Yesterday (Wednesday) we got a hint of just how fragile equity markets are. The Nasdaq led the rout with a decline of 2.8%, closing on its lows. That’s because market performance is not based on a firm foundation of a strong economy and rising earnings. The markets are hanging on to current elevated levels based solely on a wounded President’s promises, promises of tax cuts and infrastructure spending that we said were a fantasy back when he was elected.
Yesterday’s drop was caused by the perceived potential for impeachment of the President following a supposed ‘leak’ of notes by former FBI Director Comey which some interpreted as evidence that the President obstructed justice. Today, the impeachment boil has been reduced to a simmer with the appointment of a Special Counsel whose investigations will likely drag out the non-news of a so-called Russian collusion with the Trump campaign for many months to come. This was perceived as progress because now maybe Congress can get back to tax cut fairy tales. Today’s equity bounce has been pathetic—a dead cat if I ever saw one—which says to me that we aren’t finished to the downside. Keep those helmets at hand.
Here is the real deal. News does not drive markets…markets drive news. The market is up and therefore news is good; rate hikes are good; no rate hikes are good; bad economic news is good because it’s evidence of better days to come etc., because if the market is up, the news has to have a silver lining somewhere. Back in the good old days, we called this ‘drinking the girls pretty’.
Conversely, when the market is down, all news is interpreted to be bad, except on CNBC which no one watches anyway.
I’m getting ready to be short. I’m also getting ready to buy more gold and gold stocks.
According to Bloomberg, the latest 13F filings show Hedge Fund Billionaires have been buying gold and gold-related instruments in the last quarter. Stan Druckenmiller and Templeton Funds bought Barrick Gold, the largest gold mining company in the world. Jeff Gundlach, John Paulson, and David Einhorn continue to hold on to, and add to, their huge gold positions. Some other notable Hedge Fund Billionaires now holding gold are Ray Dalio, Paul Singer and Crispin Odey.
Most are saying they are concerned with the deteriorating economic outlook as well as accelerating inflation. In February, hedge-fund manager David Einhorn said he’s betting on declines in government debt and a rebound in gold to guard against the risk of inflation under Trump. Druckenmiller said in the same month that he bought gold in late December and January, reversing the sale he made after the U.S. presidential election. Even on May 2nd, when the bullion rally was slowing, DoubleLine Capital LP Chief Executive Officer Jeffrey Gundlach said “it is not the time to give up on gold,” adding that prices are likely to head higher.
Templeton bought 12.2 million shares in Barrick, taking its holdings to 18.2 million shares in the first quarter, a filing on May 12th showed. Capital Group Companies Inc. added Barrick to its portfolio, buying 35.3 million shares to become the miner’s third-largest shareholder, according to a separate filing Monday, May 15th.
You could do worse than following these guys.