22Apr3:36 pmEST

Let's Get Ready to Reap from Misallocations

A continued, steadfast belief that The Fed will save the day (and week, month, year, century) once again is likely helping to keep equities afloat into another Jobless Claims number tomorrow morning and is sure to be horrifying to those who, you know, actually care about trivial things like having a country and culture, let alone an economy. Regardless of valuation or whether consumers will, in fact, keep buying AAPL's high-priced products, the large cap tech names are leading the charge again today, despite NFLX dipping mildly after earnings. 

But even if your thesis is that all is well and The Fed will pull us through this event with not nearly as much trouble as many would surmise it is tough to ignore the change in psychology amid disturbing headlines. The toilet paper chase at the origin of the pandemic and lockdowns seemed to almost have a lighthearted feel to it. 

However, now we have more serious supply chain issues with meat and pork, which could easily lead to more rationing and, naturally, pricing power from grocers. Although I sold out of an SFM long today, I have my eye on BJ COST KR IMKTA WMT in the grocery space. WMK is a regional name which is gunning higher as we speak. 

There is, indeed, an argument to be made that much of what we are seeing is the fallout from The Fed's actions over the last two decade, kicking the can down the road in each prior crisis and leading to an even bigger one where various misallocations of capital are sitting ducks to implode, be it in ETFs (even dating back to early-2018 and the inverse volatility ETF blowup), oil markets, etc.. We can flesh out that argument for another day, though, as time is of the essence right now and we are clearly in the thick of everything. 

That said, gold and her miners continue to be the least damaged asset class from this whole cycle and they also continue to improve. The demand shock from the pandemic is intense and legendary. But The Fed's reaction, and the government's reaction, too, is "creating" plenty of money. And I suspect the gold market is one of the first ones to sniff out what is coming. 

At a minimum, that money will need to be spent on essential goods at the grocery store, which can only mean inflation as per the old quote: “Inflation is too much money spent chasing too few goods,” especially with the various supply chain disruptions now. 

Swimming the Channel From Down-and-Out to Overhea...

 
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