September 9, 2023
In a significant financial development this week, Saudi Arabia and Russia extended their oil production cuts for the remainder of the year. This move has far-reaching implications, particularly in the global economy and inflation.
Oil prices have remained notably high, with WTI surpassing the $80 mark by a large margin and Brent crude exceeding $90 in August. This has proven advantageous, with Chevron (CVX) accounting for 10% of the Maverick Investor Portfolio.
As oil prices soared, uranium also experienced a surge, crossing the $60/pound mark. Investing in uranium stocks has proven to be a prudent choice. One of my holdings, Uranium Energy Corp (UEC), is a Cara Core-12 Natural Resources group component and a holding in the Natural Resources Portfolio.
Despite elevated oil prices, questions have arisen regarding OPEC+’s decision to extend production cuts. Their doing so suggests underlying concerns about a potential global recession and underscores the importance of monitoring economic trends closely.
Inflation statistics are expected to become more complex as base effects reverse. The Fed’s preferred inflation gauge, PCE, has already delivered surprises on the upside. Forecasts now indicate that headline CPI may rise from 3.2% to 3.4%.
However, equity market optimism prevails, with investors holding long positions due to forecasts of +12% corporate earnings growth year over year in 2024. Positive economic indicators, including declining US jobless claims, robust ISM services statistics, and improved consumer sentiment, contribute to this bullish sentiment.
Contrary to the usual market fluctuations, the US dollar and Oil have both seen gains in the past week. Notably, the Silver market chart more closely resembles Copper than Gold, which previously served as a recession indicator. The potential return of safe-haven demand, such as in bonds and gold, may become more likely as economic stress indicators strengthen.
Should the US and global economies enter a recession amid rising inflation, central bankers face a difficult situation called Stagflation. This will be discussed at this weekend’s G-20 meeting in India. The Fed’s emphasis on fighting inflation “as long as it takes” creates a delicate balance between addressing the problem and supporting the economy during a recession.
US market sentiment shows growing uncertainty regarding the government’s and the Fed’s ability to manage the economy effectively. Investor concerns have surfaced regarding fiscal spending and accommodative Fed policy.
The forthcoming CPI report is eagerly awaited. A wait-and-see approach, coupled with vigilant data monitoring, seems prudent.
Considering the possibility of a US recession by year-end, although more likely in 1H2024, caution prevails in the energy and industrial minerals sectors. I am avoiding Copper and Silver miners for now, and no additions are made to Oil-related holdings. However, New Pacific Metals (NEWP) stands out as a compelling value proposition in the Silver market, having reported an impressive 884.4-million-ounce Silver-equivalent resource with a remarkably low US$369 million market capitalization.