Markets and Metals Navigator (August 30th, 2020)

Stocks and Commodities Stay Well Bid!

Another strong week in the markets; with the S&P 500, Nasdaq, gold, silver and copper all posting strong gains. Investors are being pushed further and further out the risk curve, growth and preservation of value are paramount.

Real yields continue to be the main driver of returns in the stocks and commodities, this graph beautifully illustrates the relationship between U.S. 10-year real yields and the S&P 500.

The U.S. Federal Reserve Not Bothered About Inflation (Investors Should Be!)

At a speech in Jackson Hole this week, Federal Reserve Chair Jerome Powell stated the Fed would tolerate inflation above 2%, a new approach to setting U.S. monetary policy.

This will ultimately keeping interest rates low for years to come, which will suppress real yields – a very accommodating environment for commodity pricing.

We believe investors are just beginning to appreciate the fat tail risk of heightened inflation as a result of the Federal Reserve’s very accommodative monetary policy.

An inflation protection basket (gold, silver & copper) is one of the tangible ways to protect against this inflation risk, we view the mining companies in each category as attractively valued in this inflationary backdrop.

Ohio Police & Fire Pension Fund approves 5% Allocation in Gold

As reported in ZeroHedge, the $16 billion Ohio Police & Fire Pension Fund has approved a 5% allocation to gold to “hedge against the risk of inflation”.

Developed market pension funds are structurally underweight gold, in most instances the weighting in gold is zero.  We believe that the Ohio Police & Fire Pension Fund and Berkshire Hathaway’s recent investments in gold are the beginning of an institutional sea change in asset allocation.

We believe all inflation hedged assets and companies that mine those assets, namely: gold, silver and copper, will continue to gain significant incremental interest from large pension & endowment funds.  A very bullish backdrop.

U.K. Psychedelic Startup Compass Pathways to IPO on the Nasdaq

Compass Pathways is one of the most anticipated psychedelic companies to come to market, backed by tech billionaire Peter Thiel.  The company is seeking to raise $100 million and will list on the Nasdaq under the symbol CMPS.

Over the last 6 months the Canadian market has been saturated with a slew of very flimsy psychedelic companies coming to market with questionable business models and bloated share structures.   Compass Pathways offers investors the first glimpse at a company that has been well capitalized for years – a stark difference versus it’s Canadian listed peers.

All Eyes on the US Cannabis ETF

As discussed in last week’s navigator, there is considerable interest in AdvisorShares listing of the first US ETF with dedicated exposure to the US cannabis market – ticker MSOS. We’re likely to see the ETF trading on September 2nd.

As we’ve correctly highlighted in our August 2nd edition of the Navigator – U.S. cannabis stocks have broken out!  We’ve witnessed another strong week of performance, Trulieve and Curaleaf were up 11% and 9% respectively.  Canadian peers continue to be lagging, with Canopy and Aurora up 5% and 4% respectively.

We continue to view the U.S. landscape as structurally more attractive than Canada, the US ETF could be a very strong catalyst for continued outperformance.

The Jamaican Central Bank Gets It!

We’ll leave you on a high note, there is no other central bank in the world that can come close to Jamaica in terms of communication!

Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.