By David Forest, editor, International Speculator
Every investor falls for the “dead cat bounce” at least once.
If you don’t know what that is, it’s a short-lived recovery during a bear market in which stocks briefly go up… only for them to start dropping again soon after. It fools a lot of investors into thinking the bear market is finally over.
And right now, it seems like everyone is taking the bait.
After the COVID-19 pandemic rattled markets, the Federal Reserve stepped in and announced it would be printing more money to cushion the effects of the market crash. But no one knows how much more money, because the Fed stated that it will issue as much as is needed.
And Mr. Market liked that move. The S&P 500 is up 11% in the past two weeks.
But I don’t think this market recovery is rational. This pandemic isn’t even close to being over.
And plenty of companies will continue to suffer as officials try to control the impact of the virus.
However, as I said before, precious metals are one sector of the market that will do well. And while I’ve sung gold’s praises before (and continue to do so), there’s another metal you should have on your radar if you really want to benefit from the mining boom we’re about to see.
But first, let me explain what I predict will happen next…
Don’t Fall for the Bait
Many of you may think that during this bear market, you can simply buy any of the S&P 500 stocks while they’re cheap, and then sit back and enjoy the ride during the next bull run.
Generally, I would agree with this. In the last century, bull markets on average lasted about five years, with an average return of 183%. Not bad at all.
But this time, it’s much worse. This downturn isn’t like the one in 2008 or the dot-com bubble in the early 2000s. Back then, only some industries were affected, while others managed to keep the lights on. That helped the overall economy recover after.
Today, it’s different… Practically every “non-essential” business is now closed. People are trapped in their houses instead of going out and spending money. The economy is in an induced coma.
And the pandemic is showing no signs of slowing. At writing, there are over 1.3 million reported COVID-19 cases across the globe, up from 785,000 cases a week ago.
This virus lockdown will most likely last a while. So businesses won’t open any time soon… which means this short-term bounce could easily reverse direction.
In fact, even if the virus gets under control, we’re not out of the woods yet. Sure, companies will rush to sell their products and services once the lockdown is lifted. But this won’t be easy, because many hourly workers stuck at home aren’t earning the same salaries as before – which means they won’t be spending as much even when the lockdown is lifted.
And that’s if they still have jobs. Over 6 million Americans recently filed for unemployment benefits in a single week. Altogether in the past two weeks, more than 10 million Americans have filed for unemployment.
This means luxury goods, real estate, and other industries will face a lack of demand. And it will directly hit companies’ earnings and valuations.
I’m not the only one who’s predicting this. Top rating agencies reduced their outlook for global GDP growth this year. It dropped from a 2.1% gain to a 0.5% loss. And estimated earnings dropped by a third.
With all this doom and gloom, you might be thinking of staying out of the market altogether. But there’s one industry I’m still bullish on…
Your Best Bets Against Market Uncertainty
As we’ve noted in these pages, gold is your best bet against the global market meltdown.
Given the economic uncertainty, you want to have some of your savings in an asset that’s not someone else’s liability. Gold isn’t the liability of a company, a bank, or the Fed. It’s real money that you own, and that’s why its value will begin to soar.
But that’s also why I think gold miners will benefit the most. High gold prices will help them book solid earnings.
Mining companies don’t have to worry about sales as much as other companies. They can always sell their metals at spot prices, which are set to rise as this lockdown drags out a supply shortage. Once miners get back to work, mining companies will quickly ramp up production to meet the demand.
And once gold takes off again, other essential base metals will be next…
…like copper. Its supply side is already severely damaged by closed mines. The biggest impact so far has been shutdowns in Chile and Peru, the world’s top two copper-producing nations. Combined with shutdowns in Canada, global copper supply has been reduced by more than 20%.
You can see this in the graphic below. The black numbers represent a country’s share of global copper production. The red numbers show the percentage reduction in national output due to COVID-19 shutdowns.
This means that copper mining projects expected to come online will most likely be delayed.
This will postpone supply growth, widening the deficit in the market. And this will be bullish for copper spot prices.
Take a look at the chart below. In 2009, the total copper supply fell 2.2%, while in 2016, it fell 4.2% (both instances circled in red). These drops were the result of mine closures.
But both times, prices recovered, with the price of copper gaining 267% by 2011 and 67% by 2018 from its previous lows. This time, I expect to see a similar move.
Again, no one knows how long it will stay this way. That’s why I’m keeping an eye on China.
It’s the world’s biggest copper user, consuming 47% of the metal worldwide. Once China gets control of the outbreak and opens up its processing facilities, it will need raw material from miners… and that will be great news for copper prices.
What to Do Next
Betting on gold and gold miners is a strong strategy. But copper and copper miners are next on my list. As soon as I see the pandemic is under control, I’m looking to get some more exposure.
Of course, my International Speculator subscribers will get all of my best picks first. And I have a unique way of choosing and vetting them… it has to do with a NASA satellite and an exclusive algorithm (you can find out more here).
Otherwise… watch for the virus slowdown and pick copper stocks. If you’re looking for some broad exposure, the Global X Copper Miners ETF (COPX) is a simple one-stop solution. The fund includes top copper miners and will follow their share prices as copper gains momentum.
Keep walking the path,
0 comments:
Publicar un comentario