June 2023: Monthly Asset Class Report

We had a big SPX rally after Jay Powell skipped a rate hike. [The Rude Awakening] July 05, 2023 [WEBSITE]( | [UNSUBSCRIBE]( June 2023: Monthly Asset Class Report - The SPX was up over 5% after Jay Powell decided to skip a rate hike. - Commodities didn’t improve much, however. - But crypto rallied yet again. [Download My New Survival Guide Today!]( I’ve created a BRAND-NEW “2023 Crisis Survival Guide” that I’m making available to all of my readers today. This short 54-page document has everything you need to know to protect yourself and your family in times of crisis. Things like what foods to stock up on now, staying safe during periods of rioting and looting and more. Inside I break down all of the coming threats you face and how to prepare. [>> To see how to download your copy, click here now](. [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Hump Day from sunny Sicily! I’m sunburnt to a crisp, so I’m thrilled to be inside putting this together for you. I hope you enjoyed July 4th weekend. As for me, Pam and I celebrated our 12th wedding anniversary on the 3rd. I like to call it “Dependence Day.” I’ll tell you more about Sicily in tomorrow’s Rude. But let’s start the month off with business. In this Monthly Asset Class Report, you’ll see many of the things I wrote about last month came true. Jay Powell’s skip did indeed cause a massive rally in the SPX. The Nazzie’s was already well underway and is continuing apace. We can add the Russell, which has seen the small caps join the big caps in this rally. The crypto space performed well in June as well. Bitcoin was up, but Bitcoin Cash, another currency “forked” from the original, was up 168%. Bonds were flat-to-down, while real estate was slightly up. Through all this, the USD was down 0.88%. This isn’t surprising, given Powell’s actions. But if Powell starts to hike again soon, we’ll see the USD tag along with it. That will spell disaster for anything priced in USD (almost everything). Finally, gold and silver continue to disappoint, though I hold out hope. Now, let’s get to the charts. S&P 500 [SJN] From last month: The Nasdaq’s rising tide is lifting all boats. Though this chart shows us ending below 4,200, we’re now well above that level. If the Fed pauses this month, the next stop is 4,450. The Fed skipped, and we landed at 4,450. What a call! Now let’s see if we go to 4,650. Nasdaq Composite [SJN] I’m convinced it’s 1999 all over again. Another big rally last month. Next stop: 14,500 to 14,750. Russell 2000 (Small caps) [SJN] We may be seeing small-cap participation. The Russell had a good month. I’d like to see a more sustained rally. Above 197.50, and you can be unabashedly bullish. The US 10-Year Yield [SJN] We rose another twenty bps (0.20%) since our last asset class report. My comment from three months ago remains: This is because the market thinks the Fed is done hiking and will cut soon. I don’t think the Fed is done hiking, nor do I think it’ll cut soon after. There will be a decent interval between the end of the hikes and the beginning of the cuts. So I think we’re going up from here, though the entire market disagrees with me. Dollar Index [SJN] From last month: A pause will send the dollar down… temporarily. Indeed, that happened. But when Chairman Pow starts hiking again, we’ll see the dollar rally. And that’s bad news for everything priced in dollars. USG Bonds [SJN] TLT didn’t move in the last month. I’m getting more bearish by the day, as I wait for Powell’s new set of rate hikes. Investment Grade Bonds [SJN] Same story here. Looking for a nosedive to 97 once rate hikes resume. High Yield Bonds [SJN] Rangebound, but with a downside bias. That’s thanks to Jay Powell, again. We can easily see 68 once the hikes resume. Real Estate [SJN] I thought we’d be down here, but June proved a bull month for real estate. Not sure what happened in that last week, it may be short-lived with more rate hikes coming through. [Urgent Notice From Paradigm CIO Zach Scheidt!]( [Click here to learn more]( Hi, Zach Scheidt here… I’m the Chief Income Officer at Paradigm Press. With inflation raging (and showing no signs of coming to an end any time soon), almost everyone in America is feeling the pain in a big way. Which is why, several months ago, I set out on a big mission… my goal was to create a [complete, step-by-step plan to surviving and beating inflation]( one that anyone could take advantage of. Today, after hundreds of hours of research, I’m revealing all of my findings. [Simply click here now to see how to survive America’s deadly inflation crisis](. [Click Here To Learn More]( Base Metals: Copper [SJN] We haven’t gone below 3.60 yet, but the price action isn’t bullish. I think it’s only a matter of time. As copper is an indicator of the world economy, I’d say things aren’t looking that great. Precious Metals: Gold [SJN] Very disappointed with gold’s performance right now. I was hoping we’d hover around $2,000, allowing it to form a base here. But that’s not the case. Gold may rally from here, if only to take a break from falling. If we rally, we head back to $2,000. If not, look to $1,820. Precious Metals: Silver [SJN] We’re down $0.50 this month. The