Update - March 8, 2022
The Recession We Predicted
I’d sure hate to be Jay Powell right about now.
He and his fellow money maestros at the Federal Reserve have quite a conundrum on their hands.
They vowed to raise rates. The inflation they created went too far, too fast. Powell even admitted last week that he should have acted sooner.
But now crude is trading for more than $120 per barrel. It’ll do more to slow the economy than a quarter-point rate hike that’s long been baked in could ever do.
It’s a tax that will pull at least $2,000 from the pocket of the average American each year. For some companies, it’ll take millions from the bottom line. It’s more than enough to slow things down.
But it gets worse. Food prices are soaring. The cost of key commodities like corn, soybeans and wheat have surged to prices we haven’t seen in nearly a decade.
And, messing with the Fed’s calculus, those prices are not soaring because of increased demand. What we’re seeing is not the result of too much money chasing too few goods. It’s the result of a war… which has closed borders and made shipping lanes and huge sources of products off-limits.
The Fed can raise rates – and likely will – but it’ll be the equivalent of spitting into a hurricane.
That leads us back to our “big prediction” for the year… a recession.
When we add up all the numbers – the increase in energy prices, the rising cost of food, and the lack of supplies and materials – it’s nearly certain that the size of the American economy will be smaller at the end of the year than it was at the beginning.
The data is starting to back up our thesis.
Economists often talk about the yield curve when it comes to predicting recessions. When it flattens and then goes upside down, a downturn almost always follows. We’ve mentioned that before.
The latest charts are showing signs that the trend is now underway.
The chart above shows the spread between the 10-year and three-month Treasurys. A recession is virtually certain if the line hits zero. For the last year or so, the spread has been climbing, signaling a strengthening economy.
But just this week, the spread broke below its lower trend line… twice.
If yields fail to find the strength to straighten out quickly, it will signal the start of a trend reversal… and a recession to come.
I will monitor this situation very closely.
For now, let’s look at a few must-own stocks in our portfolio.
Sources of Strength
I’ve mentioned Sandstorm Gold (SAND) a few times in recent weeks… and for good reason. It’s been a leading source of strength.
As the currency markets ponder the future and gold prices head to fresh all-time highs, Sandstorm is positioned quite nicely. Unlike a traditional gold play that has to factor in rising production costs, Sandstorm is a royalty company.
The only rising cost it needs to be concerned with is the cost of the paper its contracts are written on.
The higher gold prices go… the higher this stock will surge.
We’re already up 50% on it. But I’m confident this one will soon double our money.
Like I said a few weeks ago… if you don’t yet own shares, grab them now.
Another stock worth buying is KBR (KBR). This one is for the conservative investors. It won’t make you rich overnight, but it’s done a great job of keeping up with rising prices and the various economic threats.
It’s a strong play on infrastructure and growth within the world’s industrial sectors.
Shares of the international blue chip have surged 25% in the last two weeks after the company crushed earnings estimates. It’s a big move in a tough market that shows just how strong the stock is.
Again… get some shares now if you don’t already have them.
We’re already up 150% on the stock. But there are plenty more gains to come.
Unfortunately, the news isn’t as good for Unity Software (U). We hit our trailing stop at the end of yesterday’s session, meaning we must sell. The rules are the rules, no matter how hopeful we are about the company and its products.
In this case, the markets are simply not willing to pay a premium right now for technology and the growth it represents.
I won’t cry too loudly, though. For every door that closes in the tech sector… a cheaper one opens.
The market’s valuations have changed, but the potential for the technology has not. Discounts abound. We will take advantage of them.
Action to Take: Sell your shares in Unity Software (NYSE: U) at the market’s price.
Finally, my team and I just added a few new reports to our website.
There’s one about gold royalties… another about adding gold to your IRA… one about small cap gold miners… and more.
I’m keeping an extremely close eye on the markets and the action. I will keep you updated.