Investors should buy real assets – from wine to art – as inflation reaches a ‘secular turning point,’ Bank of America says

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    • Bank of America forecasts an uptick in inflation and that rates will weigh on stock returns for the next decade.
    • The bank’s chief investment strategist says investors should buy real assets to hedge against inflation.
    • Real assets are at their lowest point relative to financial assets in almost 100 years, he writes.
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Since the election of President Joe Biden, inflation and its potential comeback have been hot economic topics. Pumping trillions of dollars into the economy could overheat it, critics say, while others see few signs of runaway inflation, either now or in the near future.

Freak events in early 2021 like the Texas freeze and the giant ship stuck in the Suez Canal haven’t clarified the issue, as they contributed to inflationary shocks that may be “transitory” or may not be.

Bank of America’s chief investment strategist, Michael Hartnett, has seen enough to declare a “secular turning point” on inflation and anticipates that stock market returns will be lackluster over the next decade. Stock investors who’ve seen a roughly 10% annual return from recent decades should expect that gain to go down to 3% to 5% over the course of the 2020s, he added.

But he has a recommendation: Real assets are a more overlooked part of the market that may offer investors protection against inflation while diversifying their portfolios.

In a recent note Hartnett said that real estate, commodities, and even collectibles like wine, art, diamonds, and cars could outperform in the next decade. Investors don’t need to own the physical assets, Hartnett added, but instead can own REITs, and specialized funds that focus on these assets.

Real assets are positively correlated with inflation and interest rates, unlike financial assets like stocks and bonds, Hartnett said. During “the Great Inflation” of the 1970s, real estate and commodities outperformed large cap stocks and government bonds. He added that in eras where bonds and stocks struggle, real assets have provided superior risk-adjusted returns.

Over the past 5 and 10 years as inflation fell to the lowest average levels since the 1960s, real assets have seen lower returns and lower volatility, according to BofA data. Now, the price of real assets relative to financial assets are at the lowest point since 1925, making them attractive investments according to Hartnett.

Real assets are also underowned, with only 5.5% of the total market cap of all ETFs exposed to real assets.

Additionally, since 1926, collectibles (8.1%) and commodities (6.3%) have offered higher returns than government bonds (6.0%) and cash (3.4%), albeit with higher volatility.

Bank of America suggested investors seek out funds like the Fine Art Group, Classic Car Fund, and the London International Vintners Exchange Fine Wine Fund Index (FWIFFWID), in addition to REITs and commodity funds if they’re looking for real asset exposure.

Read more: Goldman Sachs says buy these 33 stocks now as profits rebound for companies that suffered the most during the pandemic

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How to brace your portfolio for a worst-case scenario in the Suez Canal, according to JPMorgan’s chief global markets strategist

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The Ever Given, trapped in the Suez Canal, Egypt, as of Thursday March 25 2021.

  • The massive cargo ship blocking the Suez Canal will send the price of oil skyrocketing, JPMorgan said in a note published Thursday.
  • If not resolved soon, investors can expect shipping rates to soar and energy commodities to further increase.
  • All these risks, however, can be hedged by buying oil, the investment bank said.
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The massive cargo ship blocking the Suez Canal and obstructing one of the world’s busiest waterways will send the prices of oil skyrocketing, JPMorgan said in a note published Thursday.

JPMorgan’s chief global strategist Marko Kolanovic said if this situation is not resolved soon, investors and consumers can expect shipping rates to soar, energy commodities to further increase, and global inflation to continue to rise

All these risks, however, can be hedged by buying oil and associated equities such as energy and shipping, Kolanovic said. The strategist highlighted his long-term positive view on oil and energy stocks and his opinion that a supercycle in energy commodities may be under way.

The vessel, called Ever Given, a nearly 200-foot-wide and 1,300-foot-long cargo ship that is taller than the Eiffel Tower, has been horizontally wedged in the waterway for more than two days, despite ongoing efforts to dislodge it. It was on its way to the port of Rotterdam in the Netherlands from China.

