by Kyle Johnson
 

If you’re not a speculator, you might want to become one. Here are five reasons why.
 

Reason 1: Key Confirmation

Last month, I wrote about the precarious position of the American consumer. Remarks from Brian Cornell (CEO of retail giant Target) support my thesis.

Cornell stated that shoppers are pulling back on discretionary spending. They’re even spending less on food.

His reasoning?

Inflation and interest rates have stressed budgets.

Call me crazy, but I’ll take Cornell’s word for it over a thousand PhDs at the Fed and various government agencies.

 

Reason 2: Corporate Crunch

Holiday cheer might be a little muted this year… even on Wall Street.

New York City attracts more visitors than any other city in the US. But foot traffic is down 33% compared to pre-pandemic levels. Across the country, holiday hiring by US retailers has dropped to levels not seen since 2008.

I expect earnings revisions and misses to be common in the quarters ahead.

US commercial real estate has sputtered. Cushman & Wakefield estimate over 1 billion square feet of office space sits unoccupied. Office space vacancy is at 19.4%. That all-time high is well above pre-pandemic levels (13%).

Over 4,500 retailers filed for bankruptcy in the first nine months of this year—up 61% over last year. They are at their highest levels since 2010.

Malinvestments are starting to clear. WeWork filed for bankruptcy in early November. That’s another 600 now worthless commercial real estate contracts. Perhaps other zero-interest-rate phenomena will follow suit.

It’s hard to believe it was just this year that Silicon Valley Bank collapsed. I think we’re likely to see another big bank collapse in the near future. Thanks to mark-to-maturity accounting, US commercial banks now sit on a collective $650 billion in unrealized losses in their bond portfolios.

It’s already ugly in corporate America, and the immediate forecast isn’t pretty.

You’re in good company if you’ve moved to cash. Berkshire Hathaway increased its cash holdings to a record $157 billion.

Would any of this be happening if a soft landing were imminent?

 

Reason 3: Power Struggles and Chaos

The US yield curve inverted in July of 2022 and is now disinverting.

Government debt now grows faster than GDP.

Multiple administrations failed to issue 50+ year bonds during ZIRP. The average maturity on US debt is just 62 months—down from 70 months in 2019. Debt-servicing payments over $1 trillion now exceed the entire defense budget.

I’m not sure when this spending and debt spiral into a doom loop, but even mainstream economists are getting uncomfortable.

Jay Powell called America’s fiscal path “unsustainable.”

Moody’s recently downgraded US debt.

Janet Yellen disagreed, saying that the American economy is “doing well and moving in the right direction.” So well, in fact, she thinks we can afford two wars as we make interest payments on previous ones.

President Biden insists “Bidenomics” is working.

I can almost sympathize with Powell for having to deal with the current administration as he tries to pull off a miracle. But I’m betting he fails.

 

Reason 4: Gold

I can hear the groans.

“We’ve been promised explosive returns for years… decades!”

But gold has breached $2,000 by a significant margin—again—hitting a fresh all-time nominal high of $2,135–$2,150, depending on which contract you quote. It’s very important that this happened during a time of elevated interest rates.

Nevertheless, gold stocks have barely budged.

Look at the charts—the resistance around $2,000 will likely serve as support during the next bull run.

And don’t forget that central banks (officially) bought 800 more tonnes of gold in the first nine months of this year. That’s a record amount according to the World Gold Council. An independent speculator must wonder what they know—or fear—but aren’t saying.

 

Reason 5: Quitters

It’s December.

That means it’s tax-loss season.

Nobody wants to be called a quitter. But strategically giving up on certain stocks can help minimize losses.

In contrast, quitting on a stock (or sector) because you’re bored or frustrated can add insult to injury.

Many gold stock investors self-identify as gluttons for punishment. But even they have limits.

Like Roberto Duran 43 years ago, many gold stock bag-holders will cry “no mas.”

Bags will be dropped.

Many appropriately so.

But some will be dropped in error.

Profitable stocks will be ripe for the taking… if you know where to look. And if you have the guts to pick them up.

After all, courage is the price of admission to capitalize on volatility and cyclicality.

 

One More Thing

It should go without saying, but none of the above is to delight in others’ suffering or misfortune. It’s just the blunt truth as I see it. Investors are free to get mad… but it’s probably more profitable to jump on board.

KJ

 

 

PS: Our subscribers cashed in on Lobo’s highest-conviction trade of 2023: uranium. It’s looking like gold might be his highest-conviction trade of 2024. To learn more, consider subscribing to our free, no-hype, no-spam newsletter—the Speculator’s Digest.