monthly purchases of $80B of Treasurys and $40B mortgage-backed securities.

Of the 52 economists surveyed, two-thirds expect November. More than half of them believe the taper will begin in December.

But as we noted in yesterday’s Digest, Louis Navellier believes we’ll get more information tomorrow, which will calm markets.

From Louis’ Platinum Growth Club Flash Alert yesterday:

I am expecting a dovish statement.

I am expecting the Fed will clarify that they will begin tapering.

But it’s probably just going to be a mini-taper, not a big one. And so, I think it will be interpreted as dovish, and the market will rally.

***Louis isn’t the only one expecting a dovish Fed

Our hypergrowth expert, Luke Lango, also expects the Fed will tell the market what it wants to hear, resulting in a late-week rebound.

Interestingly, Luke points toward yesterday’s volatility as a clear signal to Federal Reserve Chairman, Jay Powell.

From Luke’s latest update of Hypergrowth Investing:

The Fed is slated to meet today and tomorrow to discuss monetary policy. Many Fed members have voiced a hawkish tone ahead of that meeting, advocating for some tightening via a tapering of asset purchases.

Wall Street is braced for this – investors are largely “OK” with a gradual and smooth taper.

But Wall Street doesn’t want anything more, and they’re letting the Fed know by selling stocks ahead of the meeting, basically saying: “Hey, Fed, if you tighten more aggressively than you’ve signaled, the stock market’s going to collapse, and the whole world is going to blame you.”

It’s a warning shot.

And it’ll work.

Luke believes that today and tomorrow could be choppy in the markets. But tomorrow at 2 p.m. ET, Powell will take the stage. Luke anticipates he will announce a taper, while delivering it in an ultra-dovish tone – pleasing the markets.

That will lead to a market rebound to close out the week.

***If you follow the money-flows, U.S. investors are also expecting this “Wall-Street-friendly” Fed

From Seeking Alpha:

The market is seeing a “monster reallocation cash-to-stocks as tax redistribution threat recedes & Fed expected to remain Wall St-friendly (liquidity easiest since Jul’07),” Michael Hartnett, BofA chief investment strategist, wrote in the “Flow Show” note on Friday.

How big is this reallocation?

Last week, investors dumped cash in favor of stocks at the greatest pace of the entire year. The outflows from money market funds registered $43.5 billion, the biggest of 2021, according to Refinitiv Lipper.

It also marked the largest inflow into U.S. large-cap funds ever. It was $28.3 billion, to be exact. Growth funds saw nearly $7 billion, with small-caps getting $4.2 billion.

So, the results of tomorrow’s FOMC meeting could be a market-mover. We’ll let you know how it goes here in the Digest.

***Stocks aren’t the only asset class in the red recently – the crypto sector has been suffering a sell-off

It feels like bitcoin and the crypto sector had finally begun turning the corner after the 50%+ drop from the spring. That was, until a flash crash from two weeks ago ushered in more weakness.

Yesterday’s multi-asset class selloff hit crypto as well.

From Forbes:

Cryptocurrency prices plunged Monday morning during a widespread market sell-off sparked by concerns of a potentially catastrophic debt default in China, pushing many of the world’s largest digital currencies to their lowest levels in more than a month.

The value of the world’s cryptocurrencies plunged to a low of less than $1.9 trillion by 8:45 a.m. EDT on Monday, nearly 11% less than 24 hours prior and reflecting a loss of more than $250 billion, according to crypto-data website CoinMarketCap.

Pullbacks like this are never fun to sit through, but they’re not unusual. So, it’s critical to avoid interpreting “temporary weakness” as a sign of “impending doom.” This is just standard crypto volatility.

Luke, who is also our crypto specialist, echoed this same point in his Saturday update of Ultimate Crypto. And this was before yesterday’s sector weakness.

After highlighting bullish adoption news about several holdings in the Ultimate Crypto portfolio, Luke wrote:

That’s not to say we won’t get a big sell-off here soon. We may.

That’s what cryptos do – from time to time, they plunge.

But it is to say that consumer adoption is progressing at breakneck speed, and consumer adoption will ultimately determine the long-term price trajectory of cryptos.

