Chris’ note: As I showed you yesterday, investors are panicking that the Fed will raise interest rates. It’s thrown the stock market off-kilter. But the newest member of the Legacy Research team, Nomi Prins, says it’s an overreaction.
Nomi is a former Wall Street insider. She’s also an expert on how central banks affect the economy and markets. And as you’ll see below, she’s confident the era of cheap money – or low interest rates – from central banks isn’t ending soon.
So she doesn’t see a crash in the cards. Instead, Nomi has her eye on where all that cheap money will flow. It’s led her to an opportunity in a metal that’s a key ingredient in the coming tech, green energy, and infrastructure booms.
Chris Lowe: You worked in the upper echelons of Wall Street for a decade and a half. But after 9/11, you left your seven-figure job there to help ordinary investors navigate the distorted markets Wall Street and central banks have created.
The Fed, the IMF (International Monetary Fund), and the World Bank have invited you to speak about problems with the banking system. You’ve also written two books about the Fed. So you know a lot about it.
One of the big market stories right now is the tantrum investors are throwing over the prospect of Fed interest rate hikes. What’s your take?
Nomi: First, it’s important your readers know that the Fed’s influence on markets has never been greater.
For most of my time on Wall Street, Alan Greenspan was still in the top job at the Fed. Wall Street paid close attention to what he said. And some news outlets wrote about what he was doing. But there wasn’t this widespread chatter like we have now.
Last November, the Fed spooked investors by saying it was considering raising rates to fight inflation. That has led to widespread anxiety that the Fed may be ending the era of cheap money. That’s spiked market volatility.
My take is we may get somewhat higher interest rates. But it won’t be the end of cheap money. It’ll be a minor adjustment to the tsunami of stimulus the Fed and other major central banks have unleashed on markets.
Chris: That’s not the message folks are hearing in the mainstream press. Stocks have been taking a beating. And the press is acting like Armageddon is here. What’s convincing you the stimulus will keep flowing?
Nomi: Right now, the Fed’s key lending rate is 0.25%. Let’s say the Fed raises rates as it’s suggested it will… and we get three or four hikes of one-quarter of a percentage point each this year. Then we get more of these hikes in 2023 and 2024 until we get that key lending rate to 2%. That’s not a huge deal in terms of global stimulus.
Remember, the Fed isn’t the only actor. The European Central Bank and the Bank of Japan still have their stimulus spigots wide open. Key lending rates are negative in the eurozone and in Japan. And the Bank of Japan recently signaled it would do more stimulus.
Meanwhile, the People’s Bank of China says it’ll cut the cost of borrowing money.
Chris: Based on what you’re saying, it seems investors are overreacting to what the Fed says. What does that mean for stocks?
Nomi: Investors are panicking that change is coming. They’re not sure what that change will actually entail.
That fear will continue until the Fed does what it says it’ll do… and raises rates. Or when it hikes rates fewer times than investors are pricing in. Either way, we’re not back in 2008… or the dot-com bust… or anything like that.
Uncertainly over rates will continue to cause some choppiness in markets. But there will be continuing uptrends – particularly in the sectors that have been faring the worst.
Chris: If central bank stimulus is sticking around, how should readers position themselves?
Nomi: They should follow the money. They should ask themselves where all this stimulus is flowing and where it’ll stick around and grow.
What I call “New Energy” is one of those sectors. We’re moving away from carbon-producing energy sources to renewables. Whether we’re turning to solar, wind, or hydro power… or making carbon-based fuels activity cleaner… this transition isn’t going away.
The companies involved will get massive funding from Wall Street, retail investors, private companies, and governments.
Another sector I like is infrastructure. That’s not just roads and bridges. We’re also building more efficient power grids and faster digital communications networks, such as 5G.
Governments worldwide are investing more than ever in anything to do with infrastructure. Private companies are also jumping in. That’ll have an upside for investors.
Chris: Sounds like you’re optimistic, despite the fearmongering from the mainstream press.
You’re not telling me you think people should run to safe-haven assets like gold or stock up on canned goods. You’re laying out a bullish roadmap.
Nomi: That’s right. And it’s not because I’m a perma-bull.
In my 2006 book Other People’s Money: The Corporate Mugging of America, I explained why and how the 2008 financial crash would happen. I wrote about problems with credit markets and toxic assets before they blew up in 2008.
So I recognize there can be crises. But I’ve also seen – as we all have – the immense subsidies central banks collectively can and will extend to markets when they think it’s necessary.
Professional investors and hedge fund managers recognize that. Yes, they’ll readjust their portfolios based on what they think the Fed will do to rates. And that means a lot of choppiness in the markets.
But that doesn’t mean we’ll have a crash or anything. It just makes it even more important to focus on the big picture… and where all the cheap money is flowing.
Chris: You’ve shared seven specific recommendations for how to handle what’s happening with paid-up subscribers of your Distortion Report advisory. [Nomi subscribers can catch up in full here.] Is there a recommendation you can share with Daily Cut readers today?
Nomi: Because of the focus on building out infrastructure, I expect a lot of the cheap money we’ve been talking about to flow into raw materials. And copper is a big one.
The world has run on oil for the last century. The 21st century will run on copper. By the end of the decade, every major part of the economy will need this metal.
Copper is already a part of personal electronics and construction. Now, demand for copper in energy and transportation is growing.
That includes the ongoing energy transition. Copper goes into wind turbines and solar panels. It also goes into electric vehicles (EVs).
It takes four to six times more copper to power wind and solar plants than what conventional power plants need.
Meanwhile, EVs use three times more copper than internal combustion engine vehicles. And with countries around the world pushing for a cleaner future, the EV market is set to explode.
Today, about 10% of new vehicles sales in the world’s major markets are for EVs. By 2030, that figure could be closer to 50%, according to Bloomberg.
Copper prices rose 23% last year. I expect even bigger gains ahead. So now is a great time to buy.
One way to do that is through the United States Copper Index Fund (CPER). It’s an exchange-traded fund – or ETF – that tracks the price of copper.
Chris: Thanks, Nomi.
Nomi: You’re welcome, Chris. Thanks for speaking with me.