Inflation

 6 Feb 2021

Dear Fellow Investor,

Inflation

There is increasing danger that a new inflation cycle will get underway.  In the US money supply (M2) jumped by a sharp 24% between March and November 2020. That amount exceeded every increase in the last 150 years. Biden’s new  current 1.9 trillion USD stimulus plan will inflate the money supply  even more. More stimulus plans, bailouts and social giveaways are in the pipeline. Biden even wants to give USD 1400 stimulus payments to illegal aliens and forgive student debt !  This is money out of thin air.

 “Inflation is also a threat to the unprecedented amount of debt that individuals and corporations took out to see them through the Covid-19 lockdown and recession. If inflation and interest rates increase enough to damage the economy, many of those debts will go into default – and trigger an even longer and deeper recession.”

 Jeremy Siegel, Bondholders Will Suffer With Higher Inflation Ahead From Financial Times 20 Jan 2021

 

Despite the potential problems, I remain optimistic that the economy and the stock market will do well this year. If we stick with high quality  technology and commodity related stocks that are selling at attractive prices  our 2021 investments should deliver good profits. These investments look the most promising to me:

GDX, a gold mining ETF traded on the NYSE that holds a portfolio of quality well managed gold mining companies. If inflation takes hold and gold rises gold miners benefit from  higher margins as costs are relatively fixed.  As this is a small uncrowded space, price rises can be dramatic as investors rush to hedge against inflation.  I personally hold a small position in the GDX.

Nidec, the world’s largest makers of micro electric motors. They are a technology focused business and have their research facility in Kyoto while they manufacture in low labor cost facilities throughout Asia. They are also a world leader in robotics, artificial intelligence, and factory automation systems. Owning this company will put you on the right side of technology, electric cars and green energy.  I as well as clients own this company which we have been holding more than 2 years.   Our gains are over 70 % but as the world focuses on technology, there should be more runway in Nidec.  

My focus for 2021 is on Malaysian and international companies that leverage on technology or offer technology solutions to companies to improve profits such as Nidec. I also like companies  in green energy and electric cars. Biden   wants to put  fossil fuel companies out of business and  shift towards solar and wind power.    He wishes to spend upwards of 2 trillion USD to implement this green energy policy.   Its always a profitable bet to jump on the government money trend.

Biden’s plans will destroy tens of thousands of good paying energy jobs in the US and drive up natural gas and gasoline  prices.  The sad fact is that solar and wind power can never replace petroleum and Biden’s misguided money printing inflationary plans will more than likely cost him the mid term elections in 2 years.  

In the meantime we ride the technology and inflation trends.  As Biden has total control over the congress there is not much that can stop his radical socialist policies for the next 2 years  but we can still profit by riding current trends.   

Take care
Bill

Critter of the week is Max

A toddler in Australia was saved by Max after she wandered off into the bush.

Max, although deaf and half-blind stayed with Aurora all night, keeping her warm as well as leading the search party to where she was hiding