On Friday, I texted my hedge fund manager: “What looks juicy to you at these levels?”
Hedge fund managers, the truly good ones, operate on what’s called a month-to-month benchmark.
Unlike venture capital firms or family offices, these fund managers aren’t given money that they deploy throughout the span of a few years, be the volatility what it may, with the “fire and forget” mentality.
My fund manager is expected to beat the benchmark every single month!
In the bad times, he’s expected to hedge and preserve capital, and in the good times, he’s expected to use leverage and outperform.
In his words: “I’m playing chess against the rest of the world.”
Hedge fund managers don’t buy the dip when the trend is down. They short equities, park in cash, and only invest in companies whose fate is not market-correlated but news-dependent.
When the trend reverses, they do buy dips.
As private individuals whose goal is to build a portfolio for retirement, the monthly results are irrelevant, so when a great company is cheaper than a month ago, we should nibble at it.
We, the retail public, aren’t big money, and we don’t dictate the market’s direction; my fund manager and his colleagues do.
Silver’s price on the paper markets is completely different than its physical quote.
Silver’s spot price is currently $19.83/oz, yet if you were to sell your coins to a bullion dealer, you’d receive about 50% of that.
My point is that the markets are showing major distress signs, and if there is one stock that embodies Wall Street’s outlook on the global economy, it is FEDEX, a company whose business model is a microcosm for global trading and consumerism.
Last Friday, the stock suffered its biggest one-day drop since its IPO more than 30 years ago!
Still, one question I get all of the time is why gold and silver are plummeting if the CPI is above 8% and the 10-year bond is below 4%, which means “real yields” are deeply negative.
I want to address that matter because it’s simply NOT TRUE, and it causes delusions on the part of investors.
To calculate the real yield, we simply take the current 10-year Treasury yield and subtract the current 10-year inflation expectations as measured by the Treasury Inflation-Protected Security (TIPS) breakeven spread.
Just like in September 2018, rates have TURNED POSITIVE, the worst possible outcome for precious metals:
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The markets are pricing as much as tightening as they did in late 2018 before the FED’s monetary U-turn, but stocks aren’t buying it.
If stocks are right then gold and silver are bottoming here, but if bonds are correct, gold could fall below $1,500 and silver below $14/oz.
It’s a battle of the ages, and in the middle stands the Federal Reserve, ready to swing the world in any direction.
One last thing that I want to show you is this:
Courtesy: Zerohedge.com, Bloomberg
The yield on bonds is so much higher than the S&P 500’s dividend yield that if investors start buying bonds, driving up the yield and closing the gap, silver will get into a new uptrend.
We think that because of how aggressive the FED has been, silver could hit over $50/oz by 2025.
Gold, in that scenario, will reach over $2,600/oz.
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