The Trump rally has been going on since last week. Stocks that were overvalued then are more overvalued today.
Gold and silver stocks, however, have taken it on the chin due to the increase in the dollar, which was up again yesterday. The dollar index rose another half a point to hit its highest level in four months.
The greenback got a boost from Minneapolis Fed President Neel Kashkari, whose hawkish comments about the U.S. economy’s resilience and improved productivity suggested the Fed may hold off on rate cuts longer than expected. Investors are piling into the dollar as the post-election rally rolls on, betting that bond yields will rise amid pro-tariff inflationary policies tied to President-elect Trump’s economic agenda.
Kashkari’s remarks on Saturday set the stage, noting that strong economic fundamentals and productivity gains might keep the Fed from slashing rates as aggressively as previously projected in the coming months.
Currently, markets are pricing in a 65% probability of a -25 basis point rate cut at the Fed’s December 17-18 FOMC meeting.
Interest rates have been heading higher. The 10-year treasury is at 4.43%. Bankrate.com shows the average mortgage rate at 6.91% which is down a point from October of last year but will do nothing to break the logjam in the housing market.
Meanwhile, the euro lost -0.60% against the dollar yesterday, falling to a six-and-a-half-month low. Your dollar is now equal to 1.06 euros. That will give you a nice discount on your next Chianti when you are in Tuscany for Thanksgiving.
Meanwhile, the European Central Bank is arguing whether they should be cutting rates to dig themselves out of their economic malaise. Governing Council member Robert Holzmann stated there’s “no reason” the ECB wouldn’t cut rates in December. Another member, Yannis Stournaras, projected rates could fall near 2% by next September as inflation cools.
Political instability in Germany isn’t helping either; Chancellor Olaf Scholz just called a January snap election after firing Finance Minister Christian Lindner, leaving the ruling coalition short of a majority in the Bundestag. Germany’s business plan of using cheap Russian oil to sell high-tech machines to the Chinese has taken a beating over the past two years. The Russian oil is no longer there and the Chinese stopped buying.
Of course, 90% of what Trump is saying will never happen. His best skill is that of a deal-maker and negotiator. He is saying that he will put tariffs on all sorts of imports so that when he gets to the table to work out a new trade agreement he will have a bargaining chip to trade away. He did this last time and made a great deal with Mexico and Canada in the new NAFTA.
He will try it again with China and the EU. We will see another round of inflation but it will have more to do with government printing and spending or unpaid tax cuts than it will with tariffs.
That said even though the market is in the end stages of a bull market it doesn’t mean you cant make some money. In late October I recommended two Boomer stocks. I wrote:
Two months ago West Texas Intermediary was trading at $80, now it is trading at $67 and falling on Chinese economic softness. Who benefits from lower oil prices? Airlines, cruise ships, trucking companies… In fact, the larger cruise ships burn as much as $200,000 of fuel a day.
Which is why CCL just gapped up on a breakout. Fuel price savings will go directly to the bottom line. Currently, CCL has a trailing P/E of 17 and a 61.50% quarterly earnings growth (yoy). This gives it a price-to-earnings growth (PEG) ratio of 0.29 which is absurdly undervalued.
Margins will increase with lower fuel costs and lower interest rates. Furthermore, cruise lines carry tremendous debt due to the high upfront cost of ships. If the rate cuts continue this will also increase their margins.
It’s time to sell your oil plays and buy the cruise lines. Full disclosure, I put my money where my mouth is and own both Carnival (CCL) and Royal Caribbean (RCL).
Both stocks are up about 14% in ten trading days and are in a full-blown bullish uptrend. Not too shabby.
All the best,
Christian DeHaemer
Outsider Club
Buy the Boomers: https://www.outsiderclub.com/sell-oil-buy-this-boomer-stock/
It sure ain’t the bottom: https://www.outsiderclub.com/elevator-party/
Brit explains it all: https://www.outsiderclub.com/animal-spirits-and-the-election/