That’s why we’re more bullish than ever, and why we will be huge buyers on any future plunges in cryptos.

By the way, if you missed it, last week, Luke sat down with fellow crypto expert, Charlie Shrem, to discuss the huge opportunities in the crypto sector.

In short, they believe a new massive crypto bull market is forming, and certain cryptos are likely to go parabolic. Weakness like we’re seeing right now is offering investors greatly-discounted entry prices to top-tier cryptos.

If you’ve been looking for a time to begin a crypto portfolio, this is a good opportunity. To watch the free replay of Luke and Charlie’s event, just click here.

***Meanwhile, even with stocks and cryptos down and anxieties up, gold still can’t catch a bid

There was a time when steep selloffs in stocks and other asset classes would frighten investors, resulting in huge inflows into the “chaos hedge” of gold.

Though that time may return, it’s not here right now.

Yesterday, as all three major stock indexes dropped more than 2%, gold yawned, barely inching higher (and silver actually lost 0.6%).

Our macro specialist and the editor of Investment Report, Eric Fry, put a poetic spin on this…

The yellow metal is barely registering a pulse at the moment. Most of the wax figures inside Madame Tussauds museum seem more vibrant and lifelike.

But the thing about gold is it tends to come back from the grave at the exact moment that dejected investors finally leave it for dead.

Back to Eric:

After gold’s decade-long dormancy from 1991 to 2001, for example, it suddenly sprung to life and soared 500% over the ensuing decade.

More recently, the gold price drifted 40% lower during the seven-year span from 2011 to 2018. But then it revived once again and rallied as much as 70% from its 2018 low.

That rally was probably the first phase of what will become a much bigger move. Now that the gold price has spent more than a year going nowhere, it has gained plenty of rest for its next major move higher.

Frankly, the pessimism has grown so intense that gold is beginning to resemble a dream-trade for a contrarian investor.

Back to Eric to put some numbers on this:

Most folks want little to do with gold at the moment.

On a net basis, investors have withdrawn more than $15 billion from the SPDR Gold Shares ETF (GLD) during the last 12 months. That’s the most rapid and sizable retreat from this gold fund since 2013.

To summarize today’s approximate investor attitudes, they like stocks, adore cryptos, and feel sorry for gold and silver.

“Both metals are suffering from a complete lack of investor interest,” griped Ole Hansen, head of commodity strategy at Saxo Bank A/S, during Thursday’s abrupt selloff.

But remember, there are two macro factors in gold’s corner – inflation and soaring government debt.

Eric notes that the 12-month federal deficit stands at $2.8 trillion…which is a whopping 12.5% of U.S. GDP. Meanwhile, the six-month average U.S. inflation rate is hitting levels not seen in 30 years.

Back to Eric:

Historically, great, big governments deficits, coupled with great, big inflation readings, trigger great, big gold rallies.

Perhaps this time is different. But there’s a reason why many seasoned investors say that “This time is different” is the most expensive phrase in finance.

Because it is…

We’ll keep checking for a pulse here in the Digest and will let you know.

See you back here tomorrow for the post-mortem on the Fed announcement.

Have a good evening,

Jeff Remsburg

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Here’s Why Evergrande Is NOT the Next Lehman Brothers

Thirteen years ago, on September 15, 2008, Lehman Brothers, one of the largest banks in the U.S., collapsed. The reality is the bank was overleveraged…

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Thirteen years ago, on September 15, 2008, Lehman Brothers, one of the largest banks in the U.S., collapsed. The reality is the bank was overleveraged in the real estate market during the housing boom, as it invested in risky real estate and subprime mortgages. When the housing bubble burst, Lehman Brothers didn’t have the cash to cover its loans. As a result, the big bank went bankrupt.

Source: Shutterstock

While the “Great Recession” was already underway, it was Lehman Brothers’ mighty fall that was the straw that broke the stock market’s back. Stocks initially chopped around on hopes that the Senate would bail out the big bank, but when they decided not to, stocks were sent into a tailspin. On September 29, 2008, the Dow plummeted 777 points and the S&P plunged 8.8%. At the time, this was both indices’ biggest one-day selloffs in history.

