Striking for Inflation By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - The longshoreman strike “white swan”…
- How it’s an accidental, inevitable push towards robotics…
- California’s big moves in automation…
- The Middle East backdrop and surging oil prices…
- It’s the last stretch of defensive seasonality signals all year…
For mainstream media, it’s not as big as the ever-escalating Middle East… But for those of us who live in and are mainly affected by what happens in the U.S., the port strike is the primary news to think about. Three dozen ports across the East and Gulf coasts of the U.S. completely stopped operations on Tuesday, as the International Longshoremen’s Association – a major dockworker’s union – began striking. It’s the biggest such event in 50 years, with at least 45,000 union members participating. The demands, which have been part of contract negotiations since June (making this far more “white swan” than “black swan,” are twofold: - Higher wages, which we can all relate to in the new-normal high-inflation era. Reports have the demand at a $5 per-hour raise each year over the lift of the next six-year contract – the United States Maritime Alliance had countered with a raise half as large.
- Guaranteed protections from increased automation in U.S. ports.
It’s impossible to say how this strike will turn out. One can only hope that President Biden’s pro-union tendencies don’t blind our leadership to the severity of this event. Food imports are set to see the swiftest impact, with banana, chocolate, and coffee imports (incidentally, three of your editor’s favorite things!) reportedly chief among these. Automakers, too, will feel the pinch… just as they’ve recovered from a broad-based hack and ransom attack from earlier this year. But let’s zoom out a moment. As with much of the 21st century so far, this is a story about inflationary forces caused by the government and central banks… clashing with disinflationary forces introduced by the private sector. The Fed’s easy-money policies that started with the 2008 Great Financial Crisis, and truly accelerated and entered public consciousness with the 2020 pandemic panic, are the key inflationary force. 50% of all U.S. currency coming into existence in the span of the year broke the camel’s back. The pandemic halting supply chains around the world made sure it would take years to heal, if ever. These events are what drove inflation to a peak of 9% in 2022. It’s what’s nearly doubled the cost of food, shelter, fuel, and a lot more. The Fed may think its interest rates will be enough to get us back to “normal.” But as we contend, inflation rates well above 2% is the new normal. However, there is a major disinflationary force that could help. One that’s facing heavy resistance: technology. The dockworkers want higher wages to keep up with inflation. At the same time, they want protections from technology that, while threatening their livelihood, is the only real long-term solution to the inflation they suffer now. I sympathize with the cause. But the plain fact of the matter is that technological advancements, disruptive as they can be, are inevitable. And ironically, this strike is showing the owners of these porters why they should accelerate their move towards automation, not slow it down. Take a look at what California has been up to… While the East Coast is resisting the pull of automation, California is busy making big moves towards it. Gov. Gavin Newsom just vetoed three bills aimed at putting unnecessary restraints on the development of artificial intelligence models, autonomous driving, and robotaxis. Robotaxis are a strong example of how automation is both disinflationary and job-threatening. Google’s Waymo taxis currently operate in Phoenix, San Francisco, and Los Angeles. These driverless taxis cost less than those operated by a human driver (there’s that disinflation again), are reportedly safer, and they’re spreading further and further as the technology improves. The development of robotaxis won’t be without casualties. Uber and taxi drivers are going to resist the change just as much as the dock workers on the East Coast are now. But, with Newsom’s endorsement, we can look at this as another inevitable advancement that will soon become standard. But if you want a turnkey way to play it, I’d advise against the robotics ETFs. They haven’t put up great numbers this year, with the largest of them, Global X Robotics & Artificial Intelligence ETF (BOTZ) trailing the market with a 13.3% gain year-to-date. Instead, keep focused on AI. That’s the trend powering some of the biggest robotics efforts out there, including automation at ports and self-driving cars. And for more on this, I highly suggest checking out what Luke Lango has been discussing with his readers. Luke’s a tech expert who closely follows the cutting edge. Right now, he’s focused on the Oct. 10 Tesla event, where he believes a key announcement will impact a little-understood subsector of AI hardware. Go here for more on that. Of course, we can’t ignore the big global news of the week… The Middle East conflict is a war that just can’t seem to stop escalating. When just a couple of months ago, Israel and Iran were trading small missile salvos and shooting them down, it went to the next level on Tuesday. Iran fired anywhere between dozens and a couple hundred ballistic missiles at Israel. This is, of course, in retaliation to Israel attacking key targets in multiple countries designed to weaken Lebanese militant group Hezbollah. We’re in the thick of it as I write, so there isn’t much to analyze apart from the responding price action. The S&P 500 plumbed session lows in the afternoon, down about 1.25%. Higher-risk markets like tech and small-caps fell even more. Meanwhile gold, silver, and oil all surged, with the latter – represented by the XLE ETF – up nearly 3% at writing: 
(Higher oil prices at the same time as the dockworkers strike just adds to the inflation case, by the way.) As we’ve observed time and again, and have spent time warning you, seasonality has been somewhat predictive of this event. Every election year for the past 18 cycles, October tends to represent a spike in volatility through most of the month: 
As I write on Oct. 1, with both a major strike and a war between Iran and Israel breaking out simultaneously, we should prepare for a month of October surprises. If you don’t already hold some gold and silver, along with exposure to high-quality oil companies, now’s not a bad time to fix that. Gold’s at new highs, and silver’s reaching an 11-year high right behind it. However, take note of what follows the seasonal bottom in the S&P 500 past Oct. 24 on the chart above. Once we’re past these final few weeks (granting the election goes smoothly), markets historically see their best performance all year long. 
As in, an average return of 4.2% and a positive return 83% of the time. So we’ll be sure to remind you on Oct. 24 that, from a seasonality perspective, it’s time to deploy cash. Not only that, but we’ve covered here in TradeSmith Daily how major geopolitical events can be excellent buying opportunities. 
Contributing editor Lucas Downey put together this chart back when Hamas began its attacks on Israel, and updated it during the previous Iran attack in April. As you can see, positive returns have followed both such events… and the quick selloffs wound up being great entries. Plus, on average, stocks are higher a majority of the time on both short- and long-term timeframes going all the way back to 1979. Not only that, longer-term returns (6 and 12 months) are at a pace that beats the long-term returns of stocks. All this is to say, don’t get caught up in the bearish narrative, no matter how loud it gets. Even if stocks are volatile over the next few weeks, your buying plan shouldn’t be limited to gold and silver. When stocks go on sale, you want to run opposite the crowd and start picking up deals. To your health and wealth,  Michael Salvatore
Editor, TradeSmith P.S. I’ll be talking to Luke Lango this week about what he sees ahead for autonomous driving and robotaxis. As an East-Coaster myself, I’ve never ridden in one or even seen an autonomous car in person. But Luke has a wealth of experience with high tech, and I can’t wait to share not only what he’s learned about this space but his best guidance for investing in it well. And seriously, circle Oct. 10 on your calendar. According to Luke, what’ll be announced at that event could be huge for certain small-cap tech stocks that few are even aware exist. More about that right here, and be sure to tune in to our interview for some exclusive insights from Luke himself. | 
0 Response to "Striking for Inflation"
Post a Comment