Jan 19, 2022
Jaime Carrasco's Top Picks: January 19, 2022
Jaime Carrasco's Top Picks
FOCUS: Precious metals and North American dividend stocks
The patience trade
Jesse Livermore, one of the best traders of all times, commented that “patience is the key to success” in the investment field, his advice to deal with it - “buy right and sit tight”.
In preparation for rising inflation resulting from central bank policy, I continue to advise that clients hold some asset allocation in precious metals. Throughout 2021, this strategy required patience as the paper price of gold did not rise in tandem with all other commodities, due to the belief that this time inflation will be transitory.
However, it appears that this might not be the case and that it’s not different this time. My main concern for investors is that the 7 per cent is being calculated using modern math and not the same math as in the 1980s, which would calculate a much higher number.
Might explain why global central banks and Asian investors continue to increasingly take more physical out of the market as if inflation was a true concern, even though Western investors stay away from this asset class because the paper price has been declining throughout 2021 with until now complete disregard for inflation.
Within the allocation in the portfolios, physical gold is considered a cash equivalent, the investment is the producers and royalty companies, the growth is the developers, and the speculation is the explorers.
Currently the producers and royalty companies offer a great entry point because while gold is at US$1,800, their valuations are trading as though gold is much lower, which means that investors that are willing to buy right and sit are acquiring historically low price to cash flow assets that will quickly accelerate as the price of gold begins to price in true inflation.
I find it interesting that the price of copper never took the transitory bait and held steady above $4.00 through 2021, after having doubled since 2020 and clearly signalling further inflation ahead.
In my equity portfolios, I continue to hold higher levels of cash because the current dividend yields of the S&P 500 is still signalling transition.
If inflation proves non-transitory, the current dividend yield of 1.27 per cent of the S&P 500 becomes unrealistic with inflation now tracking 7.00 per cent, or a real yield of -5.73 per cent. To a big extent the 10-year U.S. Treasury is also reflecting higher inflation with yields now at 1.79 per cent, or 150 per cent higher than the June 2020 low of 0.56 per cent, and like copper also looking to go higher.
Within the energy, pipelines, utilities, infrastructure, and REITs sectors, I continue to hold a neutral weight in my allocations until we see some clear direction of where this market is heading in 2022. This strategy is keeping the dividend yield of the portfolio above 3 per cent while at the same keeping some ammunition for a possible pullback.
Harvest Global Energy Leaders (HPF-U TSX)
PAST PICKS: February 5, 2021
Calibre Mining (CXB TSX)
- Then: $1.75
- Now: $1.27
- Return: -27%
- Total Return: -27%
First Quantum Minerals (FM TSX)
- Then: $23.80
- Now: $35.54
- Return: 49%
- Total Return: 49%
Exxon Mobil (XOM NYSE)
- Then: $49.95
- Now: $73.31
- Return: 46%
- Total Return: 54%
Total Return Average: 25%