Gobble, Gobble: Thanksgiving Dinners Stuffed withSavings Despite Rising Fuel Costs

November 23, 2017by Frank Holmes

of U.S. Global Investors

I spend a lot of time writing and talking about inflation, especially as it affects the price of gold, oil and other commoditiesand raw materials. The year-over-year percent change in the cost of living has been reasonably low for the past five years,averaging about 1.3 percent on a monthly basis. For commodities, the average change has been even lower at negative0.9 percent, as measured by the producer price index (PPI). This hasn’t been too constructive for gold and oil producers,but it’s been a windfall for American consumers and manufacturers.

A helpful way to look at inflation is the changing cost of a typical Thanksgiving dinner for 10 people. For the second straightyear, the cost actually declined from the previous year’s holiday, according to the American Farm Bureau Federation(AFBF). This year’s feast, including staples such as turkey, rolls, sweet potatoes and more, fell $0.75 to a five-year low of$49.12. On an inflation-adjusted basis, that’s down more than $10 from 30 years ago. The turkey alone cost about 1.6percent less than last year.

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So why’s this happening? Obviously, there’s no shortage in demand for turkey, with an estimated 88 percent of Americanhouseholds enjoying it during this year’s Thanksgiving. U.S. turkey consumption, in fact, has nearly doubled over the past25 years, according to the National Turkey Federation (NTF). As you might expect, this has led to an explosion inproduction over the same period, which has helped keep costs relatively stable for a generation

Today shares of Tyson Foods, one of the top processors of the poultry, were trading above $80, up more than 30 percentyear-to-date.

Again, this is good news for consumers. Also good? Multiple studies have found that Americans gain only about a pound inweight as a result of engorging themselves on Thanksgiving Day. So don’t feel so guilty about helping yourself to that extraslice of pumpkin pie.

Record Number of Americans Hit the Road and Take to the Skies

Holiday gasoline prices, however, are on the rise, with the cost per gallon rising to its highest level since 2014. A trip to thepump this Thanksgiving will cost motorists an extra 18 percent compared to last year and nearly 25 percent morecompared to 2015.

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As I shared with you earlier this month, oil prices climbed to two-year highs following Saudi Arabia’s purge of princes andministers. Markets also appear to be pricing in expectations that the Organization of Petroleum Exporting Countries

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(OPEC) will extend production cuts to the end of 2018.

West Texas Intermediate (WTI) was trading today at a 52-week high of $59 a barrel. The next stop is $60, a level wehaven’t seen since May 2015. In a strategy report this week, BCA Research recommended an overweight position inenergy.

Higher fuel costs aren’t expected to discourage domestic travel, though. This Thanksgiving season, approximately 51million Americans are projected to travel 50 miles or more from home on U.S. roads, highways, airlines, rails andwaterways, according to the American Automobile Association (AAA). That’s up 3.3 percent from last year and the highestvolume since 2005. President Donald Trump mentioned the impressive figure in a tweet this week, adding that “traffic andairports are running very smoothly!”

Looking at air travel alone, a record 28.5 million passengers are estimated to take to the skies this year during the 12-dayThanksgiving period, according to Airlines for America (A4A). That equates to an additional 2.38 million passengers a day.

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With the economy improving, incomes on the rise and consumer confidence at multiyear highs, airline executivesexpressed optimism in continued flight demand growth and profitability. According to October’s Airline Business ConfidenceSurvey, conducted by the International Air Transport Association (IATA), 80 percent of airline chief financial officers (CFOs)said profits improved in the third quarter compared to the same three-month period in 2016. An overwhelming 87 percentwere confident such profitability would persist or improve over the next 12 months. Eighty-six percent of CFOs reportedincreased passenger demand year-over-year in the third quarter, while 71 percent expected traffic volumes to rise a year

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from now.

Holiday Shopping Sales Could Exceed $107 Billion

On a final note, retailers are bracing for a blowout holiday shopping season. Earlier this month, Adobe Analytics released itsforecast that U.S. sales during the Thanksgiving weekend and Cyber Monday could climb above $107 billion, a year-over-year increase of 13.8 percent. Cyber Monday alone might generate as much as $6.6 billion, 16.5 percent more than lastyear, making it the largest online sales day in history. Among the most hotly anticipated gift items this year are Apple AirPods, home assistants (Amazon Echo and Google Home) and Sony PlayStation virtual reality (VR) headsets.

