Full episode: Market Call Tonight for Tuesday, August 6, 2019
Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: Precious metals, pipelines, utilities, REITs, dividend-paying stocks
For the first time since 2008 the Fed has begun cutting rates. This was done to help stave off the possibility of an economic downturn, and to begin to prepare our economic fortifications for such a day. However, we should seriously consider how prepared they stand for such a possibility.
I continue to advice caution, as in my opinion the plan did not work. Central planners have not delivered the promised projected economic growth required to lower the debt burdens incurred since 2008 and now we face the next downturn in a worse fiscal position, with the Fed’s funds rate at only 2.25 per cent and with very little marginal utility from future debt. From debt perspective, lower interest rates are not a pretty picture for the global economy with now more than $14,000 billion in bonds trading in negative yields, meaning that this debt will yield a negative principal return at maturity. Furthermore, this will also further hurt pension funds and pensioners who have already suffered from low returns on their savings for more than 10 years.
In this context, is it any wonder that the biggest buyers of gold during the last two years have been central banks? Maybe they realize the precarious economic position we face. Furthermore, this is taking shape in an increasingly politically dislocated world, in which a newly elected leadership prefers to take a completely different tack than the previous leadership. In this reality all we can expect is uncertainty. For these reasons I continue to advice that clients continue to hold at least a 15-per-cent allocation in precious metals, 30 per cent in fixed income, and the remainder in blue chip dividend-paying stocks in pipelines, utilities, energy, REITs and infrastructure.
On an important note, Europe’s central banks have announced that they will not be renewing the Central Bank Gold Agreement (CBGA), which allowed the institutions to sell gold between them as a price control mechanism. This and the fact that as of April 1 of this year the BIS changed the status of physical gold held by banks to a Tier 1 asset are clear indications that the global banking system doesn’t consider gold a barbarous relic.
AMERICAS SILVER (USA.TO)
Americas Silver continues to be my favorite junior in the sector because management has delivered growth during the tough environment of the last five years. Today, the company is positioned to deliver leveraged earnings growth to the price of gold, silver, zinc and lead, with continued growth through acquisitions, experienced management and shareholders.
AURION RESOURCES (AU.V)
Aurion is an exploration play in Finland and is a new acquisition that was introduced to me by Canaccord. What immediately attracted me to the company is the quality of the management team and shareholder base, with Adrian Day, Kinross and Newmont. There’s also a possibility of a high-grade discovery.
KHIRON LIFE SCIENCES (KHRN.V)
Khiron is an American-based cannabis producer, offering a great entry point due to the consolidation currently occurring with growers in North America. We have a $6.75 target.
PAST PICKS: JUNE 22, 2018
- Then: $92.99
- Now: $119.88
- Return: 29%
- Total return: 31%
DETOUR GOLD (DGC.TO)
- Then: $10.97
- Now: $23.22
- Return: 112%
- Total return: 112%
AMERICAS SILVER (USA.TO)
- Then: $4.11
- Now: $3.97
- Return: -3%
- Total return: -3%
Total return average: 47%