Oil prices on Wednesday rose after news of the cargo ship sparked concerns of fuel shortage. West Texas Intermediate crude futures and Brent crude futures surged to their highest since November. The Suez Canal, the second-biggest shipping channel in the world, is a key shipping route for crude and refined products, connecting Europe to Asia.

The incident has captured the news cycle and points to the fragility of the infrastructure that supports global trade.

“Around 10% of global trade shipments pass through the Suez Canal on an annual basis, including crude and refined oil and liquefied natural gas,” Phillip Braun, professor of Finance at Northwestern University, wrote in a note. “This adds one more issue to the global shipping sector on top of the current pandemic.”

Oil analytics firm Vortexa in a tweet on Thursday said: “If flows remain disrupted for more than a few days, some European refiners could run short, particularly of sour crude feedstocks and tighten an otherwise weak physical European market.”

With the blockage, hundreds of cargo ships are now unable to pass through the canal. Many are forced to divert their routes or wait it out, exacerbating the shortages and shipping delays that have already compounded since the pandemic began last year. Companies since then have struggled to keep up with consumers’ demands as Americans locked down at home order goods from Asia.

Major brands such as Nike, Honda, and Samsung at the height of the pandemic have already warned their customers of dwindling supplies, with some halting production of certain products altogether.

In February, oil and natural gas prices have also climbed as the arctic blast that unexpectedly swept through Texas, leaving thousands without power, threw the energy markets in deep turmoil.

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Gold slumps to lowest in eight months as market ‘finally wakes’ up’ to spiking bond yields

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  • Gold hit an intraday low of $1,714 an ounce, trading at the lowest prices since early June 2020. 
  • Gold funds logged a weekly outflow of $500 million, extending a run of weekly losses. 
  • Gold is competing against higher yields and hurt by a rising dollar. 
  • Visit the Business section of Insider for more stories.

Gold prices Friday slumped to their lowest since mid-2020, under pressure as bond yields continued to spike while investors yanked money out of gold funds.

Gold prices fell as much as 3.4% to an intraday low of $1,714.90 an ounce on a continuous-contract basis and traded at levels not seen since early June 2020. For the week, the metal was on course to drop 3% and has lost roughly 9% so far this year.  

There were outflows of $500 million from gold funds this week, according to Bank of America in its Flow Show update Friday. Gold funds logged the biggest weekly outflow since mid-November and their 16th in the past 20 weeks, according to fund tracker EPFR on Friday.

Gold’s been suffering at the hands of higher bond yields as well as gains for the US dollar. Yields on US government bonds have raced higher this week, making gold, which offers no yield, less attractive for investors to own.

The yield on the 10-year Treasury popped above 1.6% on Thursday, a sharp move from 1.3% in less than a week. Yields have climbed as investors sell off bonds in part as they price in inflation expectations on the view that the world’s largest economy will continue recovering from the recession brought on by the COVID-19 health crisis.

Dollar-denominated gold has also been weighed by a recent increase in the greenback’s value.

“The USD is bid as FX finally wakes up to what is happening in fixed income and equities around the world,” said Brad Bechtel, global head of FX at Jefferies, in a note Friday in which he pointed out a rise in the Bloomberg Dollar Spot index. That index rose 0.6% to 1,135 during Friday’s session, moving around its highest since early February.

While gold funds saw outflows, it was a “huge week” for inflows into equity funds of $46.2 billion, the third-largest ever weekly inflow, said BofA, adding that bond funds took in $7.1 billion.

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US oil and natural gas prices rise as freezing temperatures leave millions without power in Texas

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Temperatures have plunged in Texas, causing energy prices to spike

US oil and natural gas prices rose on Tuesday, as freezing cold weather battered Texas’s energy infrastructure, leaving millions without power.