Looked at another way, more than 164 million consumers, or nearly 70 percent of all Americans, plan to shop during theThanksgiving weekend and Cyber Monday, according to a survey conducted by the National Retail Federation (NRF).Today - Black Friday - might see the largest volume of potential shoppers at 115 million, or 70 percent of those polled,followed by 78 million on Cyber Monday.

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So how could investors take advantage of these findings? According to a recent report from LPL Financial, since 2009 theS&P Retail Select Industry Index has seen the strongest gains during the months of February and March, after companiesreport sales for the fourth quarter. Retailers are actually down about 6 percent year-to-date, and LPL Financial adds that “itis likely that the performance of individual company stocks be more dispersed than they have been historically, which mayfavor active management in the sector moving forward.” I agree with this assessment, as we’ve seen quite a lot of volatilityin the space.<

I want to wish everyone a blessed Thanksgiving weekend! I often say that having gratitude improves your altitude in life. It’simportant that we take stock not only in our finances but also the people who matter most, from family and friends tocoworkers and business associates.

Index SummaryThe major market indices finished up this week. The Dow Jones Industrial Average gained 0.86 percent. The S&P500 Stock Index rose 0.91 percent, while the Nasdaq Composite climbed 1.57 percent. The Russell 2000 smallcapitalization index gained 1.76 percent this week.The Hang Seng Composite gained 1.84 percent this week; while Taiwan was up 1.42 percent and the KOSPI rose0.41 percent.The 10-year Treasury bond yield fell 0.3 basis points to 2.34 percent.

Domestic Equity Market

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Strengths

Telecommunications was the best performing sector of the week, increasing by 2.46 percent versus an overallincrease of 93 basis points for the S&P 500.Foot Locker was the best performing stock for the week, increasing 25.90 percent.Salesforce's third-quarter revenues were up 25 percent from last year. The company also reaffirmed its revenuegrowth plan and a timeline which includes more than doubling its annual revenues from $8.4 billion in 2017 to $20billion by 2022.

Weaknesses

Utilities was the worst performing sector for the week, falling 69 basis points versus an overall increase of 93 basispoints for the S&P 500.Signet Jewelers was the worst performing stock for the week, falling 32.88 percent.Shares of Signet Jewelers crashed more than 25 percent after the company reported a big loss and warned on 2018.Same-store sales fell 5 percent, more than the 2.9 percent drop that Wall Street was expecting.

Opportunities

Barron's says that IBM shares could climb 30 percent over the next year as the company is trading well below theS&P 500 on a price-to-earnings basis.Brian Belski of Bank of Montreal Capital Markets sees the S&P 500 finishing 2018 at 2,950, the highest forecast onWall Street.According to some, there are several strategies for investors to potentially take advantage of the Amazon-inducedretail apocalypse: Buy Amazon stock, buy stock in companies that support Amazon, and buy companies in "Amazon-proof" sectors.

Threats

According to Morgan Stanley, three things could destroy the third-longest market rally of all time: extreme leverage,exuberant sentiment and excessive policy tightening.According to Societe Generale, the market is nearing a crucial turning point that could crush stocks. The firm said a10-year Treasury yield above 2.5 percent could result in a U.S. equity sell off.Starbucks is using a financial engineering gimmick to boost its stock price. The coffee giant plans to sell $1 billion ofdebt and then use the proceeds to buy back its own stock, expand its business, pay cash dividends or financeacquisitions, according to a regulatory filing.

The Economy and Bond MarketStrengths

The Leading Index rose by 1.2 percent in October, twice as much as the 0.6 percent increase expected by

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economists polled by Reuters. The index "suggests that solid growth in the U.S. economy will continue through theholiday season and into the new year," Conference Board research director Ataman Ozyildirim said in a statement.U.S. home sales increased more than expected in October as hurricane-related disruptions dissipated. The NationalAssociation of Realtors said on Tuesday that existing home sales rose 2.0 percent to a seasonally-adjusted annualrate of 5.48 million units last month.The University of Michigan Index for November came in at 98.5, higher than the anticipated reading of 98.0.

