Update - August 24, 2021
Nobody Is Watching This Story
The biggest story these days isn’t where most folks are looking.
It’s not in Washington.
It has little to do with the Federal Reserve or Jay Powell’s say-nothing speech this Friday.
It doesn’t involve Afghanistan… or vaccines… or fires, floods or droughts.
If you’re an investor, the biggest story is in China – the land Wall Street forgot.
There’s important news out of the country in recent days. Its data wonks (who have long been notorious for lying about how strong their economy is) are singing a sad song.
Things aren’t great, they say.
They must take action.
Winning the Race
The country will require more easing. Its cheap-money policy will get even cheaper. Banks will see lower capital requirements. And, according to a few sources, more money will be printed.
It counters the “tightening” story that’s growing in the States.
But here’s what history has to say…
What happens in China happens in America.
We’ve written about the race to the bottom many times before. Whoever has the cheaper currency… wins. It’s been a recurring theme over the past decade or more.
Obama dealt with it. Trump fought it. And now it’s on Biden’s plate.
We could talk about the politics and the economic fallout all day. But here’s what you need to know…
What China does next will act as a powerful counterbalance to the relative hawkishness we’re seeing from Powell and his Fed.
If China eases greatly… there’s no chance Washington will allow rates to rise and the greenback to surge with them.
It means the trend we’ve been playing isn’t going away. In fact, contrary to many views, it may be accelerating from here.
This explains why crypto is surging once again… why gold is catching a bid… and why stocks continue to hit record highs, despite piles of not-so-great news.
It’s why I must say that I was disappointed to have to sell our stake in Logitech (LOGI) last week.
After promising to buy back millions of dollars’ worth of its stock, Logitech treated us very well. We sold for a gain of about 60%.
But Is It Buying?
It wasn’t surprising that, after such a strong run higher, the stock had trouble continuing its ascent. The work-from-home trend that pushed the stock to new highs is leveling off, even with the delta variant halting many corporate plans.
But there is one thing with the stock that is a bit concerning. It helps explain why shares dipped to our trailing stop.
Despite a robust buyback plan, the number of shares outstanding has remained flat in recent months. That goes counter to our thesis and what executives touted.
Yes, the company is buying its own shares, but it’s diluting them at an equal rate thanks to stock options and other forms of stock-based compensation.
With that, it makes sense our strategy told us to sell.
Even so, we got exactly what we wanted out of the play. We crushed the market’s return nearly 2-to-1.
Very nice.
We’ll replace the stock next week when we publish our September issue of Manward Letter. I outline a very exciting opportunity in the issue.
If you’re into startups, you’re going to really like it.
New Money
Finally, if you know me, you know I can’t resist commenting on the action in the crypto market over the past two weeks.
It’s been quite strong.
Our remaining stake in Monero (XMR) is now up 230% after a big jump over the past two days.
It makes sense. It ties perfectly to what I wrote above.
As China eases and the race to the bottom heats up once again, crypto will be the ultimate winner.
With each tick higher, it is getting more acceptance from the market’s biggest players.
We’ve said that 2021 will be the Year of Crypto. The first half was spectacular. But it’s looking like the last half could be even stronger.
This story is unfolding just how we want it to.
As always… keep an eye on interest rates. No matter where in the world we look, they tell the real story.