WTI crude oil was up 0.52% to $59.77 per barrel as of 6.10am ET. That was just off a more than one-year high of more than $60.80 touched on Monday as plunging temperatures hit Texan oil plants.

Natural gas futures were up 5.8% to $3.079 per million British thermal units on Tuesday, trading at around the highest levels since November.

More than 3 million people have been left without power in Texas and close to 5 million around the US as a whole, according to poweroutage.us, as a rare winter storm sweeps the country.

Temperatures fell to 4F (-16C) overnight in Dallas, Texas, and have plunged across Oklahoma, Kansas, New Mexico, Colorado and elsewhere.

It has been challenging for Texas’s energy grid, which does not pay generators to keep capacity in reserve. The weather has forced many generators to stop production.

Read More: EXCLUSIVE: An asset manager overseeing nearly $100 billion divested from Exxon on concerns it is failing to move fast enough to address climate change

Wholesale energy prices have skyrocketed, at times above the market cap of $9,000 per megawatt hour, compared to prices of around $25 to $50 per MWh before the winter storms.

The frigid temperatures have hit oil production and natural gas supplies and led to a surge in demand for energy, causing prices to spike.

Heating oil futures – a proxy for diesel – were up 2.58% to $1.817 per gallon on Tuesday morning. Gasoline futures were up 4.11% to $1.7621 a gallon.

Texas is also home to some of the country’s biggest oil refineries, as well as the heart of the shale basin. 

Jeffrey Halley, senior market analyst at currency firm Oanda, said he thought the US oil market had been due a correction after a surge in prices in recent weeks. But he said the current weather situation “will likely continue to offset that.”

Read More: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

“Until the weather moderates in the United States… oil is a ‘buy on dips’ in the short-term.”

Brent crude oil, the international benchmark, was down 0.33% to $63.11 a barrel, still around a one-year high.

JPMorgan last week predicted a commodities “supercycle” would take hold in 2021, as economies reopen and drive up production and demand for energy.

The “roaring 20s” will be accompanied by easy monetary and fiscal policy, a weak US dollar and stronger inflation, all supportive for commodity prices, JPMorgan said.

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What you need to know on the markets this week: Bitcoin and beyond; ‘Hey big spenders’ – what the funds did with their cash; a platinum opportunity?

In this photo illustration a Bitcoin logo seen displayed on a smartphone with the stock market graphic in the background
Bitcoin hit a record of nearly $50,000 last week.

Last week saw some game-changing events for the cryptocurrency market, which pushed the prices of bitcoin, ether and others to record highs. Meanwhile, on the commodities front, a broad sweep higher in raw materials prices has got market-watchers pondering if we are on the verge of a new super-cycle. This coming week may reveal if big investors are buying into crypto, as well as the resilience of star precious metal, platinum. 

Bitcoin to the moon… and beyond

Bitcoin hit a record of nearly $50,000 last week and this time around, it wasn’t a motley crew of amateur traders organizing an effort to squeeze the price higher. Elon Musk, a long-time advocate of cryptocurrencies and of bitcoin, in particular, had already ignited a frenzy in “meme crypto”  Dogecoin.

But it was Tesla – the electric vehicle maker he founded and runs – unveiling a $1.5-billion purchase of bitcoin that fueled this latest leg higher. Tesla said it would also consider allowing customers to pay using the digital token, possibly opening the floodgates to other large companies to do the same.

Online payment groups like PayPal and Square already allow users to buy and sell with crypto. Last week, Mastercard joined their ranks and said it would allow the use of some cryptocurrencies on its network.

RBC suggested Apple could be the next big corporation to adopt bitcoin, and the CFO of Twitter told CNBC on Wednesday that it too could buy the token. But bitcoin isn’t ready to go mainstream, according to the world’s biggest asset manager, UBS. And Treasury Secretary Janet Yellen has, again, voiced reservations about cryptocurrencies in general, saying their use in online crime and for money laundering is growing.

