Markets & Metals Navigator (November 1st, 2020)

Markets Get Skittish Ahead of U.S. Election, Bitcoin Keeps Trucking

U.S. stocks had their worst week since March, the market digested a spike in coronavirus cases, stimulus off the table and the potential of a contested election.

The S&P 500 and Nasdaq fell 5.6% and -5.5% respectively; while Bitcoin kept its momentum after its massive run last week, rising 5% last week.

No sector was immune to the “risk-off” selloff; even the work-from-home darlings, Zoom (NASD:ZM) and Peloton (NASD:PTON), sold off significantly. Year-to-date Zoom and Peloton have been consistent outperformers when COVID cases spike, however this week was an abirritation to that trend.

Value have Never Been This Out of Favor: Mining Stocks are the Best Positioned Catch-Up Trade

The FT published an interesting historical chart going back to 1826 looking at the drawdown of value stocks relative to expensive stocks; we are currently in the midst of the worst draw in history with a cumulative loss of -65%.

As we highlighted in last week’s Navigator, commodities are in deep value territory – we believe that metals are far better positioned than energy.

The Canadian mining sector (TSX:XMA) has out performed the S&P 500 and the Canadian energy sector (TSX:XEG) by 20% and 77% respectively year-to-date.

There is much lost ground to be made up by commodities relative to the S&P 500 over the last decade.  The Canadian materials sector is down 19% over the period, while the energy sector is down 77%.

We view green metals as the sweet spot for the commodity upswing trade: copper, lithium, cobalt and vanadium.

Is Chinese Copper Stockpiling Setting the Market up for a Squeeze?

Last week we published a piece looking at China’s unquenched demand for copper and their current stockpiling of the metal.

Domestic demand for copper in China has grown by 10.5% annually over the last decade, and in the most current month demand was higher by 23% year-on-year.  Imports make up over 80% of copper supply for the country, making the metal very strategic for long term economic growth.

If China were to build a strategic stockpile what would the ultimate impact be to global pricing?

The combination of global economic stimulus as a result of COVID-19 in combination with Chinese strategic copper stockpiling could drive copper prices north of $4.50, the previous all time high.

As a reminder copper miners are the leveraged play on global economic stimulus, in the last stimulus driven recovery copper miners returned 360% two years after the market bottom, outperforming the S&P 500 by 180%.

Options are Now the Main Event

A powerful chart from Chris Cole at Artemis Capital Management looking at the total market volume of the US stock market vs. the total US options market volume – options have now structurally taken the lead.

The market implications of this are profound, options now play a more important role as a price setting mechanism for stocks than the underlying shares of the companies themselves.

Urban Real Estate: Less Floors the Better

Urbanation published a fascinating chart looking at the price appreciation of condos by number of floors in the greater Toronto area for Q3-2020 vs. Q1-2020.  The analysis found that buildings over 40 floors saw a price decline of -6.9%, while buildings with under 10 floors saw prices increase by +1.8%.

We are clearly witnessing a sea change in home buyer appetite for condo boxes in the sky, a shift away from sterile super towers towards low rise buildings with a focus on community.

Aurora Cannabis: Can’t Fix Broken

Aurora Cannabis (NYSE:ACB) announced another $500 million stock issuance facility early last week, the market continued to sell off the name; down -14% last week and -84% year-to-date.

There is very little to get investors excited, Capital 10X highlighted our concerns in early September when they announced their new CEO.

U.S. Cannabis Investors Await the Biggest Catalyst of 2020: Election Day

There is no sector that will be more greatly impacted by the U.S. Presidential election than cannabis; a change in leadership could usher a new era of opportunities for companies operating in the industry.

Grizzle highlighted their 2020 election cannabis playbook for each of the key political outcomes, their weightings by category are highlighted below for an outcome of a Democratic clean sweep.

Small and mid-sized U.S. cannabis companies that are cash strapped would have the greatest upside if there is a “Blue Wave” on Tuesday.

Source: Grizzle


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.


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