Weaknesses

New orders for key U.S.-made capital goods unexpectedly fell in October after three straight months of hefty gains.Durable goods orders fell 1.2 percent last month as demand for transportation equipment tumbled 4.3 percent.Federal Reserve Chair Janet Yellen raised new concerns about whether or not persistently low inflation is "transitory"in a speech on Tuesday night.A new analysis shows the Senate GOP tax bill fails a key test that would prevent it from passing. The University ofPennsylvania's Wharton School Budget Model shows that the bill would decrease revenues and increase the federaldebt outside a 10-year window, violating the "Byrd rule" that would allow Republicans to pass the bill with 50 votes inthe Senate and avoid a Democratic filibuster.

Opportunities

The U.S. economy is heading into 2018 with strong momentum that’s likely to boost wages and inflation, GoldmanSachs Group economists said in a research note. The firm raised its growth outlook for 2018 to 2.5 percent andlowered its forecast for unemployment to 3.7 percent by the end of 2018.Next Wednesday the second reading on U.S. GDP for the third quarter will come out. Economists are expecting arobust pace of 3.2 percent on an annualized basis.U.S. construction spending for October will come out next Friday and is expected to grow 0.5 percent, up fromSeptember’s 0.3 percent.

Threats

State and local governments are rushing to borrow before Congress enacts legislation that would pull subsidies froma major swath of the municipal-bond market by curbing refinancings and preventing businesses from issuing tax-exempt debt. The amount of sales scheduled over the next month has swelled to $19.5 billion, the most sinceOctober 2016, according to Bloomberg. That’s likely to weigh on prices for the remainder of the year as investorsbrace for a wave of new supply to hit the market.

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The longer the trend of a flattening yield curve continues, the more likely its effects could spread to bank earningsand the real economy. In the past, the yield curve has proven a reliable indicator of impending economic slumpswhen it inverts, with short rates exceeding longer-term yields. BMO Capital Markets strategists Ian Lyngen and AaronKohli wrote in a note Tuesday that the risk of an inverted curve next year is becoming "a real possibility," as theflattening trend persists.U.S. credit card delinquencies are rising, which could be a red flag for consumer spending going forward.

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Gold MarketThis week spot gold closed at $1,288.59 down $5.61 per ounce, or 0.43 percent. Gold stocks, as measured by the NYSEArca Gold Miners Index, ended the week higher by 0.60 percent. Junior-tiered stocks underperformed seniors for the week,as the S&P/TSX Venture Index sold off 0.76 percent. The U.S. Trade-Weighted Dollar continues its three-week slide, falling0.94 percent.

Date Event SurveyActualPriorNov-22Initial Jobless Claims 240k 239k 252kNov-22Durable Goods Orders 0.3% -1.2% 2.2%Nov-27Hong Kong Exports YoY -- -- 9.4%Nov-27New Homes Sales 625k -- 667kNov-28Conf. Board Consumer Confidence123.8 -- 125.9Nov-29Germany CPI Core YoY 1.7% -- 1.6%Nov-29GDP Annualized QoQ 3.2% -- 3.0%Nov-30Eurozone CPI Core YoY 1.0% -- 0.9%Nov-30Initial Jobless Claims 240k -- 239kNov-30Caixin China PMI Mfg 51.0 -- 51.0Dec-1 ISM Manufacturing 58.3 -- 58.7

Strengths

The best performing precious metal for the week was palladium, up 0.28 percent. Trade data shows Chinese importsof palladium are up 60 percent year-over-year. The world’s leading jeweler, Chow Tai Fook Jewellery Group, sawprofits increase for a second consecutive six-month period as demand for gold in China lifts sales. This mirrorsChina’s recovery in demand for luxury goods after a two-year slump amid a corruption crackdown in the country,reports Bloomberg. In Bloomberg’s weekly survey, gold traders see the rally in gold resuming with the dollar tradingat its lowest in more than a month.

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The world’s leaders in gold imports, India and China, saw a welcome increase in gold demand for the month ofOctober after a September slump in demand, writes Lawrie Williams.The Russian central bank added another 700,000 ounces of gold to its reserves last month as a part of its plan toreduce the nation’s reserve dependence on the U.S. dollar. Reported by TASS, the BRIC countries are consideringforming a single, unified gold trading system.

