The ‘Fog of War’ Continues Into April

Commentary

As the market opened last Monday, President Trump ignited a big rally before the stock market opening when he said on Truth Social that there were “productive conversations regarding a complete and total resolution of hostilities in the Middle East.” He also said the talks with Tehran would continue “throughout” last week and were described as “in-depth, detailed and constructive.”

Unfortunately, the market fell sharply after a hopeful Monday rise, and the major market indexes are now down over 7% for the month of March (as of Friday’s close), but April is usually a strong market month.

As if to contradict the President’s optimistic message, Iran’s state news agency, Tasnim, quoted an unnamed senior security official saying there were “no negotiations” with the U.S. last week, and it even appears the “top” person in any of these talks is not the new Supreme Leader, who may not even be alive.

This tells me we are obviously in the midst of the “fog of war,” as the new Iran conflict enters its second month. President Trump said Iran will give the U.S. the enriched uranium it has, as this was a big goal for the U.S., but Israel has its own priorities and is expected to continue to attack Iranian missile sites and facilities, since Iran has been firing missiles with cluster bombs into Israel in retribution for any attacks.

Here are the most important developments recently and what they mean:

– The biggest glitch now impacting financial markets is that both food and energy inflation have been soaring based on the Producer Price Index (PPI), as well as the highest imported prices in four years. The March figures for food and energy inflation are expected to be hideous, so many economists are now anticipating over a 4% annual pace of inflation. This has already influenced Treasury yields after lackluster bid-to-cover ratios at a recent Treasury auction.

– A poor March payroll report on Friday and/or private credit default could coax the Fed to cut key interest rates sooner than later, despite the food and energy bubble that has emerged. Fed Chairman Jerome Powell is speaking at Harvard University this week, and it will be interesting if he is still talking about how the private sector has stopped creating jobs and if the Fed will have to cut key interest rates to stimulate the job market.

– Due to an anticipated glut of crude oil in the upcoming months, I am reluctant to add many energy-related companies, except for tanker stocks, unless the analyst community dramatically boosts their forecasted earnings.

– Fundamentally superior stocks in our portfolio bend but do not break because of their strong underlying forecasted sales and earnings growth. Furthermore, small-to-mid capitalization stocks in our portfolio are trading at only 4.98 times average forecasted earnings, so they remain a bargain, especially compared to large capitalization stocks in the S&P 500. As an example, on a day when the Dow Industrials declined 793 points, Argan (AGX) surged 37.91% after announcing that its fiscal fourth quarter sales rose 12.7% to $262.1 million compared to $232.5 million. The analyst community was expecting sales of $255.3 million and earnings of $1.98 per share, so Argan posted a 2.7% sales surprise and a 75.3% earnings surprise. Since Argan is a data center-related stock, it is now helping to lift other data center stocks that continue to exhibit relative strength.

– Furthermore, due to the 20+ gold stocks that I recommend, many portfolios I manage rose impressively last week. The forecasted sales and earnings for the gold stocks in our portfolio remain strong, and I anticipate that I will continue holding on to these gold stocks for at least several months. Your oasis amidst any market chaos remains the U.S. dollar as well as gold stocks. Some gold stocks I recommend are Agnico Eagle Mines (AEM), Alamos Gold (AGI), Barrick Mining (B), Compania de Minas Buenaventura (BVN), Coeur Mining (CDE), Centerra Gold (CGAU), Caledonia Mining (CMCL), Eldorado Gold (EGO), Equinox Gold (EQX), Hecla Mining (HL), IAMGold Corporation (IAG), OR Royalties (OR), New Gold (NGD), Idaho Strategic Resources (IDR), Integra Resources (ITRG), Kinross Gold (KGC), SSR Mining (SSRM), Triple Flag Precious Metals (TFPM), and Wheaton Precious Metals (WPM).

Overall, I want to assure investors that cooler heads may prevail, and the Strait of Hormuz will reopen, since the Iranian Republican Guard Corps (IRGC), the Trump Administration, and the rest of the world need the crude oil, fertilizer, and commodities that travel through the Strait of Hormuz. My prediction of 5% U.S. GDP growth may occur as soon as the second quarter due to booming U.S. energy and gold exports that should continue to shrink the trade deficit. Just between a shrinking trade deficit and productivity gains thanks to AI, that is enough to generate 4% annual GDP growth.