Dear Reader,
As I noted this morning, Janet Yellen is again focused on the debt ceiling... with all the wrong reasons at play. The central banker-turned-Treasury Secretary has been calling around to CEOs to warn about a "catastrophe" should the U.S. default on its debt.
Boo hoo.
Yellen has been at the epicenter of a massive monetary expansion over the past decade. This Keynesian panic is just another sign that academics will lead us to ruin. We can't expand our debt to $50 trillion by 2032. The consequences of that are too numerous to lay out here, but the upshot is all of your hard work - all of your money - will be devalued.
$100,000 in 2000 now has the buying power of about $65,000 today. If we keep this up, that value will decline exponentially. Think $30,000 in buying power in the next 10 years, and then even worse come 2040.
Of course, that's long-term. What about the next few weeks - particularly when each week seems to sink us deeper into crisis?
Here's what I see...
Dealing with the Central Bank and the Treasury
As I've said, the talking-head classes believe any debt ceiling deal will send the markets higher, but I'm urging caution.
This morning, Yahoo! reported that President Joe Biden and GOP House Majority Leader Kevin McCarthy have only just started their discussions on the debt ceiling. You read that right: they just started talking... at virtually the 11th hour. This isn't college where you can cram the semester of work into the final three days before an exam. It's unbelievable that they've waited this long, given that they've had at least three months to prepare since Janet Yellen started pumping tens of billions of dollars into the system via the Treasury General Account.
The markets may not be anticipating a default, but the cost of CDS (insurance) surrounding U.S. debt has skyrocketed. This debt ceiling fiasco could go down to the wire, and if any of these people ran a public company, they'd have been fired by now. It's insane that anyone considers them "adults."
I'm old enough to remember 2011, the last time this happened. A deal was struck, but markets were still upended, and the United States' credit rating and prestige was still downgraded.
There's no reason to think that won't happen again with whatever deal these jokers come up with.
The solution is to stay laser-focused on hard assets and commodities - things people will need no matter what happens out there. People cut back on iPhones and talking exercise bikes when times are tough, but who can get by without steel? Timber? Oil?
That's one of the reasons we're all over the Permian Basin and the wider oil patch, for instance, where things are heating up all over. We took a nice gain on Valero Energy Corp. (VLO). Oil was down around 10% last week, marking a three-week skid (before we correctly called the bottom). A slump doesn't sound like great news if you're long-term bullish on "Texas tea," but to me, sluggish oil prices are fantastic news; when oil prices fall, companies are forced to slash production costs, which means drilling in places, like the Permian, where drilling is cheaper.
Callon Petroleum Co. (CPE) recently inked a $475 million Permian deal, proving our bullish thesis there.
Of course, I think the smartest bet on the Permian is with five specific oil companies that own hundreds of thousands of acres of land in this specific region. I believe all five of these firms are prime candidates to be bought out by any oil major at virtually any time.
Oil's not the only thing we should be looking at, though. Gold, which seemed dead for the past 10 easy-money years, is getting ready to come roaring back. I've just seen a credible prediction from my colleague, Tom Gentile, that indicates prices could hit $5,000 over the next few months. One way to play this would be old-school gold miners like Barrick Gold Corp. (GOLD) or Freeport McMoRan Inc. (FCX), or an ETF like the Sprott Physical Gold Trust (PHYS).
But Tom's got what could be an even better way to play the yellow metal's 2023 comeback. In fact, he just made a $1.5 million bet on it. He and gold-trading legend Brien Lundin are going live Thursday morning at 10 AM ET to talk about why Tom's gold forecast is so bullish and show viewers how they could potentially make the most of gold's $5,000 breakout. You can reserve your free spot right here.
Now let's take a look at the wider market out there - and take a momentum reading...
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Recap: The World's Biggest Indicator (Momentum) is Red...
In this wild market, it seems like Apple Inc. (AAPL) is running out of steam and a downturn may be on the horizon. A key factor to watch is tomorrow's Consumer Price Index (CPI) number, which could reveal a higher-than-expected increase. The main issue at play here is the Treasury Department's spending habits. Until the government curbs its expenditures, it's unlikely that inflation will return to the Fed's target of 2%. In the meantime, if they want to create a day trader's market driven by low-volume squeezes - Happy Trading!
(Relative Volume (RVOL) Heat Map for SPY)
Who Cares About Tomorrow?
Remember the 5G craze? We'll revisit it today with Qualcomm's (QCOM) 5G Summit. So pay close attention to data centers and semiconductor stocks and ETFs like the Direxion 3X Bull Semiconductor ETF (SOXL) . The Sohn Conference also kicks off. Tuesday is also a great day to scream out the window into the abyss, hoping the Fed fixes the banking system. Your neighbors will love it.
Wind Up the Rumor Mill
PacWest (PACW) is down about 8% to start the day, while the KRE Regional Banking ETF (KRE) shed roughly 3%. PACW stock is in focus after a massive drop last week, fueled by a report by Bloomberg (Janney pushed back on the report) that the regional bank was looking at asset sales. Janney immediately refuted the report and set a price target on PACW at $12.50. Shares recovered from lows of nearly $2.60 and pushed above $7 yesterday before a selloff. I'm telling you - it's not normal for a mid-cap stock to have more volume than Apple (AAPL) the day after the tech giant's earnings (but that happened Friday.)
Cheers,
Garrett
The post The Debt Ceiling Trade is Gonna Be Insane... appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.