INK Ultra Money: D versus G day

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Today feels like a D-economy day with most assets selling off. The daily narrative trying to make sense of the sell-off is pointing to rising concerns about COVID-19. That may well be. However, rising US cases and the potential implications have been building for awhile. Equally plausible is the slowing down of Fed asset purchases and concerns about the next round of stimulus. Alternatively, after rising in 7 out of the last 8 trading sessions, perhaps the Nasdaq 100 was in need of a rest and we'll be right back to blowing bubbles tomorrow.

The D-economy is one of two key scenarios we use in our framework to identify opportunity. Under a D-economy, deflation rules and we would expect bonds, gold, and cash to do well. On Real Vision Wednesday we have D-economy champion Jeff Snider of Alhambra Investment Partners. He believes we are in a deflationary environment as evidenced by sputtering bank lending over the past few years. Jeff believes the bond market is shouting deflation and he may be right. That is why we maintain that the jury is still out as to whether a D-economy prevails, or inflation returns in our G-economy scenario.

Nothing will change until policies change

Jeff is one of the more compelling bears out there and he always brings some deep analysis and original insight to his thesis. I agree with him that the underlying economic momentum over the past few years was to the downside. However, I believe a lot of that had to do with the Fed trying to normalize monetary policy.

The Fed is nowhere near normalizing right now. Instead, they have essentially checked into the Hotel California and will not be able to normalize for at least a decade, if ever under the current monetary system. So that is where I differ with him on his assertion that nothing has changed. The Fed has changed, and so has Washington which is no longer bound by the Budget Control Act of 2011.

In our just released 137-second summary video of the INK Canadian Insider (CIN) Index presentation, we make the case for the G-economy which is our other framework scenario competing with the D-economy. Under a G-economy we believe investors need to have exposure to gold, silver and other commodities. To capitalize on rising nominal prices, investors should also consider exposure to Inflation-sensitive stocks such as those tracked by the INK CIN Index which is used under license with us by the Horizons Cdn Insider Index ETF (HII).

Policy has changed

It is not a complete D-day out there. Today, Vizsla Resources (VZLA) released some near-surface high-grade silver drill results and the stock is up about 50%. I first mentioned this stock in INK Chat on May 27th and gave the reason why I liked it (spoiler alert it has nothing to do with geology). INK Chat is by invitation only. If you have not registered yet, Canadian Insider Club and Ultra members can click here to get started.

Finally, this morning we looked at under-loved Transcontinental (TCL) which has growing free cash flow. However, you would not know it by looking at the valuations of the stock which still reflect some tough years the company has gone through recently. Click here to watch the video summary and download the report (free later today).

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Disclosure: As indicated in INK Chat, I hold a position in VZLA. Join us for updates.

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