Market Trek

with Brian Whitmer

  • Stocks vs. Commodities and “Hard Assets”: What 124 Years of History Show You (Video)

    Hey guys, Brian here. I hope your week’s going great.

    We have talked about gold in my last few videos. I showed some stock markets priced in terms of gold, and I showed where gold was in terms of its own Elliott wave structure. Got some great feedback on those charts. So, I want to expand on that perspective a bit.

    In this video, we’ll look at stock prices, not just in terms of precious metals, but in relation to the entire commodities complex. Stay with us.

    All right guys. Welcome back. Let’s just start with an overview here, using the Bloomberg Commodity Index.

    So, this is just futures prices. It’s a basket of commodities back through the lows in 2020. Big picture. Five up, three down. That’s painting with a broad brush, I know. If we want to get a little more detailed, I’d say it’s a very good-looking five up and a messy three down.

    There are other ways to count that decline. But we are in a previous fourth wave. We have turned back up. We have seen higher lows and higher highs. I’d say if we maybe break 110 or so on the upside, pretty good confirmation that the trend is back up.

    Now, some individual sectors supporting this perspective. This is the S&P GSCI Grains Index, so just a benchmark for corn and soybeans, wheat, all of the grains market. It is more or less the same look, right? Five up, three down over the past four or five years. So, here we get a little more confidence that we’re on the right track.

    I also talked to some of our commodity guys in Pro Services, and they have had a great run with corn this year. For whatever reason, the waves have been especially clear. So, if you trade commodities and you want to check out their services, I’ll put a link in the comments.

    Now, for the generalists — myself included — I think it’s important to get a perspective of the value of hard assets. Where are hard assets going relative to financial assets? That’s what we’re trying to do today.

    This is Dow CRB back through the 1900s. So, it’s just stocks priced in terms of commodities. The inset of weekly prices here shows that the top was 2020, right? The ratio is falling. So, even though stocks remain strong, financial asset values are falling relative to hard assets, and we think that’s an important trend that will continue.

    Now, one final chart. This is just a European version of the same thing. It’s a euro-denominated commodity index, but now we’re dividing it by the Stoxx 600.

    So, here the ratio drops when investors get excited about financial things, and it rises when financial things fall out of favor. You can see the dot-com bubble, the financial bubble in ’07. On the other end, there’s the dot-com bust in ’03. There’s the global financial crisis, there are European sovereign debt crises.

    What’s compelling to me here is, again, we see that five up, three down on the right side since 2020. We don’t always see Elliott waves in ratios like this. But this pattern is fairly textbook. And if it’s operative, this ratio is going higher.

    Maybe that means stocks fall, maybe it means commodities rise. Don’t really know. Maybe it’s a little of both. But that is the picture. Essentially, hard assets getting more valuable relative to financial assets.

    So, let me know what you think in the comments. Thanks for watching. Thanks for reading, and I will see you again in the next video.

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  • Market Trek: Excited About Gold – But Just Not Sure Where It’s Headed? (Video)

    Hey guys, Brian here. I hope your week’s going great.

    In this video, we are going to look at the gold market and the market for cash (T-bills, right?). We’ve been bullish on both these markets. We’re still bullish on both, and I’ve got a couple of charts to kind of explain our stance here. Stay with me.

    All right, guys. Welcome back. Let’s look first at gold.

    Our view is that precious metals are in the early stages of a big advance. This chart shows how we’re labeling the move in gold futures back through 2016.

    In my view, the bottom graph is actually more important. It’s open interest. So, we’re just looking at the number of outstanding contracts that haven’t been closed yet.

    Open interest has risen with the recent advance, but it’s nowhere near the highs from four years ago. We see this as evidence that investors are still largely sitting on the sidelines. Gold hasn’t really jumped onto the radar yet.

    Now, Bob had some commentary on this idea in the latest Theorist. One thing he pointed out was this Bloomberg headline from April 23:

    Gold in decline after biggest one-day drop in two years. Geopolitics and higher-for-longer rates are weakening demand.

    “Gold in decline,” right? “Biggest one day drop” … “weakening demand.” It’s funny because the whole article was referring to this small decline of maybe 3%, yet it prompted this negative write up.

    And the contrast that Bob talked about was between that kind of skeptical sentiment in gold versus this endless cheerleading that erupts every time stocks make a new high. So, you can read that commentary with the links below.

    The other market where we see the opportunity is cash. And this chart is a big reason why. This is just the three-month yield in T-bills, and we’re dividing it by the dividend yield in the S&P. So, it’s what stocks are paying in dividends essentially versus what T-bills are paying.

    As of May 3, T-bills yielded more than 3.5 times the S&P yield. By this measure of valuation, the stock market is more expensive today than it was on the top day in September 1929. Nearly as expensive as it was at the start of the bear market in 2000.

    So, Steve [Hochberg] and Pete [Kendall] walked through the other inflection points on this chart in the latest Financial Forecast. I’ll put subscription links in the comments.

    But again, we view this as an opportunity, right? It’s not an opportunity to own stocks. It’s not an opportunity to own high-yield bonds or elongated bonds or real estate. It’s an opportunity to own safe, short-term cash. It’s an opportunity to be in precious metals.

    So that’s, that’s our view on conditions right now. Let me know what you think in the comments. Thanks for watching. Thanks for reading, and I will see you in the next video.

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  • Market Trek: What 4 Time-Tested “Financial Stress” Indicators Show Today

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Brian Whitmer

Global Markets Strategist
Editor, European Financial Forecast

Brian Whitmer was a civil engineer in another life, so he’s got a good sense of how things are constructed. Applying that skill set, he deconstructs today’s sundry financial vehicles, like CDOs, meme stocks, subprime mortgages, SPACs, et al, and contextualizes them for his subscribers. He edits the monthly European Financial Forecast and contributes the European stock section of our monthly Global Market Perspective.

Brian’s also got a bit of wanderlust, so he gets a first-hand, boots-on-the-ground feel for what’s really going on around the world.

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