Weaknesses

The worst performing precious metal for the week was silver, down 1.52 percent on little news unique to the metal.According to the TD Securities outlook for 2018, precious metal gains are likely to be capped by U.S. monetary policyand the passage of tax reform.Western Australia’s Liberal party joins the gold industry in opposition of a proposed increase in gold royalty, saying itwould cost jobs and much of its revenues would leak to the eastern states of the country.United Steelworkers urged the Canadian government to respond after two workers died in an incident that the unionsaid is linked to protests at a mine project owned by Torex Gold based in Toronto, writes Bloomberg. It was laterreported the men who died were not employees of Torex Gold.

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Opportunities

Mike McGlone, BI commodity strategist, writes that strong gold ETF inflows seem poised to gain momentum asinvestors seek diversification. He adds that gold ETF inflows are outpacing price appreciation for the longest periodand at the highest velocity since the global financial crisis.UK-based Glint Pay announced the launch of a beta-app and credit card allowing consumers to buy portions of goldand then use the account to make purchases, reports Kitco. This is a major step forward in the re-monetization of theyellow metal.A UBS price forecast says gold could rebound above $1,300 per ounce toward the end of this year and into 2018.The Bank of Montreal also projects a gold price average of $1,300 per ounce in 2018. JPMorgan, however, projectsprecious metals will be stable through 2018, with gold averaging $1,350 per ounce by the fourth quarter.

Threats

JPMorgan Chase & Co. is bearish on gold in the near term expecting the Federal Reserve to hike five times throughDecember 2018, fueling a climb in real rates, reports Bloomberg. BlackRock Inc. says a tax cut and interest rate hikeswould undermine gold.Emmerson Mnangagwa was sworn in as interim president of Zimbabwe after Robert Mugabe was removed frompower. Many believe this successor and former right-hand man of Mugabe will continue to implement the violentinfrastructure the nation has seen for many years while in a time of crisis with 95 percent of the populationunemployed.China moves to make it more difficult for new-energy vehicle manufacturers to access subsidies and plans to phaseout financial support entirely by 2020. This comes at a time when electric vehicle sales are booming in the nation withsales rising 45 percent year-over-year to 490,000 units in the first 10 months of 2017.

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Energy and Natural Resources MarketStrengths

Iron ore was the best performing major commodity this week, rising 8.5 percent. The commodity has rebounded to atwo-month high, with investors looking beyond China’s near-term clampdown on steelmakers to envisage a revival indemand next year.The best performing sector this week was metals and mining. The group rose 5.4 percent as copper prices rose for asixth consecutive session, its longest since March. Inventories declines while strike actions in Peruvian and Chileanmines threatened the supply chain.Daqo New Energy Corporation, a Chinese manufacturer of parts and cells used in solar power products, was the bestperforming stock in the broader resource market this week. The stock rallied 23.9 percent to a fresh 52-week highafter the company received positive investment recommendations from a number of retail-oriented newsletters.

Weaknesses

Natural gas prices dropped 7.4 percent, the most among major commodities. West Texas prices have fallen as muchas $0.57 per million British thermal units—or about 20 percent—below spot prices at Louisiana’s Henry Hub, thenational benchmark. The problem is that natural gas is gushing out of West Texas, a byproduct of frenzied drilling foroil. That is a problem for energy producers, who are running out of places to send all of it. Pipelines running from theregion’s Permian Basin are essentially full.The worst performing sector this week was the Alerian MLP Index. The index dropped 0.6 percent tracking naturalgas price weakness, and somewhat offset by stronger crude prices and rebounding production volumes.

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The worst performing stock for the week was Fibria Celulose SA. The Brazilian producer of pulp and paper dropped1.9 percent. A positive recommendation from Citi analysts was not enough to offset the weakness cause by a risingBrazilian real, which negatively affects the business margins.

Opportunities

Global sales of electric vehicles soared 63 percent in the third quarter. A total of 287,000 units were reportedly sold inthe three months ended in September, leading Bloomberg New Energy Finance to expect annual total sales toexceed 1 million units for the first time. Strong demand in China was the key driver behind the record breakingnumbers as the renewed crackdown on polluting industries propels renewable alternatives from power generation toconsumer products.