chart is unclear on the direction at the moment. I’m hoping we get some upside here. Cryptos: Bitcoin [SJN] BTC jumped to over $30,000 this month. My $42,000 target is still live. The crypto space is looking healthier than it has in years. Cryptos: Ether [SJN] From three months ago: A good chart, but not as good as Bitcoin’s. I want to see a sustained move above $2,000 before I get excited about ETH. We’re almost at that $2,000 point. After that, target $3,000. Trad Asset Class Summary [SJN] The SPX was up hard, notching a 5.43% gain in June. Commodities were also up nearly 2%. The dollar fell nearly 1%, while bonds were down 1.32%. Crypto Class Summary [SJN] Bitcoin Cash - different from the original Bitcoin - was up 168% -[apparently on the back of some wild South Korean volume](. Most of the crypto space was up in June, save for Ripple and Dogecoin, Elon Musk’s favorite. Wrap Up Last month, I wrote this, and it still applies: Again, if Jay Powell pauses, we’ll have a huge rally because the market will mistake that for a pivot. And then he’ll rise rates some more before he breaks something. And then, after much pain, he’ll cut. In the meantime, enjoy the rally. Finally, let’s take a moment to enjoy this most excellent meme, courtesy of the Twitterverse: [SJN] Have a great day! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( In Case You Missed It… Why You Should Generally Avoid Commodity ETFs Despite Inflation, Commodity Prices Rising [Sean Ring] SEAN RING Happy July 4th! I wrote this way back in May 2021, but I still think it applies. I hope you enjoy it, and your day off! Inflation, Up. Commodities, Up. Let’s do Commodity ETFs! It makes total sense. You think, “Inflation is happening. Lumber, copper, and coffee prices are going through the roof. But I don’t know if I’ve missed these rallies, or which ones will go up next, so I probably should buy a commodity ETF.” The thinking is sound. But for reasons I’ll demonstrate in today’s Rude, most commodity ETFs should be avoided like the plague. What are ETFs? Very briefly, to make sure we’re on the same page, I’ll define ETFs. ETFs are exchange-traded funds, which have all the characteristics of a mutual fund, except they trade on a stock exchange like any other security. A good reason to invest using ETFs is that they’re cheap to own. They only charge around 0.20% per year, because ETFs aren’t actively managed. And they certainly don’t charge an assets-under-management (AUM) fee or a performance fee like hedge funds do. ETFs are a great addition to most investor portfolios, as you can cheaply buy “the market.” That is, you can buy ETFs on the following things: - Bonds - Bitcoin - Commodities - Equities - Money Markets - Multi-Asset - Precious Metals - Real Estate The list is almost endless. As of the end of 2020, there were 7,602 ETFs managing over $7 trillion of assets. For assets such as equities and bonds, they’re just fine. For example, the SPDR S&P 500 ETF (SPY) tracks the index and is the largest ETF with nearly $330 billion in assets. The QQQ tracks the Nasdaq; the TLT covers U.S. Treasuries; the HYG covers high yield or junk bonds. Of course, you can also buy sectors of the market, such as tech, healthcare, and pharmaceuticals, to name a few. There are also commodity ETFs, which, for reasons I’ll get into presently, are mostly crap. One Drunken Night in a Club At my last banking job, I was at an offsite in Taipei. One evening, over a bottle of champagne at a dance club, I was talking to a managing director about how I thought oil was going to explode higher. I didn’t want to buy futures - as a former futures broker I knew how risky that could be - so I was thinking of buying the USO (United States Oil Fund) instead. With a look of solemn despair and warning, he said, “Never do that. You must understand how most of these commodity funds are structured. You know what happens when markets are in contango. The roll yield will kill you.” I’m going to parse out that warning for you. It’s amazing how some side conversation on the ass-end of the world can save your portfolio. How are Commodity Funds Structured? If you’re intent on investing in commodity funds, this is the first place you must do a bit of homework. The question you must answer is this: “Does this fund use the actual underlying asset to create the fund, or does it replicate ownership using futures contracts?” If it’s using the actual asset, fine. You can proceed. (For example, GLD, the SPDR® Gold Shares, is the largest physically-backed gold ETF in the world.) But if it’s using futures contracts, it’s a no-go. Let me tell you why. Let’s very quickly define futures contracts. Futures are a standardized obligation to buy or sell a specified quantity of a standardized asset at a price agreed today for delivery in the future. For example, the WTI oil futures contract is an obligation to buy or sell 1,000 barrels of West Texas Intermediate oil at the price you agreed today (say, $64.90) for settlement in the month you bought or sold (say, May 2021). The issue with futures contracts is that you need to roll them. They just don’t last that long. That is, they mature every month. For instance, before the May 2021 contract matures May 31, 