BlackRock, the world’s biggest fund manager, last month said it would allow two of its funds to invest in bitcoin futures. So who’s next? 

This week could bring the answer to that question, when Wall Street’s big guns report how they invested their money in the final three months of 2020.

Read more: Tesla just invested $1.5 billion in bitcoin. Here are the bull and bear cases for the crypto, according to legendary macro trader Mike Novogratz and Goldman’s wealth-management CIO.

“Hey big spender” – how the funds spent their funds

This coming week, the biggest US investors will release details of what they put money into -and sold off – in the fourth quarter of 2020. The so-called 13-F filings with the Securities and Exchange Commission offer a breakdown of the holdings at the end of December of any fund with more than $100 million under management.

However, in the wake of the GameStop short-squeeze in January, anyone hoping to get a look at what stocks the funds are betting against will be disappointed. A 13-F filing contains long positions only, along with a fund’s options holdings, convertible notes and American Depository Receipts (ADRs) – or holdings of US-listed stock of foreign companies. But no short positions. 

Even so, most investors – professional and amateur – scour the 13-Fs to see what the “smart money” did last quarter. Warren Buffett, “Big Short” investor Michael Burry – who must be one of the lone Tesla shorts standing -, Ray Dalio, David Einhorn, Seth Klarman and Ryan Cohen will all release details of what they bought and sold.

Read more: It could take just 2 catalysts for pockets of speculation to snowball into a widespread bubble, one global strategist says. He recommends 3 ways to capitalize on this frothy environment.

Platinum-star performance 

The price of platinum rocketed by 15% to above $1,200 an ounce its highest in over six years last week, driven by a heady cocktail of a weaker dollar and a broad investor push into commodities and making it the best-performing raw material of the past week. It scorched past crude oil, copper and lumber and is on track to top the charts for the month of February. 

Until around last March, in the depths of the coronavirus crisis, platinum had been on a long, painful downtrend. Aside from its use in jewellery, platinum’s main industrial use was in the catalytic converters of diesel-powered vehicles. The diesel-emissions scandal, which led to a drastic drop in sales of diesel vehicles and several punitive measures aimed to reduce the number of them on the roads, has eaten into platinum demand – so much so that for the past six years it has been worth less than gold, despite being far more scarce. 

As the world transitions to using cleaner sources of energy and cutting emissions, several commodities are emerging as being central to this effort, platinum being one of them. 

Platinum, together with iridium, is used as a catalyst in proton exchange membrane electrolysis – used to extract hydrogen from water as a source of zero-emissions sustainable fuel. 

Johnson Matthey, the world’s largest refiner of platinum group metals, said in a report on February 10 the global platinum market ran a deficit for the second year in a row in 2020. It looks likely to see a shortfall again this year. 

“The move towards an expected supply deficit is occurring at a time of increased focus on tightening emission regulation in regular combustion engines while accelerating green hydrogen production has increased demand for platinum-based electrolyser capacity,” Saxo Bank head of commodity strategy Ole Hansen said in a note last week.

“Having been in a downtrend for nearly a decade, platinum’s breakout last November helped attract renewed investment demand, not least after gold hit $2000/oz and its premium to platinum rose above $1000/oz. These developments helped attract increased switching activity between the two metals,” Hansen said.

Chart of the week – pot luck

Last week, cannabis stocks went parabolic, driven by double-digit percentage rallies in the likes of Aphria, Tilray and Sundial Growers. Joe Biden’s victory in the presidential election and Democrat promises to decriminalize cannabis have given a number of investors, including the Reddit traders, reason to pile in. Cannabis was the top-performing investment theme last week, according to broker CMC Markets’ Global Thematic ETF screening too, with a gain of nearly 40%, compared to runner-up uranium, with a 11% increase.

Relative performance of the ETFMG Alternative Harvest ETF vs S&P 500
Relative performance of the ETFMG Alternative Harvest ETF vs S&P 500.

