The other side…

  • Don’t abandon gold yet
  • An unexpected outcome
  • Trade ideas that work

Wary are we of quoting anything from the UK’s Sun newspaper, but we couldn’t help being fascinated by this recent story:

Scientists have claimed that death may not be as final as we once feared — and that humans have souls that can leave the body after their hosts kick the bucket.

It may sound like a supernatural myth, but the idea that human consciousness lives on after death has been put forward by a number of well-respected scientists.

And the British scientists at the forefront of the eerie theory claims that humans have souls which don’t die along with the body.

We may not know exactly what consciousness is, but physicist Sir Roger Penrose believes that it’s just a packet of information stored at a quantum — or sub-atomic — level.

Sensationally, he claims to have found evidence that this information, which is stored in microtubules within human cells, leaves the body after a person dies.

That sound you can hear? That’s your editor’s brain exploding.

It’s funny. For years, scientists have always told those who believe in ‘alternative’ theories that, if the science doesn’t support something, then it’s not possible.

Anyone who believes in the afterlife, or in natural medicines, or that climate change is a hoax, must be a kook, because the scientific evidence doesn’t support it.

Well, what do you know? Maybe there is something to the idea of an afterlife after all. Interesting.

Now if only we could find a way to profit from that possibility. Stay tuned…

Markets

Overnight, the Dow Jones Industrial Average gained 21.03 points, or 0.11%.

The S&P 500 closed down by 0.25 points, or 0.01%.

In Europe, the Euro Stoxx 50 index added 9.78 points, for a 0.32% gain. Meanwhile, the FTSE 100 gained 0.34%, and Germany’s DAX index climbed 0.24%.

In Asian markets, Japan’s Nikkei 225 index is down 32.81 points, or 0.19%. China’s CSI 300 is down 0.13%.

In Australia, the S&P/ASX 200 is down 19.53 points, or 0.37%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$43.32 per barrel. Brent crude is US$44.70 per barrel.

Gold is US$1,222.02 (AU$1,616.35) per troy ounce. Silver is US$16.92 (AU$22.40) per troy ounce.

The Aussie dollar is worth 75.58 US cents.

Don’t abandon gold yet

We’ve pounded the table long and hard about the virtues and benefits of buying gold.

We increased the rhetoric as the prospects of a Donald Trump presidential win rose.

Trump won.

And within 24 hours of doing so, the gold price began a slump, which has taken it down over US$100 since peaking last week.

Is the ‘buying gold’ strategy flawed?

Should you dump your shiny gold bars?

Should you sell out of, or refrain from buying, high-risk, speculative gold stocks?

Not on your nelly.

Why our continued bullishness? We explain all here.

An unexpected outcome

Two weeks ago we looked at US government bond yields.

We mused on whether the ‘risk’ of a Donald Trump presidency would cause investors to ditch their usual kneejerk reaction of buying US government bonds.

We wondered if a Trump presidency would also result in a falling US dollar, as investors opted for ‘safer’ assets outside the US.

We wondered all this as we saw government bond yields fall, along with the US dollar.

Since then, US government bond yields have indeed risen. You can see this in the chart below:



chart image

Source: Bloomberg
Click to enlarge


The yield on the 10-year bond has risen from 1.77% prior to the US election, to 2.21% today.

At the same time, the US dollar has also risen. Against the Aussie dollar, it has gone from 77.62 US cents, to 75.6 cents.

Far from the US dollar being on the nose, the rise would suggest that investors have eagerly bought US dollars. However, it’s not because of an increased perception of risk.

If that were so, you would expect bond yields to fall, as investors buy ‘risk free’ US government bonds.

Instead, investors have embraced the ‘risk’ of a Trump presidency.

Since the US market’s close on 8 November — the day of the US election — the S&P 500 index is up 3.79%.



chart image

Source: Bloomberg
Click to enlarge


Investors have taken on risk. US investors — and seemingly foreign investors too — have piled into the US dollar, and then piled into US stocks.

It’s a stunning and unexpected performance.

Of course, it’s not the only rebound in the markets. Commodities have caught the whiff of excitement and bullishness, too.

The chart below shows the extraordinary price spike in the copper futures contract. Since Trump’s election, the copper price has gained 21.21%:



chart image

Source: Bloomberg
Click to enlarge


The iron ore price had already begun to climb before Trump’s win. But, since then, it has added another 19.65%:



chart image

Source: Bloomberg
Click to enlarge


The reason for the gains? There’s a wall to build you know…a big wall…the best wall!

But if we get back to the bond yield, the interesting thing to consider is whether the Trump presidency finally signals the end of the 30-year bull market for bond prices (bear market for bond yields, as yields move inversely to prices).

Check out the chart below:



chart image

Source: Bloomberg
Click to enlarge


Since inflation and interest rates hit a peak in the early 1980s, bond yields have been on a volatile downward path.

They culminated in the record-low interest rates achieved this year. Not just in the US, but across the globe, where, in many cases, bond yields turned negative.

Many sovereign yields are still negative. But we wouldn’t be reporting honestly if we didn’t inform you that there are fewer negative yields today than there were a few weeks ago.

In the Eurozone, ‘only’ 11 of the 12 government two-year bonds monitored by Bloomberg show a negative yield. That’s down from 12 in recent weeks.

For five-year Eurozone bonds, only nine are currently negative, down from 10.

And, strikingly, for 10-year Eurozone bonds, none are negative, down from a peak of four just a few months ago.

It’s hard to deny that things look different since Trump won the election. Few would have expected his win to have such a big impact on global bond yields.

As always, we shall continue watching with keen interest.

Trade ideas that work

Don’t worry about the story,’ advise the folks at Money Morning Trader, ‘just look at the charts.

Here’s what they told their subscribers yesterday:

The US banks have spent the last few years slashing branches, staff and other costs to help their earnings in the low interest rate environment. They have also largely dealt with the bad loans left over from the 2008 housing crisis.

The whole sector looks to be something like a ground floor opportunity for the next 10 years. I don’t pretend to be as familiar with US stocks as I am with Australian stocks. So the easiest way to play this idea is to look for an ETF that contains a basket of bank stocks. Be careful here that you don’t look at a generic “Financials” ETF. They can contain insurers and credit card companies that dilute the focus of the ETF from this banking idea.

Two that might warrant further study are the PowerShares KBW Bank Portfolio ETF [AMEX:KBWB] and the SPDR S&P Bank ETF [AMEX:KBE].

You can see the recent price spike and volume coming in by looking at the PowerShares KBW chart…



chart image

Source: Optuma
Click to enlarge


The PowerShares ETF is pretty small by US standards. But it looks a pure play on banks, and its top 10 holdings are the big guys like Bank of America, JP Morgan Chase, Wells Fargo and Citigroup.

The SPDR has smaller, more regional banks. I lean towards favouring the bigger banks because they’re easier to follow, and they have more friends in Washington. 

Let me be clear on the timeframe here: This is an industry I expect to expand over the next decade — it’s not a short term play.

Of course, this idea has risks. Banks are under pressure from tech companies in some areas of their business. A global shock could put pressure on interest rates again.

There’s never any certainty in investing. But a basket of bank stocks seems like a very compelling play on the ongoing recovery and expansion in the US if your timeframe is three years or longer.

Since helpfully bringing those trade ideas to their readers’ attention yesterday, the PowerShares KBW Bank Portfolio ETF [AMEX:KBWB] is up 3.31%, and the SPDR S&P Bank ETF [AMEX:KBE] is up 2.72%.

Not bad. Not bad at all.

Check out Callum Newman and Terence Duffy’s work at Money Morning Trader here.

Cheers,
Kris