Monday Morning Wrap Up – May 25, 2020

Harold Hamm lost more than $3 billion in March.

The self-made billionaire is scrambling to survive the bust in oil prices, which saw New York crude oil trade below $0 a barrel last month. With no college degree, Hamm first hit it big by drilling in an overlooked North Dakota oil field over a decade ago. The coronavirus pandemic tanked global demand for crude oil, another market completely disrupted by the crisis.

While you probably didn’t lose $3 billion in the last few months (we hope), your portfolio is likely still suffering, which reminds us all about the importance of asset allocation and portfolio diversification.

The stock market has rebounded partially off its recent lows. Yet, the S&P 500 index remains down about 9% for the year, which could easily mean thousands of dollars in losses for you, depending on the size of your portfolio.

Speaking of billionaires, legendary hedge fund manager John Paulson, is still betting big on gold right now, CNBC reported last week. This is not surprising. Recent market action has reminded us all about the importance of portfolio diversification and investing in assets like gold and silver that go up when stocks go down.

Gold is one of the best performing asset classes in 2020, up about 13% for the year.

Now, silver is playing catch-up, as we’ve long expected, with a swift rally to almost an $18 an ounce level last week.

In the second quarter, silver climbed 27%, an impressive recovery from the sell-off earlier this year. Investors are piling into silver, amid expectations for a pick-up in industrial demand now that economies around the globe are beginning to reopen.

Looking Back at Last Week

Most of the 50 states have relaxed coronavirus lockdown restrictions. Economists expect a long road to recovery as many people remain cautious about resuming normal activities.  Data like TSA airport screening levels and OpenTable restaurant bookings show demand for these services at well below normal levels.

Last week, another 2.4 million Americans filed for unemployment benefits, bringing the total to about 38 million Americans who have lost their jobs since mid-March, a staggering figure.

Existing home sales collapsed 17.8% in April, to a 4.33 million annual rate. No surprise really. Buying a home is a major purchase and it can be a little unsettling to make an offer on a property you have only see through a Zoom video app.

The stock market wasn’t fazed by the steady stream of Depression-like economic figures. The stock market mostly consolidated sideways last week in a wait and see mode. The unprecedented fiscal and monetary policy boosted the market off its lows. From here, however, additional stock market gains will be difficult to achieve as the economy remains mired in a massive slowdown.

There is a long economic recovery ahead. Consumer spending accounts for about two-thirds of the U.S. economy. With millions out of work and millions more hesitant to resume normal activities, the recovery will be slow.

‘Smart Money’ Players Are Buying Gold

Central banks intend to buy more gold this year, according to a new survey from the World Gold Council. Twenty percent say they will increase their gold reserves over the next 12 months, versus only 8% in 2019.

Why? Central banks purchase physical gold for the same reason individuals do – for diversification, liquidity and wealth preservation. Other reasons central banks want to buy more gold include concerns about negative interest rates, gold’s performance during a crisis, and gold’s lack of default risk, the World Gold Council said.

Here’s what Goldman Sachs said about gold two months ago…

“We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy makers act to accommodate shocks such as the one being experienced now,” said analysts at Goldman Sachs led by Jeffrey Currie, as quoted in a MarketWatch article.

The Bottom Line

The coronavirus pandemic is creating a new normal for us in many ways. However, the rules of successful investing have not changed.

This crisis reminds us all about the importance of diversification – especially into tangible assets, like gold, that are not correlated to the stock market. Other rules of investing include, regular rebalancing, understanding your risk tolerance level, defining your investing goals and measuring your success on a quarterly basis.

Wishing you and your loved ones a safe Memorial Day!

David