Weekly market checklist. Week 166. 26th July 2024

We are back from holidays to find big changes in politics and markets. Over the past 2 weeks there has been turmoil in US politics and sharp falls in equity and commodity prices. We discuss all that and the recent macro data, particularly UK and US inflation, UK earnings growth, US GDP growth, and July PMI’s. There are special sections on US labour markets, the US lumber market, and UK truflation. Plus viewer and contributor SimonW provides his technical analysis of the major equity markets. Simon has used technical analysis to navigate markets exceptionally well this year. Please let us know whether you find his work useful as he has very kindly offered to make it a regular segment.
Next week PM will be published as usual as I dial in from Britanny but we will then be taking a break for much of August. Enjoy the summer.
Chapters
00:00:43 This week’s news
00:04:10 This week’s economic data
00:21:43 EU economic data
00:24:36 US economic data
00:39:20 China economic data
00:42:14 One Chart
00:43:24 Simon’s Technical Analysis
00:48:02 US labour market
00:53:08 Lumber
00:55:48 UK truflation
01:04:19 Inflation watch
01:07:12 Recession watch
01:10:51 Soft landing watching
01:12:56 Weekly quiz
01:15:05 Other charts
01:15:52 Good news
01:16:41 Equity market checklist
01:26:09 Commodity summary
01:30:01 Industrial metals checklist
01:36:08 Precious metals
01:39:41 Bond yield and interest rates checklist
01:46:17 Concluding comments
01:47:02 Keith’s portfolio update
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[@gibson4696]

Just to also add I really enjoy the one-off type shows you do such as "my worst trade" and your experiences in Angel Investing.

[@gibson4696]

Just to say thanks for the work you do to produce this most weeks. Must watch for me. Also, I'm very much in favour of Simon doing a weekly segment.

[@portfoliomatters2473]

@gibson4696 thanks for the encouragement and support. It has been a very bad investment year for me and I am glad that you find the podcast worthwhile despite my terrible bond call. Richard and I have discussed the future of the podcast and are both committed to keeping it going.

[@danieluk5393]

Appreciated as always

[@lukeoldfield7940]

Hi chaps,
If you were already a profitable/cashflow positive gold mining company, then if the gold price goes up in line with your costs (in % terms) your cashflow and profits rise in real terms - this is the rationale behind investing in gold miners vs investing in the commodity? It also opens up the viability of more marginal deposits, meaning companies can potentially expand production and benefit from economies of scale to keep overall costs under control when individual components of costs are increasing - you can keep your AISC under control with higher throughput. I think is what Richard was trying to convey?
We've seen the gold price up 20% in the last 6 months and the junior gold mining index (often lagging the majors) up 33%, for example (leverage). I would expect to see this trend continue as earnings reports come out. That's where some of my money is taking the 'gamble' anyway!

[@portfoliomatters2473]

@lukeoldfield7940 Hi Luke, that is absolutely the rationale and in theory gold miners should be geared to any rise in physical gold. However, my point is that they have not been. As the long term chart of the ratio of gold mining equities to gold shows, gold has actually been a superior investment over time. Yes, the gold price has risen 15% this year and gold miners should now be doing well, but their costs will have risen by at least 20% over the past few years so the recent rise in gold merely helps to restore profitability it does not make them hugely profitable. The lesson of the last 20 years or so is that the costs of gold mining have risen more than the gold price itself, in part because of declining ore grades requiring more time and effort to extract the same amount of gold. I can't see that dynamic changing in the future. Bottom line: gold grades matter. Buy only gold miners with high grade mines

[@lukeoldfield7940]

@@portfoliomatters2473 Fair points - it pays to be selective on which gold miners and jurisdictions you invest in - ideally with relatively low labour costs.
High grade miners can be a trap also - if it is high grade, but narrow vein, then they can still have high costs as they have to be selective about which ore bodies to mine from etc, which takes time and extra work to unearth the best areas. If you have consistent, albeit lower grade you know what you're getting so can just 'chuck it all in the grinder' without the same extent of planning and careful extraction work. For example Serabi gold in Brazil are mining at 6-7g/t but still have far higher costs than ALTYN gold in Kazhakstan at c2g/t.
I do think that miners will outperform gold at some point shortly, simply because the valuations have become cheaper and cheaper - sooner or later that translates to larger shareholder returns (dividends/mergers etc) and that's what I'm banking on. Find the right ones, with growth plans and financing and you will outperform the metal. ALTN for example is up nearly double since end Feb - due to having a new processing plant shortly coming on stream.

