Weekly Briefing 7/19/20

Weekly Briefing 7/19/20


Debt bombs are always hiding in plain site, but quite difficult to time. The negative economic momentum that started in March of 2020 during the crisis will not subside for several years. The debt piled on the local, state, and federal levels is astronomical. Let's look at a short list:

1. Modern monetary theory- creating trillions of debt each year

2. Basic income - just getting started with 40 million Americans jobless

3. Reparations to various groups

4. Stimulus programs

5 Expanded student loan forgiveness ($500 billion in defaults coming)

6. Pension bailouts for state and local governments ($3 trillion)

9. Wall Street bailouts ($3 trillion)

10.Large corporate bailouts ($4 trillion)

11.Small business bailouts ($2 trillion)

The destruction of many small businesses and record unemployment will not go away anytime soon. So why is the stock market up? Two reasons, empire desperation and safe haven buying. The first comes from the US government pumping trillions of debt into the system via the Federal Reserve. For those of you that are students of history, study the ancient Roman Empire. One of the main causes of Rome's downfall was the endless minting of more and more coins to buoy its debt. This end result can be prolonged but not avoided. Empires die slowly. Washington and the Federal Reserve have no choice but to attempt to keep oxygen in the system by inflating asset prices, kicking the can down the road for as long as possible. But irrevocably, the Covid crisis is the first domino to fall in an unstoppable chain of events that will play out into around 2024 when the US debt system implodes. We track many long term debt cycles and the majority of them give our system the most convergence into that year.


The second explanation of stock market strength is the flow of big money. Wealthy families in Ancient Rome began buying land, livestock, and businesses during the collapse of the empire. Today, we see the same effect. Big money is pouring into the largest, strongest, most capitalized public companies that exist. These companies represent value that will survive any economic calamity in the future. The Nasdaq has become the new DOW with a handful of tech stocks representing the diamonds of the index. Record amount of US treasuries continue to be sold and unwound from private and foreign entities. This trend will continue. Sovereign debt is a dirty word these days. So as things get worse don’t expect to see the stock market unravel and crash, it's simply the best game in town which provides yield and liquidity. We expect markets to avoid any prolonged sell-offs until May 2021. From there a 6-8 month down trend is forecast by our models into early January 2022.


Large institutions, pension funds, and most hedge funds will avoid bullion gold due to its inflexible nature. It is hard and expensive to store. It does not provide any return/yield on investment and it can be difficult to sell quickly in physical form. Some hedge funds will keep a 5% hedge in gold, but it's mainly the people’s safety net. We are entering a period of time where we see gold coupling with the US stock market and moving together as a safe haven. We expect their paths to be linked on a long term basis. We have three major peaks for metals in the next 12 months. September and December of 2020, followed by May of 2021. We expect a 6 month consolidation to occur after May of 2021. We expect people will look to gold for safety and a store of wealth and value over the next 4 years.


We expect silver to follow gold into May 2021 with new highs and the same set of peaks as gold. As gold becomes more expensive and out of reach for the average person, they will look to silver. If the Euro-zone continues to add to restrictions regarding gold purchases, it could set off a silver buying spree, the likes of which no one has seen in our lifetime. As one can see from the long term sentiment chart, silver has a long way to go before sentiment is extreme and your Uber driver is telling you to buy it. Upside price targets for May of 2021 are $30+ per ounce.

We expect precious metals and the US stock market to remain in uptrends into May of 2021, with wild swings into the fall elections.

HFZ


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Important Disclosures: Investing in the financial markets can involve considerable risk, including loss of principal. Past performance is not necessarily an indication of future performance.  Actual clients may achieve results materially different from the results portrayed.  All material is for informational and educational purposes only and is not investment advice and is not meant to suggest that any securities are suitable investments for any particular investor.  All information reflects our own actions, beliefs, and processes for purely informational purposes. HEDGE FUND Z LLC IS A FINANCIAL BLOG FOR THE SOLE PURPOSE OF EDUCATION.  HFZ does not represent themselves as acting in the position of an investment advisor or investment manager for funds that are not under their direct control and fiduciary responsibility. 

 

Third party quotes and information may not be representative of the experience of HFZ customers and do not represent a guarantee of future performance or success. Many of the results displayed on our website were achieved using leverage, such as 2x or 3x leveraged ETF's or equity options 

 

The information included at HFZ and HFZ writing, research, and updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system.  Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. HFZ does not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. HFZ will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter.  

 

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