Market Trek

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.