In recent days, Brisbane, Australia experienced an unusually frigid snap, recording temperatures that hadn’t been this low in 103 years. On June 27, the mercury plummeted to a chilly 36o F, compared to the typical average of 53o F for this time of year.
Meanwhile, here in the United States, summer is currently in full swing, although some regions might not feel that way. Meteorologist Megan Glaros warns that a polar vortex is bringing in a sudden wave of cold air, potentially leading to record low temperatures across large areas of the Midwest and Upper Great Plains, covering states such as Illinois, Indiana, Wisconsin, Iowa, Minnesota, Michigan, and Ohio.
For long-time readers of Economic Prism, this chilly news isn’t surprising. It aligns closely with our 2014 thesis on global cooling. While we might not always be right, we do take pride when our predictions pan out, happily taking credit for our insights.
However, our predictions regarding the stock market seem to have missed their target. We anticipated that the market would face a downturn before the arrival of summer. “We don’t foresee a 50 percent crash akin to those of 2000-01 and 2008-09,” we stated. “But we do expect a 20 percent decline from current elevated levels.”
The first day of summer was June 21, and thus far, no such downturn has materialized. Yet we are certainly barreling toward it and will continue to keep you informed.
Dark Clouds Above Every Horizon
This week promises to reveal more insights as second-quarter earnings from numerous companies will be published. For instance, today we can expect reports from JP Morgan Chase, Johnson & Johnson, and Intel Corp., providing a valuable snapshot of economic performance across the financial, healthcare, and technology sectors.
According to Nicholas Colas, chief market strategist at ConvergEx, he anticipates that 65 to 70 percent of companies will outperform earnings estimates this season. But will that suffice to sustain the bull market for another quarter? The answer remains uncertain.
We believed the bull market would have exhausted itself long before now. This doesn’t mean we haven’t benefited from its upward momentum; after all, we’re not entirely oblivious.
We recognize that events seldom unfold as we predict. Dark clouds loom on every horizon—there’s the specter of a looming debt crisis and ongoing geopolitical tensions in Ukraine, Gaza, or the South China Sea.
Unexpected developments can emerge at any moment; a black swan could appear just as everything seems perfect. Not everything is as straightforward to foresee as global cooling.
Dirty Investing
This unpredictability underscores the importance of diversifying investments to build wealth. While stocks could plummet tomorrow, they could also surge by another 15 percent.
Stashing cash and preparing for chaos may be a misguided strategy. Equally, committing all your resources to the market at this stage could be unwise. So where do we find opportunities today?
In our view, the best prospects exist in the most unlikely places. While established, blue-chip dividends have proven reliable investments in recent years, exploration mining companies have struggled significantly. With a bit of creativity and resilience, savvy investors could stand to gain considerably if these trends reverse.
Take the coal mining ETF, KOL. Just three years ago, it was valued at $50 per share; today, it’s trading at just $18.
There are numerous reasons to be wary of coal as an investment. Stricter EPA regulations are in place due to concerns about global warming’s impact on the planet. Additionally, the rise of inexpensive natural gas—thanks to advances in hydraulic fracking and horizontal directional drilling—poses a significant challenge. Lastly, coal mining is often an unsafe endeavor.
Despite these concerns, coal is unlikely to vanish as a global energy resource. However, the current market price of KOL suggests that many believe this is inevitable. In reality, the price should ideally increase to restore equilibrium in the market. How you interpret this insight is up to you.
Sincerely,
MN Gordon
for Economic Prism