[@TheStuartOwen]

Re Japanese property, it’s a tale of 2 markets. In the countryside and towns you’re right, depopulation, low wages, low wealth leads to very weak property prices (can even be negative!). In Tokyo, Osaka etc there’s higher wealth, higher salaries and international buyers looking to buy real assets to protect from depreciating currency (and possible risk of inflation).

[@portfoliomatters2473]

@TheStuartOwen thanks Stuart, that implies that the populations of the cities has been maintained or risen even as overall population growth has declined. Correct?

[@TheStuartOwen]

@@portfoliomatters2473my understanding is that the population in the big cities has been broadly flat. Certainly some buying from non-Japanese non-residents though, including Chinese money escaping from there. If anyone is deeply interested, there’s a website called Akasaka Real Estate that charts price per floor area. The line goes up for central Tokyo

[@srpasa6814]

if central bank interest rate increases lead to greater payments on fiscal deficit than a reduction in private sector credit creation and corporate bond issuance then rate rises have a reduced impact on controlling inflation long term, possibly why long bond yields aren't dropping and may be a bad bet in a stagflationary environment ?? middle class americans fixed for 30 years so i suspect thats why the transmission mechanism hasnt been as fast!

[@portfoliomatters2473]

@srpasa6814 I agree that higher interest rates have had a reduced effect this cycle due to mortgage holders locking in 30 year mortgages. I also agree with the MMT argument that higher interest rates on the massive debt stock pumps money into the economy and some of that will be spent. But I don't see a stagflationary environment. Inflation has come right down as I expected. Bond yields though have not. As long as inflation continues to behave bond yields should eventually follow. Equities have done very well despite weak economies and high interest rates. I maintain my strategy of only buying equities after they have fallen.

[@nillejoslin]

03:20"In particular he (Trump) will attempt to politicize the civil service and that would be very bad for US democracy" First of all, Trump refers to Federal employed activists/leftists that he wants to fire, so he wants to loosen their employment protection. So it will be bad for US communism, no doubt. You equal communism with democracy, which is not very odd for communists. I wonder why filling all Federal positions with left activists was not undemocratic when the Democrats did it. Why only when Trump wants to remove them to make authorities work again? Removing activists from authorities is rather unpoliticising them. Furthermore, what is it called to import 5 milijon poor migrants from South/Central America where it's known that at least 70% vote left? Democracy? And what is it called if those migrants are deported to the primitive and 3rd world countries they came from? A threat to democracy?😅 Your "analysis" bears the intellect of communist. "It's only OK when we do it!!!!!!" 😂

[@portfoliomatters2473]

@nillejoslin Thankyou for your comment. You are welcome to disagree with my politics but please don't call me a Communist. One thing that we can both agree on is that Communism and Socialism never work and inevitably result in economic collapse. The Anarchist Mikael Bakhunin pointed out many years ago that people were not equal under Communism because they did not have equal political power. The crimes and inequities of Communism and Socialism all stem from that fundamental imbalance. Venezuela is just the latest in a long list of Communist/Socialist regimes where the populace have been impoverished while the political elites have been enriched and use military oppression to maintain their privileges. Why anyone still believes in Communism/Socialism given all the evidence that it doesn't work is a continual mystery to me

[@nillejoslin]

@@portfoliomatters2473 I look at what people actually accomplish with their policy recommendations, not what they fancy they do. If you, for instance, advocate migration from the 3rd world, or recommend Kamala Harris, who advocates migration, over Donald Trump, you're essentially a socialist/communist because it's a known fact that at least 70% of those migrants vote socialist. A "libertarian" like author Johan Norberg (In Defense of World Capitalism) that advocates capitalism is still effectively a socialist because he also advocates free movement for 3rd world migrants into capitalistic countries in the west, where they will replace capitalism with socialism. It happened in California with the Latino migration. The state went from stable Republican to stable Democratic. Ronald Reagan could not have made his political career today with a totally changed demographics.

[@nillejoslin]

@@portfoliomatters2473 There are more problems with migration from the 3rd world than making the west socialist. Their home country is called 3rd world for a reason. You should know from Rotherham and other places in England that there are Pakistan grooming gangs that have exploited young girls, often handicapped. The social authorities and police tried to silence this activity for almost 20 years and just let it go on. The lying press, once the scandal was revealed, called it "Asian gangs" to pretend it involved East Asians, the most peaceful ethnical group in the world (evidence from numeral western countries) and well adapted to society to which they move. There is a colony of 20.000 Japanese in Dusseldorf that people hardly have heard of because they adapt so well. Still, even East Asians vote by margin for the left in their new country.