The Gladstone
Economic Newsletter
Volume 19, No. 3
February 25, 2024
Are the Magnificent 7 the new Nifty Fifty?
Is China in Economic Trouble?
DISCLAIMER: The following is not intended as investment advice, but is rather intended to promote your own analysis of markets and the economic climate. The author is not a registered investment professional. Any action taken as a result of this analysis carries a high degree of risk. This newsletter contains the personal opinion of the author.
Dear Readers-
The Magnificent 7 stocks (Nvidia, Microsoft, Meta, Alphabet, Tesla, Apple and Amazon) are what are powering this market to new highs. That and massive wasteful Federal Government spending that short circuits in the real economy and flows into the equity markets through the large financial firms. What I call the “real economy,” which is the productive industries, is really suffering at this point. The Index of Leading Economic Indicators has been down for 22 months in a row. This is despite the fact that the equity indices are a large component of the LEI. The average American consumer is suffering due to rising living costs versus wages that do not rise at the same rate. As an FYI, it appears that the US CPI only has gasoline and food costs as being 4% of the CPI. In reality, people are spending up to 13% of the average income on food alone. So food costs are much underrepresented in the CPI calculation.
What was the Nifty Fifty? During the market boom of the late 1960s to 1973, US investors gravitated towards a list of 50 stocks that you had to be invested in. This of course was a self-reinforcing course of action, until it wasn’t. The Bear Market of 1973-74 saw all stocks go down 50% or much more. The Nifty 50 went down 50 percent. Most people who know of the Nifty Fifty (all five people- tongue in cheek) remember that Xerox and Polaroid (who?) were the darling high fliers. In actuality, the Nifty Fifty included a lot of stocks like Proctor and Gamble, which is as conservative from a fundamental standpoint that you can get.
The Magnificent 7 represent a vastly more concentrated risk. When this market breaks, and break it will, I predict the Magnificent 7 will account for a huge amount of the losses. Why do I say this? Well, there are so many sectors of the market that are bombed out already. Commodity producers are a prime example of this. Petroleum firms are at low prices, despite being very profitable. The mining industry is another example. While I believe base metal producers are at a significant risk from China’s economic implosion, the precious metals firms have very good profits. The gold price (now $2030 an ounce) is near a record. Major gold producers typically have a cash cost of production about $1100 an ounce and all in sustaining costs of production of about $1400 an ounce. So your average major gold mining firm has a margin of about $600 an ounce.
Let’s look at few of the gold miners: B2Gold is my investment favorite right now (and this is not investment advice!). B2Gold is currently at $2.50 a share and yields 6.43% What more do you want out of this market? Even crusty, stodgy, ill-managed Newmont is at $31. a share and yields 3.20% People buy Newmont because it is well known. Better managed Barrick Gold is at $15 a share and yields 2.7% Even Agnico Eagle, which is a “widows and orphans” gold stock in many people’s eyes, is at $49.50 a share and yields 3.2% There are several more companies like this. Investors may want to look at the precious metals royalty companies as well. Do your own homework.
To shift gears, the economic situation in China is starting to appear dire. I have found Youtube to be a very valuable source of information. One must vet the various Youtube channels for accuracy and for bias. There are many channels that depict economic conditions in China. One of my favorites is the China Observer channel, which is tied to the Falun Gong movement. The Chinese Government has massively repressed the Falun Gong movement, and the China Observer channel doesn’t portray China in a good light. However, they source original videos from Chinese social media and translate the comments. China is undergoing a massive wave of small business failures, factory closures, mass unemployment and other signs of large economic distress. To my eyes, and trying to take out the biases of the Youtube channels, it appears to me China is on the verge of an economic depression.
