Year Ends With Strong Market

I have been expecting a strong stock market as this year draws to a close because there has reportedly been so much cash held by institutions that are required to put it to work by the end of the year that it’s hard to see how stocks won’t rise before 2022 draws to a close. So, at the first sign that the Fed may be reducing its restrictive monetary policy, stocks shot off like a bat out of that hot place when the year-over-year CPI declined more than expected, to 7.7%, as if all is well with the world again. 

But everything is not alright again, as evidenced by the Treasury yield curve displayed on your right. An inverted yield curve like this one almost always predicts a recession, which I fully expect to materialize in 2023. All that would make sense given the lag time from rising interest rates to a decline in economic activity. The first markets to get hit hard by rising rates are the financial markets and this time that included Treasuries as well as stocks because rates can’t rise fast enough to provide real rates of return. And with a CPI of 7.7%, that is still the case, so the Fed in theory still has a long way to go before it is finished raising rates. And with interest rates on the rise, 30-year fixed mortgage rates are now over 7%, which means monthly mortgage costs have doubled over the past year. This is just starting to bite the housing markets real hard and housing is the most significant economic sector in America. As Doug Nolan reported on my radio show last week, the U.S. economy so far is holding up pretty well but that’s because consumers are tapping into their credit cards in an effort to maintain living standards as inflation is leading to negative real wage growth. And now we are just starting to see large-scale unemployment beginning to take place. 

It seems growing concerns about the strong dollar triggered some central bank coordination late last week and it seems to have continued this week. That, no doubt, also was part of the reason for rising stock values this week. A strong dollar really hurts companies that gain much of their income from overseas. But much to your editor’s delight, the declining dollar seems to have enabled gold to break out below the downtrend line dating back to early 2021. That has really given the stocks covered in this letter a major boost this past week. As I have said frequently before, there are so many exciting gold and silver exploration stories as well as advanced-stage gold and silver players. With silver likely to outperform gold if this is truly the next move higher in precious metals, I doubled my holdings of SilverCrest Metals, which is now my second-largest holding. i-80 Gold is my third-largest holding and I am still hanging on to Snowline Gold Corp., because I truly believe the company’s gold discovery in the Yukon could be the biggest in North America in recent history. In summary, it was a nice risk-off week we just experienced but I’m nervous about the future, which is why I traded out of ExxonMobil last week, and also Petróleo Brasileiro in no small part given Brazil’s election results.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.