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Crude oil advanced to a fresh two-year high as the Organization of Petroleum Exporting Countries (OPEC) andRussia were said to have crafted the outline of a deal to extend their oil production cuts to the end of 2018. After daysof talks, Moscow and Riyadh now agree on the need to announce an additional period of cuts at the November 30meeting, although both sides are still hammering out crucial details.Investor appetite for gold as a refuge is showing signs of life. Open interest, a tally of outstanding futures contracts,rose by the most since June, reports Bloomberg. In New York, aggregate gold open interest is headed for a thirdstraight quarterly gain, the longest stretch since 2009, while holdings in exchange-traded funds (ETFs) are near thehighest in a year.

Threats

Travelers on this Thanksgiving Day-weekend are facing some of the highest gas prices in five years. More than 50million people are expected to travel this weekend, according to a spokesman for the American AutomobileAssociation (AAA). What is generally one of the highest gasoline demand periods of the year may be negativelyaffected by rising fuel prices. The national average price has climbed to $2.56 a gallon, which is 41 cents higher thanlast year.Crude and refined products speculative interest continues to rise to multi-year records, leading contrarian analysts tobelieve the crude rally may fade. The most recent data shows the total WTI net-long position was the most bullish inmore than eight months. Similarly, gasoline and diesel net-long positions were the most bullish on record in datagoing back to June 2006.Rising freight rates and the increasing likelihood of an occurrence of the La Niña weather phenomenon are amongthe risks that farmers, investors and commodities traders face in 2018. The U.S. National Oceanic and AtmosphericAdministration (NOAA) is forecasting a 65-75 percent chance of la Niña developing this year and lasting into the firstquarter of 2018.

China RegionStrengths

Hong Kong, Taiwan and Singapore all had a reasonably good week, rising 1.84 percent, 1.43 percent and 1.81percent, respectively. Vietnam’s Ho Chi Minh Stock Index had an outstanding week, soaring 5.14 percent in part dueto a recent government announcement on SOE-equitization and the easing of some regulations.Thailand’s third-quarter GDP reading came in at 4.3 percent, ahead of expectations for a 3.9 percent showing and upfrom the prior quarter’s 3.7 percent (now 3.8 revised). Singapore’s GDP came in at 5.2 percent, ahead ofexpectations for a 5.0 percent print and up from last quarter’s 4.6 percent number.

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China announced further import tax cuts, which may help cut into trade surplus concerns by boosting consumption.

Weaknesses

The Shanghai Composite declined 86 basis points for the week, with Thailand’s SET Index not far behind, down 75basis points for the week.Singapore’s industrial production for the October period came in lighter than expected, at 14.6 percent, behind ananticipated 16.0 percent.Consumer goods and conglomerates were the only two sectors of the Hang Seng Composite to decline for the week,falling 12 and 11 basis points respectively.

Opportunities

China’s debt is on track to be more than three times the size of the economy by 2022, according to BloombergEconomics. Although the data is startling, the Asian nation’s “drive to reduce its debt burden has shifted into a highergear,” reports Bloomberg, particularly following the Communist Party Congress in October. Seeking to bring themarket under control, regulators have set their sights on shadow banking specifically.The chart below highlighted by Katusa Research and originally provided by Bloomberg New Energy Finance takes alook at annual global electric vehicle (EV) sales forecast through the year 2014. As you can see, China and the U.S.will push the adoption of EVs forward, with the rest of the world following closely behind. According to the chartbelow, some believe that by 2040, the global EV market could get to over 60 million vehicles sold that year alone,writes Katusa Research.

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Demand for gold in China is on the rise, propping up semi-annual profit growth for the world’s top jeweler, Chow TaiFook. The company’s profit increased for a second consecutive six-month period, reports Bloomberg, with net incomerising 46 percent in the six months through September. “The results mirror the continued recovery in demand forluxury goods in China after a two-year slump amid a corruption crackdown in the country,” the article reads.

Threats

On Tuesday, Apple Inc. announced the removal of several apps, including Skype, from its app store in China, reportsReuters. The removal came after the Asian nation’s government pointed to violations of local laws by the company.Beijing has pursued a series of laws and regulations that have raised concerns from foreign companies trying toexpand their user base across the country, the article reads.In July, Alexandre Bompard took over Carrefour, the world’s second-largest retailer behind Wal-Mart, and accordingto Reuters, Bompard will unveil his “turnaround plan for the French company (which issued a profit warning inAugust),” on January 23. The question is now whether or not he made a decision to stay or go in China, whereCarrefour has spent years trying to fix a business whose sales still fell 5.4 percent in the third quarter. “Until now, theonly Western retailers to have successfully established themselves in this country have done so via partnerships with

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local retailers,” Bryan Garnier analysts said in a research note. The clock is ticking.According to Reuters, politics was in the air as the Victoria’s Secret annual fashion show hit the stage in China for thefirst time on Monday. Several of the “Angels” and star names who had been expected to attend were nowhere to befound, the article continues. Pop star Katy Perry and model Gigi Hadid have both drawn criticism in China, and wereboth absent from this week’s event.

