The Fed is under attack by the media and Elizabeth Warren. They’ve been exposed as trading stocks and bonds with insider knowledge of how the market was going to react to their speeches. I briefly touched on this story back on September 22nd after Jerome Powell held a post-FOMC press conference. During the Q&A that followed, Powell was grilled about Fed officials trading stocks around Fed announcements. At the time I said,
“It sounds like this could grow legs and turn into a story. The Fed is trying to figure out the best way to handle it. In time, I imagine it’ll get swept under the rug just like Congress’s insider trading issues. Time will tell.”
The Fed was slow to react so now their enemies are coming at them with knives out.
Liz Warren has been around the block a few times and knows when to score political points. Right now, it looks like she is going for a scalp or two. This is the pot calling the kettle black because members of congress are notorious for profiting in the stock market off of bills that they pass. There is even a guy on twitter that follows Nancy Pelosi’s portfolio. This won’t slow down Warren. She’s on the warpath.
Both Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan are stepping down over the allegations. Rosengren cited health issues and when Kaplan announced his resignation, he stated that this was a “distraction”. Now Fed Vice Chair Richard Clarida has come under fire.
Prior to this insider trading drama, Powell’s chances at a re-nomination for Fed chair were sketchy at best. Now they are downright horrible. There is only a slim chance Powell will get enough votes to stay at the helm of the Fed.
The left sees the Fed as highly political since Powell succumbed to the pressure from Trump to keep interest rates low and to juice the stock market. They are going to see this as an opportunity to “remake” the Fed. The more members that they can browbeat into resigning, the more lefty economists they will pack the FOMC with. This is bad news all around. First, these lefty economists will see no problem with letting the money pump go full blast. They might even be Stephanie Kelton types that won’t see a problem that can’t be fixed with more liquidity. Also, once the Fed is shown as a political animal, the nomination hearings could easily get to a Brett Kavanaugh style level. This will ensure that the worst will always rise to the top. So far, the left has badgered two Fed presidents into retirement with a third well on his way to seeing his Fed career end early. With Powell not getting a renom, this would give the current administration four seats to fill.
These actions could cause serious repercussions in the market. Hold onto your seats.
I appreciate the great feedback from my take on stock picking. Many of you emailed with great ideas. The reason I took on this study is that it looks to me that if there is momentum behind a certain name, it will become attractive to others who will then push it continually higher. As it rises, more and more investors begin jumping on board.
Today I took a look at aluminum and silver. Aluminum seems like it could be the next commodity to pop. It is already up considerably from the April 2020 lows.
With China beginning to struggle with keeping the lights on, aluminum production could come under great constraint. This would put the miners in the drivers seat and the price would continue its great climb higher.
The aluminum mining crowd is tiny. I was only able to find 11 companies that did it. Of those, I chose 5 for my analysis. Starting in January of 2017, I came up with the following;
Constellium SE (CSTM), is the big winner here. You can see that it had a tremendous drop during the March 2020 panic. Then it recovered ferociously, outpacing the competition handily. CSTM has a $2.8B market capitalization. Therefore, it is considered a “small” company. The market cap levels usually look something like this:
This follows a similar pattern to uranium in that the smaller companies outperformed the larger ones on a momentum basis.
I then began to tackle the silver miners. Since there is a lot of crossover between gold and silver miners, I tried to pick out the miners who specialized in silver. I then narrowed down the list to seven companies. One of the companies didn’t have data before June of 2017, so I omitted them for the first look.
I really wanted to capture the big run-up in silver miners at the end of 2010 and beginning of 2011. This was a spectacular time to hold these companies but it is obvious that one stood out apart from the rest. That was First Majestic Silver (AG). It continued to look like it was performing well, so I shortened the time frame and added Silvercorp Metals.
What I found is that since the beginning of 2020, FSM has had the better momentum. However, all are struggling due to the low silver price. Also AG petered out mid-year 2020 while everyone else had a good run up.
The two things that I took away from the silver miner study: First, momentum can change between companies. The company that was hot during the last run might not be the company that has the best run the second time around. Certainly, mine location could come into play here. If the mines are in unfriendly countries, companies could struggle and lose assets. This would be detrimental to their market price. Another factor could be provable reserves. As mines go through their life-cycle, less product gets produced. Finally, the second takeaway is that momentum is hard to measure when the industry is struggling to catch a bid. It was clear as day who the winner was in 2011, but since the price of silver has flat-lined since September of 2020, the current picture is a lot more difficult to gauge.
I know that several of you are interested in the gold miners, both junior and larger market cap. I’ll make an effort to dig into these companies but after the silver study, it may also prove inconclusive due to the yellow metal’s recent struggles. While these studies are important to me, my investment focus right now is on natural gas, oil, uranium, and coal.