The Case for Owning Bank Stocks and REITs Right Now

Truth in advertising: This is the story of bank stocks and real estate investment trusts, as the headline notes. However, we begin with the story of a party. Because it’s in understanding why I say “the party has started” that you understand why I’m making a call on banks and REITs during what seems a particularly shitty moment for both.

This is a party I told you about many, many months ago. Maybe you remember when I said that oil was going to $150 or more. And when I wrote to you about the commodity super-cycle taking shape. And when I told you to expect rising food prices globally that will play through inflation at home.

At the time, those sentiments were not accepted wisdom at the University of Follow the Leader.

Yet each one of them seemed pretty darn obvious to those of us connecting dots and looking farther out than the next full moon.

And here we are.

Three recent headlines:

  • JPMorgan says oil could spike to $150, gets very bullish on energy stocks – CNBC
  • Food prices are rising as countries limit exports. Blame climate change, El Nino and Russia’s war – AP
  • Commodity supercycle just getting started, could last another 8-15 years – Kitco News

Now, I’m not going to take an indulgent victory lap. We all make right and wrong predictions. That’s life.

Instead, I want to use these three correct calls to underscore a message I deliver from time to time: Being early to the party. In this case, being early means using this moment to snap up high-quality bank stocks and REITs.

I cannot tell you that X, Y, or Z will happen with any certainty by this day or that. That’s shooting at ducks… blindfolded… at night. Assuming there’s even a duck in the vicinity, maybe you get extremely lucky.

But probably not.

What I’m far better at is hunting ducks, in the middle of duck-hunting season, out on a pond where ducks flock… but which most other duck hunters aren’t even paying attention to.

In short, I’m pretty good at seeing what’s coming long-term, and from where. Seeing events that are likely to emerge based on dots—data points—that converge with other dots that might have popped up weeks, months, even years ago. A lot of the financial media I read aren’t very good at the dot-connecting game.

I don’t necessarily blame them. I was part of that cohort for years while at The Wall Street Journal. Deadlines come fast and furious. You don’t have time in most cases to think about past dots when you’re trying to write a story quickly on the new dot that has arrived.

Moreover, finding on-the-record sources who can confirm your thinking for a newspaper story is not always easy when your thinking is futuristic and goes against the mainstream grain.

Best to muck about with your lunacy on your own time.

Of course, when you’re right, you’re right.

Suddenly, it’s no longer lunacy. Everyone is jumping on board and claiming they were thinking the same thing all along.

What I’m getting at is that I like being early to the party.

Of course, that means I’m often here alone. I’m watching the host run around with messy hair, no makeup, and wearing a raggedy t-shirt and paint-splotched shorts as she pretties-up the joint.

In investment terms, that means I’m buying before the rest of the Street sees the fun to come. A lot of the time, they don’t even know a party is on the agenda. The asset’s price—be it stocks or crypto—is still down; might even have a bit of downside still left.

But the path to the upside is crystal clear.

Meaning I collect big, early gains before the rest of Street realizes there’s a party going on over at Mildred’s condo.

Wall Street, by and large, is a lemming farm. No one wants to own some particular stock until they see that everyone else is buying it. Safety in numbers. A member of the cool-kids clique. No one can single you out for being a clown when everyone else is packed into the clown car with you.

Problem is, most investors buy and sell at the wrong times.

That’s not my assumption. That’s the word from academia, where finance profs have studied this ad nauseum and concluded that the typical investor buys at the top, when all the media are raving about X. Of course, if all the media are raving about X, and you’re hearing about it at a cocktail party or on the golf course or at the Tuesday night bridge club, you’re walking into the party as the smart-money is walking out.

The cover charge you pay is the profit the early arrivers pocket as they leave.

So it is with oil to $150, for instance.

I told my Global Intelligence Letter subscribers in March 2022 that the energy industry had scaled back exploratory drilling to such a degree that the result was always going to be oil prices rising to well over $100 per barrel. I don’t really care that Western governments are pushing green energy like a street-pimp pushing a $20 hooker. 

Global energy demand has been rising faster than green energy’s ability to meet it. That can only mean demand for oil was always going to outstrip the supply of oil. Exploration companies deeply underspending on hunting for new reserves exacerbates the trend.

Which is precisely why we are where we are today.

Oil demand has surpassed 103 million barrels per day, while oil supply is about two million barrels lower.

Higher prices are the result—which we’re seeing right now. Barrels of oil that were in the low-$70s this summer are now attacking the $100 threshold again.

It’s also why the stock I recommended to my Global Intelligence subscribers in March 2022—global deep-water drilling rig specialist Transocean—is up 66%. Over that same period, the S&P 500 is up about 12.5%.

Which brings me to my ultimate message here at the end: Get dressed, and show up to the party early.

In context of the moment, that means now’s the time to start adding bank stocks and REITs to your portfolio.

The Federal Reserve’s interest rate moves and pronouncements have slammed lots of those stocks. Many are at bargain-basement prices today.

More importantly, connect the dots and it’s clear the Fed has little capacity remaining to raise interest rates substantially more. They’ll be cutting rates sooner than the typical investor—and the typical media outlet—assumes.

And when that happens, interest-rate sensitive assets such as bank stocks and REITs (and crypto) are going to race higher. By the time the financial press starts reporting on this party, those assets will be 50%, 100%, maybe 200% higher from where they are today.

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