Emerging EuropeStrengths

Greece was the best performing country this week, gaining 1.6 percent. The Greek government submitted the 2018draft budget to the parliament, projecting 2.4 percent GDP growth next year, up from 1.8 percent this year. Accordingto the draft budget, unemployment is expected to fall to 19 percent in 2018, private consumption to increase 1.4percent, and total private and public investment to rise by 12.6 percent.The Polish zloty was the best performing currency this week, gaining 1.8 percent against the U.S. dollar. This week aslew of positive economic data came out for Poland supporting the country’s currency. Average gross wages aregrowing faster than expected, unemployment keeps declining, industrial and construction output is rising and moneysupply is growing.Health care was the best performing sector among eastern European markets this week.

Weaknesses

Turkey was the worst performing country this week, losing 1.6 percent. Migros Ticaret, a supermarket and malloperator, fell 13.8 percent after BC Partners sold a 7.3 percent stake in the company below the market price.The Turkish lira was the worst performing currency this week, losing 1.7 percent against the U.S. dollar. The lirareached a new low as political tension continues to increase in Turkey. The central bank of Turkey increased its policyrate by 25 basis points; not enough to support its falling currency.The industrial sector was the worst performing sector among eastern European markets this week.

Opportunities

IHS Markit's composite flash purchasing managers’ index (PMI) for the euro zone jumped to 57.5 this month, itshighest since April 2011. Manufacturing PMI climbed to 60.00 from 58.5, the second highest reading since the indexwas first collected in June 1997. Services PMI also beat expectations, rising from October’s 55.0 to a six-month highof 56.2. A reading above 50 indicates growth.Poland’s state-owned gas company, PGNiG, signed a five-year deal to buy liquefied natural gas from the U.S. Nineshipments are scheduled from the Sabine Pass terminal in Louisiana to Poland’s gas port in Swinoujcie on the Balticcoast. This is the first such contract for regular LNG delivery for central and Eastern Europe, as the region is seekingto cut its dependence of gas delivery from Russia.Rosneft has agreed to supply its new partner CEFC China Energy with almost 61 million tonnes of oil over the nextfive years. In 2016, Russia became China’s largest oil supplier. This deal will help Russia to remain China’s top oilsupplier. Sanctions imposed on Russia by the U.S. and Western Europe pushed Russia to boost oil ties with China.

Threats

Turkish bond yields hit record highs and the lira fell to record lows against the U.S. dollar due to rising politicaltension. Mr. Zarrab, the Turkish-Iranian gold trader accused of doing business with Iran under sanctions, will go ontrial next week in New York. His case has put more pressure on an already-strained relationship between the U.S.and Turkey. The lira may depreciate further against the dollar if the central bank doesn’t take drastic measures tosupport its falling currency.

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Coalition talks between Merker’s Christian Democratic Union (CDU) and its Bavarian sister party Christian SocialistUnion (CSU), with pro- business Free Democratic Party (FDP) as well as the Greens, failed suddenly last weekend.Merker supports new elections over forming a minority government, but some fear that the far right nationalistAlternative for Germany party (AfD) could gain more seats in parliament if new elections are called. Germany is thelargest economy in Europe and prolonged lack of government may strain some decision making processes.JPMorgan, in its EMEA Emerging Markets 2018 Outlook publication, recommends overweighting Russia against anunderweight in Turkey. The Russian central bank will likely continue cutting rates, while the Turkish central bank isunder pressure due to high inflation. However, JPMorgan also points out that relations between Russia and the U.S.remains a wild-card, and notes that the Treasury reports to Congress are due in January (on the impact of potentialrestrictions on sovereign debt markets). Additionally, Russia will hold presidential elections in March, which could bea source of noise.

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