Shifting gears again, the information in the following link is very important for you to understand. The information is a bit esoteric, but will have a very important role in the world economy (and investing). Steve St. Angelo starting writing in his SRSrocco Report about the amount of energy inputs per ounce of silver, and why silver prices had to go up over time. When he started writing about this in about 2008, I was bit skeptical. Over the years, I have become a believer. I encourage readers to view the SRSrocco Report link below:
Now, I realize my readers are mere mortals, and you may want to view this two or three times over a week or so (I used the phrase “mere mortals” in jest. My better half will sometime sigh and say “Oh, my god.” I respond, “Honey, I keep telling you – I am only a demigod.” It is wonder she still talks with me.) The information in the video link above is crucial to understanding where the world economy is going in the coming decades.
Shifting gears again, the de-industrialization of Germany (and Europe in general) continues apace. The US policy in Ukraine is succeeding in removing economic completion from Germany quite effectively, as the following two charts show:
The following chart reinforces my comments on the Magnificent 7. Lance Roberts published the chart:
Investors be warned!
To illustrate just how bad the US commercial real estate markets are, I include the following tweet by TripleNetInvestor. Green,Ohio is right near the Akron-Canton Airport. This is a beautiful, modern building that sold for less than some houses! OK, neither you nor I are going to buy a house for $3 million, but there are some people who do in places like Southern California or the New York Metro area.
The war in Ukraine is rapidly heading towards its completion. The Ukrainian front line is crumbling on multiple points after the fall of Avdeevka. I include two lengthy quotes, the first from askeptic.substack.com:
“Who owns the lands of Ukraine (https://t.me/russtrat/23160) for 2024 - suddenly someone forgot.
In 2021, the law on the sale of land came into force in Ukraine. As the Australian National Review neatly reported, "companies from the United States have used the new legislation to make massive investments in the country."
Now Cargill, Monsanto and Dupont (investors - Vanguard, Blackrock and Blackstone) own 40% of Ukraine's arable land. For permission to sell land, Ukraine received a $17 billion loan from the IMF, and offices of all three corporations were opened in Kiev.
GMA-Monsanto Corporation directly and through a number of intermediary companies already in 2022 owned 78% of the land fund of Sumy region, 56% of Chernihiv, 59% of Kherson and 47% of Mykolaiv region, She also has 34% of the land in the Kiev and Dnipropetrovsk regions pledged.
Also in 2013, the South China Morning Post reported that China (represented by Xinjiang Production and Construction Corps) had acquired 3 million hectares of Ukrainian land — land the size of Belgium "leased for 99 years with the right of redemption."
"28% of Ukraine's arable land is owned by a mixture of Ukrainian oligarchs, European and North American corporations, as well as the sovereign wealth fund of Saudi Arabia."
The scientists also reported that the owners of Ukrainian (on paper) agricultural holdings "have long been American NCH Capital, French AgroGeneration, German ADM Germany, KWS, Bayer and BASF, Saudi PIF and SALIC."
In the end, American researchers come to an amazing conclusion - the Russian SMO "takes place on chernozems sold to foreigners for a long time"
Remix News quoted a senior member of the Russian General Staff:
“NATO soldiers are taking part in the fighting disguised as mercenaries. They control air defense systems for operational and tactical missiles and multiple rocket launchers, and are part of assault teams,” Rudskoy said. According to him, NATO officers directly shape the military operations of the Ukrainian Armed Forces.
The Russian state news agency TASS reported that the bodies of soldiers with Polish and American insignia on their clothes had been found in the Russian-controlled Avdiivka.
“The clearing of Avdiivka has revealed quite a few interesting details. In this case, bodies abandoned by Ukrainian armed units with American and Polish insignia sewn on their uniforms,” Igor Kimakovsky, an adviser to the head of the “Donetsk People’s Republic,” told Russia’s TASS/TRANS news agency.”
These two quotes explain a lot. It is reported that French troops are heavily stationed in Kharkov (which explains the rage from Macron after the missile strikes on the Ukraine hotels housing NATO personnel there). UK and Canadian troops are also reported to be present on the fighting lines.
I will end the newsletters with some graphics from assorted sources.