So, when it was announced yesterday that Chinese real estate company Evergrande was on the verge of defaulting on its nearly $300 billion in debt, Wall Street felt a little déjà vu. As a result, investors knee-jerk reacted, causing the Dow to fall as much as 970 points and the S&P 500 to slip 2.9% during intraday trading.

Suffice it to say, it was a bad day for the market, though I must admit I did find it ironic that the financial markets in China and Taiwan were closed while the U.S. markets sold off.

The reality is that China has a debt bubble that’s being pricked. A few weeks ago, its junk bond market was showing some cracks. But is Evergrande China’s Lehman Brothers? And, more importantly, is now the time to sell and sit on the sidelines?

Personally, I don’t think so.

The fact of the matter is Evergrande is too big to fail — and I’m not alone in this thinking. My favorite economist Ed Yardeni commented yesterday morning that the Chinese government is likely to intervene in order to protect the Chinese economy and global markets from the fallout. He noted that Evergrande management is likely to be replaced, and the company will probably be restructured.

Yardeni compared the current Evergrande situation to what occurred in 1998 with Long-Term Capital Management. At that time, the Federal Reserve and other major financial institutions stepped up to protect the U.S. economy — and global economy — from a major collapse when the hedge fund’s leveraged trading strategies failed.

This is why I believe yesterday’s sharp pullback is a prime example of Wall Street’s tendency to “act first” and “think later.” Yes, the Dow’s nearly 1,000-point plunge was gut-wrenching, but I suspect clearer heads will prevail and the stock market will firm up in the upcoming days.

Remember, we have the Federal Open Market Committee (FOMC) statement on Wednesday (I’ll share my thoughts on the FOMC statement in Thursday’s Market360 article, so stay tuned for that!), and I expect the Fed to remain dovish, which should trigger a nice relief rally.

The reality is the Fed has to remain accommodative. As I explained to my Growth Investor subscribers last Friday, in 2020 only 39% of Americans paid income taxes. So, even if the federal government taxes all of us at 100%, the federal budget deficit will still be more than $8 trillion. The federal government has essentially reached the point of no return, and it is following the same path as Japan and Europe. It simply cannot tax its way out of the deficit conundrum. I should also add that the Social Security Trust Fund ran a deficit in 2020 and will be out of money in 2034.

Given the massive federal budget deficit, I don’t expect the Fed to raise key short-term interest rates much higher. We may see the Fed raise the Fed Funds Rate from 0.25% to 0.5% in late 2023 and then to 0.75% in 2024. But rates aren’t likely to go much higher than that. Due to the dire U.S. fiscal situation, the Fed has no choice other than to print money and keep interest rates artificially low.

As a result, the U.S. stock market should remain an oasis in the ultralow interest rate environment. The S&P 500 and Dow continue to yield more than Treasuries and the banks, which is driving yield-hungry investors back to the stock market to high-quality stocks. This is especially great news for my fundamentally superior Growth Investor stocks. During the second-quarter earnings season, my average Growth Investor stock posted a 26.9% second-quarter earnings surprise, and many rallied on their strong results.

Considering this, I am looking forward to the third-quarter earnings season and what it has in store for my Growth Investor stocks. I should add that my Growth Investor stocks are characterized by 46.9% annual sales growth and 57.2% annual earnings growth, and I fully expect them to post wave-after-wave of positive earnings results, which, in turn, should dropkick and drive them higher.


Louis Navellier

P.S. John F. Kennedy once famously implored us to “ask not what your country can do for you; ask what you can do for your country.”

Now a new generation has turned that statement on its head.

We’ve reached a point of no return.

Our country has been taken over by a gang of folks who would rather take money from us than earn it themselves.

We have become what our forefathers feared:

A nation of takers.

If you’re a believer in financial responsibility and the ideals of the Founding Fathers like George Washington, this should scare you.

If you have any money in savings, in the stock market, in a 401(k) or even cash stuffed under the mattress, this should make the hair on your neck stand up.

I recently recorded a video to explain exactly what’s happening… and why it’s so dangerous to your wealth.

And I’ll share what I’m doing with my money to protect myself. (Hint: It has nothing to do with gold, precious metals or cryptos.)

Click here to see this urgent video message now.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.

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