Opportunities

Today we’ll talk about Fed monetary policy outlook. We’ll also review an opportunity in China and oil that may be appealing to patient investors. Finally, an easy to understand lesson in economics, and how reckless spending has impacted inflation.

Fool us once, twice, or more times…Anyone still trust them?

The same Fed who called for transient inflation that would end in a few months….That was 3 years ago!!….still trust that call?

“While acknowledging that inflation has come in higher than expected in the opening months of 2024, the Fed collectively is not convinced that this bump is going to be sustained” David Rosenberg

“Core CPI was 0.4% in the past three months, so it makes sense the Fed will have to see several months of favorable data before it can ease. That takes us to September.” Arthur Bass, Director, Wedbush

Economics 101: How inflation works 

The example below was taken from an outstanding speech by P. Poilievre at a trades union meeting.

Before: 10 apples. $10 money supply.  $1 per apple.

After: 10 apples. Government prints another $10, now $20 money supply.

Supply/demand economics 101: Same apples, double the money chasing them. $2 per apple.

Steady inflation & weakening job growth (latest figures, Reuters) = stagflation

China trade has potential

Always the contrarians, ValueTrend began buying China’s major tech stocks and China ETF’s throughout the last year of chop. We think that a China ETF, concentrating on quality names, are cheap.  They’re technically attractive if bought near the bottom of the trading range, as seen on my chart below. If (and only if) resistance on the CZH index breaks (see horizontal line)–upside could be quite large, IMO.

Some Chinese equity fundamentals from David Rosenberg: 

  • Financials (28% of the Composite Index) and Technology (29%) trade at forward P/E multiples in the lowest quintile, historically, along with PEG ratios (price-to-earnings relative to growth) of 0.8x and 0.6x, respectively. This would classify them as great growth picks at reasonable valuations.
  • China’s continued investment in AI to fight for global technological dominance and easier exchange regulations (which would mean improved deal flow for banks) are strong tailwinds supporting these two sectors.

Debt

Bank of Canada Calls Out Trudeau’s Spending Frenzy

Tiff Macklem, Governor of the Bank of Canada, has thrown a spotlight on Trudeau’s reckless spending, linking it directly to our sky-high inflation rates.

Government deficits ‘not helpful,’ Macklem says

From a BearTraps research report:

“Insane debt service ratio for Canada!”

Renters Say Trudeau Can’t Fix the Housing Crisis

75% of Canadian renters think Trudeau couldn’t solve a crossword puzzle, let alone the housing crisis. With a resounding vote of no confidence, renters are loud and clear about Trudeau’s failures – survey here. 

Oil near technical support

You guys know my outlook for oil & gas. Despite unrealistic government idealists, oil & gas are here to stay for a prolonged period. See my past blogs and videos on that subject.

Don’t let the rising price of gas in Canada fool you. That’s the carbon tax.  WTIC is down about $10 since early April. Support lies within a couple of dollars of current pricing – near $77. While it may not rise immediately (see the seasonal chart below), I’m  looking for about $100 on oil over the coming year or so.

Right on schedule, oil got its biggest bump this year from Feb-March. April saw the start of a pullback.  Summer is the seasonal weak period for energy. My call: use weakness to leg in over the summer.

 

 

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