Joan of Arc They’re Not
Christopher Leonard’s The Lords of Easy Money is a recent release and an apropos follow-on to Liaquat Ahamed’s Lords of Finance – The Bankers Who Broke the World (2009). Must reads, in our opinion.
Source: Google Images
We’ll leave the sordid details in The Lords of Easy Money to you, but it is easy to notice that when Ben Bernanke – he figures prominently in Leonard’s book – comes up the word “courage” is somewhere nearby. For example, Bernanke believed that “monetary intervention is necessary, courageous, even noble.” It’s no wonder that his 2015 memoir was immodestly called “The Courage to Act.” No matter how much we try, however, we cannot imagine Bernanke, Yellen, Powell, or any of their cohorts, riding – on a horse, and not in a black car – alongside Joan of Arc into the siege of Orleans or the Loire Campaign on behalf of her King, Charles VII. That’s courage. Oh, she was merely 17 at the time, too!
If it took “courage” for the Fed to take the Fed Funds rate to 0 and expand their Balance Sheet dramatically (below, along with the ECB’s Bal. Sheet), is it also a show of “courage” for the Fed to not taper their Balance Sheet? We know, we know…they’ve said they’re going to do it, but they’ve consistently moved the goalposts in the past so until we see an actual Balance Sheet liposuction procedure here’s what we know: the Fed’s Balance Sheet has been up in 21 of the past 26 weeks for a 7% gain, up in 10 of the last 13 weeks, up in 7 of the last 8 weeks, and up for 4 weeks in a row. And in the five weeks since the end of Aug 2021 when the Balance Sheet did not rise, the biggest weekly drawdown was 50bps. Saint Joan has nothing to fear.
While we’re waiting on the Fed, we believe it’s right to continue to promote our commodity and commodity related equities theme. Please read on.
Amid the maelstroms (plural), the SPDR Metals & Mining ETF (XME) has been up four weeks in a row (!) engineering a Breakout from a near 10-Year Brobdingnagian BASE and a 25% gain in the process. It has also broken out relative to the S&P 500 and NASDAQ. The XME is up 16% so far in 2022 after rising 34% in 2021, way better than the S&P and NASDAQ in 2022 and last year, too. The breakout implies a target above the 2011 high of 80. We gather via our conversations with institutional investors that they are still not “there” on the metals and mining stocks.
We find similar action for the STOXX Europe Basic Resources Sector. The monthly chart below makes note of the 11+ Year Brobdingnagian BASE & Breakout. The SXPP has been up for 10 of the last 13 weeks for a 22% gain and it is up about 11% in 2022. In contrast, the STOXX Europe 600 is down 7% year-to-date and that’s the reason we’re seeing the relative breakout for the SXPP versus the STOXX Europe 600 (2nd chart below).
The same is true in Canada. Although we believe the S&P / TSX Composite Index is topping, we’re big fans of the TSX Materials Sector which has broken out of a near 20-month BASE. The Materials Sector has been up four weeks in a row putting on 14% in the process and is up 8 1/3% so far in 2022 with the S&P / TSX Composite slightly negative for the year. In addition to the strong absolute action, the TSX Materials Sector has also staged a breakout relative to the Composite, too.
Concentrating on the top six market cap stocks in the TSX Materials Sector our Technical Scoring shows strong Scores for each: Nutrien (NTR CT, 4), Barrick Gold (ABX CT, 4), Franco-Nevada (FNV CT, 4), Wheaton Precious (WPM CT, 3), First Quantum (FM CT, 4), and Teck Resources (TECK/B CT, 4).
We’ve highlighted Freeport-McMoRan (FCX) a lot and we continue to think it’s an add / buy here. Our target remains at 60.
In addition to the strong action in the Metals & Mining Sectors (US, Europe and Canada), there’s also notable strength in our Shippers / Tankers Index which gained more than 6% on Friday and is close to breaking out of an 8-month BASE. All 17 stocks in our index are up in 2022 and 88% have high Technical Scores (see below).
Lastly, we continue to like gold (and believe the metal will make a new all-time high) and our BAANG Index is setting up for an important move higher. BAANG is an homage to FAANG and includes Barrick Gold, Agnico Eagle, AngloGold, Franco-Nevada, Newmont Mining, and Gold Fields.
