The commodity trade is on. Every company that has operating leverage to higher prices is soaring right now. Junior miners and E&P companies are becoming the new darlings of Wall Street. Since 2014, the energy sector has been the worst performing sector. But now, with rising demand, a lack of capital expenditures and potential for higher inflation, the energy sector and really anything tied to commodities has potential fly.
But be careful. All of the red lights of a massive debt bubble are flashing right now. The check engine light has been burnt to a crisp and the economies serpentine belt is about to blow. It is only a matter of time. But that’s the problem when it comes to bubbles. They are easy to spot, but impossible to time when the great pop happens.
Michel Burry Calls For Weimar Style Hyperinflation: Michael Burry, the hero in the Big Short and guy who called GameStop a buy at $4 dollars per share has predicated a Weimar style hyperinflation in a rapid series of tweets on Saturday afternoon. Burry even “pinned” the tweet to his Twitter showing his rather serious nature of his investment thesis.
We have been highly critical of the aggressive monetary and fiscal policy the U.S. Government has enacted over the past decade and remain concerned about the debt levels held at the federal level. We expect the rate of inflation to pick up as the velocity of money increases into the spring and summer months.
Airline Stocks Blast Off: The airline sector had an impressive day as the confidence in the U.S. economy reopening continues its narrative. Michael Linenberg of Deutsche Bank told investors it was time to buy into the sector as everything is trending in the right direction in terms of COVID-19. Major airlines rallied higher including American Airlines (+10.2%), United Airlines (+5.6%), Delta Airlines (+5.6%) and Hawaiian Holdings (+6.1%). The U.S. Global Jets ETF also rallied up (4.25%).
Bitcoin Blowup: Bitcoin reached record highs of $58,000 per coin yesterday afternoon, only to fall to $48,000 by sunrise. The cryptocurrency has bounced back to the $53,000 level from the low. Why the sudden drop? Likely profit taking. The cryptocurrency was in the $30,000 range only three weeks ago. Prices can’t go up forever.
Energy Sector Continues To Outperform: The best performing sector of the day, and also of the year so far is the beaten down energy sector. Crude prices continue to rally based potential for pent-up demand this summer as COVID is cured and a historical underinvestment in the sector could lead to demand outpacing supply. In addition, inflation fears are typically good for commodity based sectors.
Movie Theatres To Reopen In New York: Publicly traded movie theatres rallied through the close as New York Governor, Andrew Cumo, gave the greenlight for movie theatres to reopen. Theatres will be allowed at 25% capacity or no more than 50 people per screen. The reopening should be bullish for the theatre industry as major films get released throughout the year. Analysts expect the back half of 2021 to be strong for theatres as patrons return to the big screen.
Nasdaq Gets Hammered From Higher Rates: The tech sector got slammed today (down over 2.3%) as investors expect interest rates to move up materially from here. The Nasdaq is the biggest beneficiary of negative real rates. The reason? Low discount rates. As interest rates move up, investor have to re-rate their internal discount rates which will send valuations tumbling.
Copper Prices Soar Past $9,000: Copper prices skyrocketed on Monday, setting a new all time high that hasn’t been broken since 2011. The same thesis on oil applies to copper, potential for soaring demand amidst a supply crunch as the recovery trade sets in. In addition, as with all commodities, copper will be a beneficiary of higher inflation, government stimulus and the continued investment into renewable energy.
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