The Environment and the ISA Portfolio

Your dear editor would prefer to spend his time evaluating the common stock of wonderful businesses which contain moats (Vaneck). Instead, the outrageous imbalances and the inevitable implosion seem to see most of our attention. The timing part is hard.

Stateside the Main Street economy continues to plow forward as evidenced by the strong and tight labor market. Garbage men until recently had a $3500 signing bonus in my area, and these are jobs which support a family. Recent headlines indicate the U.S. consumer is the last man propping up the world economy..

But globally: “Global manufacturing and construction sectors have already entered a downturn; the service sector is all that now stands between the economy and a full-blown recession.” Reuters

Closer to home, it’s the Worst Weakness Since Last Recession. Also, What Just Happened Also Occurred Before The Last 7 U.S. Recessions. Reason To Worry? Is recession coming: “Yes, but not just yet.” say John Mauldin.

The New York Fed “model puts the odds of a recession in the next 12 months at 34.8%, which, as Colas notes, is close to where the same model sat in September 2007, when it was at 34.6%. Still, it’s an improvement from August, when the model read 37.9%, he noted.” Barons

“Given the incremental debt accumulation that has occurred as compared to the accumulation before those five prior episodes, financial conditions have more than likely already tightened enough to induce a recession.” Michael Lebowitz

“The riskiest of junk bonds are seeing some selling pressure.” Jason Goepfert. More junk bond commentary by Mike “Mish” Shedlock. A junk bond market warning from Sentiment Trader. Jim Grant walks us thought the farce of a 100 year bond yielding 0.72% as only he can.

The demographic bulge, wealth inequality and information access will shape the world going forward. Morgan Housel

At this point in time, the precious metal complex is the favorite of Independent Stock Analysis. Gold in the Age of Eroding Trust is 340 pages of research. Take a day and read it. The PM’s are coming out of a bear market, yet remarkably “the average annual performance of spot gold measured in the world’s nine leading fiat currencies has been positive in 17 of the past 19 years (Figure 1).” Sprott

BANG: Why The Gold Miners Have Only Just Begun To Shine says Jesse Felder

What does the debt end game look like: “I believe we find a way to monetize the debt. We are headed for a “debt jubilee” of some form.” says Steve Blumenthal.

“You see, advocates of MMT insist that because fiat currency is ultimately a creation of the state, governments can and should print as much of it as needed to fund massive public works, guarantee government jobs for the unemployed and much more. And since a government can never run out of money, the theory says, it can never default on its debts. Deficits are meaningless. Anyone who’s studied macroeconomics knows that unfettered money printing on this scale is a recipe for runaway hyperinflation.” Frank Holmes

Meanwhile, the stock market just had The Best Ten Years Ever. Well, yea: “The Crestmont P/E of 32.1 is 124% above its average (arithmetic mean) and at the 99th percentile of this fourteen-plus-decade series. We’ve recently highlighted a couple more level-driven periods in this chart: the current rally, which started in early 2014, and the two months in 1929 with P/E above the 25 level. Note the current period is within the same neighborhood as both the tech bubble and the 1929 periods, all with P/E above 25 and is certainly in the zone of “irrational exuberance”. Jill Mislinski

“…as the debt bubble unwinds and the market cycle flips, gold and other hard assets might be the best protective options for investors.” Well done by Evergreen Gavekal.

“Only when debt and derivatives have imploded…you can swap your gold for real assets like land, income producing property or sound businesses at bargain prices, this would be a serious opportunity. History is full of examples of people who used their gold to pick up absolute bargains in periods of economic distress and hyperinflation.” Egon von Greyerz “When the time is right, investors with bigger gold holdings will be able to buy valuable assets with their gold for a fraction of what they cost before the crisis. Price reductions of 90-95% are not uncommon in these periods…”

“Corporate Profits are Overstated and What It Means for Investors” by another early 20th century pen name, Jesse Livermore.

Our cornerstone precious metal investment did what they do this summer, purchasing mineral title counter cyclically from a distressed seller in a world class mineral deposit at the top of the capital structure.

Navigating the deflation, then inflation will be the key when things fall apart.

The company’s which move good by sea are interesting as Shipping Is All About Upside Leverage says Kruppy. He also likes Altisource is a default mortgage servicer as way to invest in difficult times.

I have a keen eye on the beaten down, low cost Marcellus natural gas producers. The survivors will be home runs. I’ll watch as their quarterly results are reported over next several weeks. Not yet, still preparing. Note this commentary from Sailing Stone. Thoughts on Cabot at Insider Monkey.

The Goehring & Rozencwajg Q2 Natural Resource Market Commentary.

The significant and provoking reading provided must suffice readers until Thanksgiving. What is the maximum precious metal exposure and still be prudent? How much cash can an investor handle? Is it okay to have a significant watch list and own zero of the shares of any of them? Would you tell my mother if I argued for put option exposure? The ISA portfolio begins January 1, 2020.