Economic calendar for the w/c Feb 15

Feb 14 Japan GDP 

Feb 16 Eurozone GDP growth Q4

Feb 17 US retail sales/FOMC minutes

Feb 17 Australia unemployment rate

Feb 17 ECB monetary policy meeting minutes

Feb 18 Australia retail sales

Feb 18 Philadelphia Fed business activity index

Feb 19 UK retail sales/consumer inflation 

Feb 19 Canada retail sales

Feb 21 PBOC rate decision

Feb 21 New Zealand retail sales

Earnings calendar for the w/c Feb 15

2/15 BHP Billiton

2/15 BHP Group

2/16 CVS Health Corp

2/16 Glencore

2/16 Palantir Technologies

2/17 BAT (British American Tobacco)

2/17 Garmin 

2/17 Rio Tinto

2/17 Shopify 

2/18 Airbus

2/18 Barclays

2/18 Carrefour

2/18 Credit Suisse

2/18 Daimler

2/18 EDF (Electricité de France)

2/18 Nestlé

2/18 Newmont Mining

2/18 Walmart

2/19 Allianz

2/19 Danone

2/19 Renault

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Silver spikes 13% to 8-year high as Reddit day traders turn their buying power towards a fresh target

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  • The price of silver jumped as much as 13%, to $30.35 per ounce, on Monday as amateur investors piled in. The metal hovered near an eight-year high.
  • The so-called silver squeeze follows the Reddit-driven surge in GameStop shares last week.
  • But the rally sparked controversy on Reddit, with users saying GameStop should remain the target.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The price of silver on Monday jumped as much as 13%, to $30.35 per ounce, hitting an 8-year high. The surge pushed up shares of silver-mining companies and causing retail sites to limit trading amid the latest attempt of amateur investors to squeeze Wall Street.

But the so-called silver squeeze proved controversial on the Reddit forum Wall Street Bets, with many users arguing the army of day traders should keep targeting GameStop shares and not shift their sights elsewhere.

Last week, traders organizing themselves on Reddit realized their power when they bid up GameStop shares by more than 200%, hitting hedge funds and others who had been betting the price would fall for more than $19 billion.

On Monday morning, the pivot towards other targets picked up speed, with the hashtag #silversqueeze trending on Twitter. Online financial personalities were cheering on day traders, with bitcoin investor Cameron Winklevoss tweeting: “If Silver market is proven to be fraudulent, you better believe Gold market will be next.”

It has risen around 17% over the last five days as Wall Street Bets members encouraged each other to buy up silver in the belief that major financial institutions are betting the price will fall.

Read more: Buy these 4 stocks poised benefit from a spike in silver prices, says RBC Capital Markets – including two set to soar 73%

The latest data from the US regulator showed money managers are betting the price will rise, however.

BlackRock’s iShares Silver Trust surged more than 10% on Monday. The world’s biggest silver exchange-traded fund saw inflows of close to $1 billion on Friday.

Shares in silver companies jumped. Miner Fresnillo’s London shares soared 17.81% while Polymetal International was 6.93% higher.

Silver retail sites were left struggling to keep up with the demand. Money Market said it would not be taking any further silver orders until mid-Monday morning due to “extreme demand”. APMEX said it was expecting processing delays of up to three days.

Yet the move into silver was controversial on the Reddit forum Wall Street Bets. Some users noted that huge investment banks, and the hedge fund Citadel Advisors, were the biggest holders of the iShares Silver ETF.

“By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME,” one user posted. Others said the Reddit army should focus their efforts on driving up the GameStop share price, which was around 8% higher in pre-market.

Milan Cutkovic, market analyst at trading platform Axi, said silver is a “far more difficult” market to move than smaller stocks such as GameStop. Yet he said that “last week’s events showed that the impact of the retail frenzy should not be underestimated.”

Read more: Buy these 26 heavily shorted stocks as retail traders trigger wild rallies in Wall Street’s least-liked names, Wells Fargo says

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