2021, you need to “roll” into the June 2021 contract. Then before June 30, 2021, you need to roll into the July contract. This can get very expensive, not because of the commissions - which are minuscule nowadays - but because of the difference between what you can sell the May contract for and buy the June contract for. That leads us to two more important terms. [New Biden Bucks Follow-Up Available Now]( Hey, it’s Jim Rickards. Since posting my original Biden Bucks presentation online, millions of people have viewed it. Snopes and the Associated Press have even attempted to “fact check” me and claim my warnings are false: [Click here to learn more]( Point being, my message has raised a storm and caused a lot of controversy. But in the time between my message and now, a lot of new developments have come to light. That’s why I’ve just released an update to my original prediction… one which will likely be even more controversial. [>> Click here now to access my new 2023 Biden Bucks follow-up](. [Click Here To Learn More]( Contango Isn’t a Dance; Backwardation isn’t Reversing Your Car As Socrates stated almost 2,500 years ago, “The beginning of wisdom is the definition of terms.” And boy, does the financial world throw up some doozies! So let’s get these two esoteric terms defined. Contango simply means the futures price of an asset is greater than the spot or cash price of the asset. Although a futures price is not a prediction, contango usually occurs when price rises are expected over time. [SJN] Backwardation is the opposite of contango. That’s when the spot price of an asset is greater than the futures price. [SJN] I have no idea how they came up with these terms. Never mind, because the important part is the roll yield. “Yield,” in finance, is synonymous with “return.” (We usually use “yield” in fixed income and commodities, and “return” with equities, but there are exceptions.) The roll yield is the amount of return generated after an investor rolls a short-term contract into a longer-term contract. The managers of commodity funds have to do this every month to attempt to mimic the underlying asset. Unfortunately, it doesn’t work out like that. The roll yield is the reason. Most futures markets are in contango. As futures prices aren’t a prediction, the reason why they’re higher is because of the costs associated with storage, insurance, and foregone interest. All are a function of time. So the longer out you go, the more expensive the contract is. Since most futures are in contango, the commodity ETFs based on them lose big money on the roll yield, despite the spot and futures prices going up! That’s because they’ve got to roll every month, and the farther out contracts are more expensive. To get a feel on just how often a roll yield is negative, look at this, [from WisdomTree]( [SJN] The roll yield is almost always negative! The exception is the backwardated market. That happens during supply squeezes, a heavy increase in demand, or times of war. It’s when buyers want that asset right now, and will pay more for it. Think China buying wheat during a drought, or buying copper when they want to wire up an entire ghost city. Or America invading the Middle East, driving up oil prices. But this doesn’t happen all that often. And if it does, it’s difficult for an investor to notice it. Interestingly, the WTI is in backwardation at the moment. And USO has rallied considerably since the disastrous Saudi-Russian oil standoff in 2020. But to assume that will continue indefinitely is foolhardy. The curve can flip from backwardated to contango at any moment. [pub] So the real worry is not what the underlying price of oil does. It’s whether or not the futures curve stays in backwardation. I think there are far better ways to spend your time. Alternatives to Futures-Based Commodity ETFs Trading the Futures Themselves First, you can trade the futures themselves, but they come with all sorts of risks. Not my first choice unless you have millions of dollars in the bank already. And you’ve got the kind of mentality that can handle daily losses. Buying Commodity Company ETFs But you can invest in the ETFs of companies whose main business is commodities. If you like gold, you can look at GDX or GDXJ. If you like oil and gas, you can look at XOP or IEO. Please keep in mind that I’m not recommending these ETFs. I’m only giving you an idea of what you can do, given your view. Buying the Commodity Companies Themselves - The Pure Play If you prefer single stocks and think you have an edge, you can always buy the company stocks themselves. ETFs provide diversification while also giving you exposure to a sector. But if you think a single stock will do the job for you and are willing to take the risk, this is your play. For oil, this may be Exxon (XOM) or Chevron (CVX). For gold, this may be Barrick Gold (GOLD) or Franco Nevada (FNV). Again, you must do your research when undertaking these kinds of investments. Just remember, the first thing you must do is preserve your capital. Well, that’s all I’ve got for now. I wish you an absolutely rocking week ahead! Until tomorrow. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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