Trade Alert: The End of the Dollar Means Good Times in Gold
Once again, gold bullion is proving its safe-haven status…
The price is up about 3% since last week’s message to nearly $1,350 an ounce. One bit of news that’s also helping to drive the price has almost nothing to do with North Korea or the follies in Washington.
Instead, it’s a development that James Dale Davidson long warned about — and it’s now coming to pass.
According to Japan’s Nikkei Asian Review (http://click2.banyanhill.com/t/Cg/AA/AA/AA/AA/AAX65Q/AQ/K4zm) last week: “China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game changer for the industry.”
Truer words were never spoken.
So remember the past week for yourselves and your grandchildren. It’s the week that U.S. dollar hegemony officially ended in the global economy and gold bullion stepped into the geopolitical spotlight.
According to Nikkei Asian Review, China’s Shanghai International Energy Exchange “has started to train potential users and is carrying out systems tests following substantial preparation in June and July.”
It goes without saying that if you don’t own physical gold already — please buy some.
I wouldn’t be surprised if gold sells off a bit. The folks who watch the technical pricing charts would say it’s oversold and due for a bout of profit-taking. I have my doubts — it may move sideways instead. But if there’s a bit of a sell-off in gold, take it as a gift and buy more physical gold as you can.
Action to take: Buy gold bullion up to $1,375 an ounce.
Take Profits in Huntington Ingalls
The news out of China may also have long-term ramifications on our defense stock, Huntington Ingalls Industries (NYSE: HII).
Defense companies are a great place to “camp out” when a bear market strikes. Huntington Ingalls’ shares have certainly proven resilient despite the iffy stock market (and if you read my work (http://click2.banyanhill.com/t/Cg/AA/AA/AA/AA/AAX65g/AQ/hBk6) for Total Wealth Insider, you know we expect a sizable correction or bear market).
But my broader concern is whether the stock may eventually fall prey to a large round of selling if it becomes clear to “smart money” investors (who will also read Nikkei Asian Review’s article about China’s new yuan oil contract) that the dollar’s days of hegemony really are dead and gone.
A chronically weak dollar will eventually cause higher interest rates, as central banks around the world pull back even further from buying U.S. Treasurys. If it becomes more expensive for the federal government to borrow, then it’s only a matter of time before Uncle Sam is forced to make some very tough choices regarding how and where to spend its budget dollars. Stock prices anticipate and discount future events, so shares of Huntington Ingalls will have corrected substantially lower long before that event comes to pass (presuming it ever comes to pass).
I don’t want us to be the last ones “holding the bag.”
The other thing about Huntington Ingalls’ shares is that they’ve had a very good run already. They’re up 140% since the Trump campaign promised a U.S. Navy with a rapidly expanded number of ships. My instinct is to say that a lot of that effort — whether it comes to pass or not in the next handful of years — is already priced into the shares.
So the prudent thing to do is take our small profits on the stock and move on.
Action to take: Sell Huntington Ingalls Industries (NYSE: HII) at the market.
Eyes on Altria Group and Rockwell
I’m watching the share price of Altria Group (NYSE: MO) very carefully these days in order to preserve the 282% gain we’ve made in the stock over the past seven years.
Here’s the problem: The stock is down 20% since setting all-time highs back in March. And while a sell-off in the broader stock market usually sends people scurrying to buy shares of Altria, that’s not happening this time around.
A new headwind recently came into play for the stock, a set of regulatory bills just signed into law (http://click2.banyanhill.com/t/Cg/AA/AA/AA/AA/AAX65w/AQ/KyWY) by New York City Mayor Bill de Blasio. The bills raise the minimum price for a pack of cigarettes from $10.50 to $13, and they set into motion a series of tobacco sales bans in New York City’s retail stores, among other things.
The price hike goes into effect June of next year. Starting January 2019, New York City’s major drugstore chains, like Duane Reade and CVS, will have to drop sales of tobacco products. Later in the following decade, the city will begin restricting tobacco licenses in corner stores and bodegas too.
Long story short, instead of 9,000 retailers licensed to sell tobacco in New York City, only 4,500 will be permitted to hold such licenses in 10 years.
Altria has been a huge winner in many a portfolio, delivering both price appreciation and regular dividend growth. The stock has survived and thrived despite even the massive payouts of the tobacco lawsuits of the 1990s.
But I’m increasingly concerned that its best days as a hugely reliable stock on both counts — may be coming to an end. I’m moving the shares to a hold while I study this some more. I’m running some numbers on my spreadsheets and seeing how sustainable the dividend will be in the next three to five years, given this increasingly hostile regulatory environment faced by the company.
Action to take: Hold shares of Altria Group (NYSE: MO).
Shares of Rockwell Automation (NYSE: ROK) continue to hover near the all-time highs of the past few months at around $165 a share.
This is another position we’ll have to watch carefully because Barron’s noted (http://click2.banyanhill.com/t/Cg/AA/AA/AA/AA/AAX66A/AQ/NmOD) that some analysts think the company may have to spend a lot more in order to keep up with its competitors. If that comes to pass, then it’s going to come out of per-share profits or some cost-cutting — or both.
Either way, it’s not going to be helpful to a steadily increasing stock price. We have a 6% gain in this at the moment.
Action to take: Hold shares of Rockwell Automation (NYSE: ROK).
That’s all for this week. I encourage you to send your comments and questions to me at firstname.lastname@example.org.
Jeff “JL” Yastine
Editor, Total Wealth Insider