Yankees in London…and the obvious buy in ?

London in September…

I think, technically, it’s still summer. You wouldn’t know it though. The sky is grey. There’s rain. I’m cold, too.

I’ve brought my wife and two girls here to see Big Ben, the Tower of London, Buckingham Palace…and the rest of the usual tourist spots.

Occasionally it’s a very good thing to get out and see the world for yourself.

The media reports nowadays always tell us how the world economy is going down, there’s a recession coming…or something else to be afraid of.

As I passed through the airport, I pick up a copy of the Financial Times.

Buried on page 11 is a story I just can’t ignore…

What’s that story?

Let’s go back a moment to about a month ago when the markets wobbled. Stocks plunged for a day or two.

Some said it was the Japanese carry trade reversing. Others pointed to the ‘Sahm’ rule that flashed a US recession warning.

Well…is the US going into recession?

Truth be told, I have no idea. My bias is to say no.

Here’s one reason I’m a touch sanguine about it all.

It gets back to that Financial Times article I alluded to above.

The report tells me that London’s main airport, Heathrow, just had its busiest day in history.

In fact, it’s been four consecutive months of record numbers.

This is happening while the CEO of the airport complains that a 2023 UK rule change means 90,000 LESS people travelled through Heathrow than otherwise would have in the last year.

In other words, the actual numbers reported should be even higher again.

Hello. I find it hard to be overly bearish on the world economy when travel demand is this hot in Europe’s busiest airport.

Here’s an anecdote, worth what you pay for it. Americans were everywhere in London where I went.

A long time ago, I lived in the UK. I don’t remember quite the same level of Americans here.

Maybe I’m imagining it.

But then again – it makes sense.

US wealth is at a record high. The US dollar remains supreme as the world’s de facto currency. US real estate is around all-time highs – as is the US stock market.

The level of wealth creation in the USA over the last decade is astonishing – and it’s still going on.

It’s no wonder they say Americans are buying up European real estate – or that average Europeans are complaining that they’re now being priced out of their own domestic property markets.

American wealth is flooding the place.

Why do you care?

Well, the Aussie market tees off the US, mostly. And with China down in the dumps, the last thing we need is for the USA to go kaput too.

Thankfully, if I’m right, the US economy should prove durable – at least for the next few years, at least.

The Economist has a recent piece comparing the budget plans of Kamala Harris against Donald Trump.

Neither has any credible plan to balance the US federal budget.

The only question is how big the ongoing deficit will be. It’s already large at about 6% of GDP. Both candidates would see it going higher.

And the facts say that US growth goes up alongside the deficit. See for yourself…

So with big US deficits in play, and US household wealth at a record high, it’s not clear to me why the US would go into recession – at least one big enough to rattle the world.

A slowdown? Likely. A catastrophe? Hardly.

I’m not saying this is sustainable in the long term. Only the gods know that at this point. But I’ll worry about today, tomorrow and next week before anything else.

I’m very aware that London is not in Australia. We have our problems. But we have to start with the ‘big picture’ first.

The US economy should keep dragging the world along with it. Countries like the UK and Australia are in the slipstream of this tailwind.

Then it’s up to us to find an angle on the Aussie stock market to exploit this.

Those big US deficits might support US growth. But the money men tell me that most of it is ‘printed money’ that’s juicing the markets…like precious metals.

It’s no coincidence gold just hit a record high in US dollars.

Right now, the most obvious place to hunt for alpha is the gold sector.

Aussie gold miners are right in the sweet spot. Gold is at record highs while oil continues to reduce… lifting their margins.

You can’t say that about retailers or iron ore right now.

The gold sector is glittering like the London city lights when you take off from Heathrow.

Make the most of it while the opportunity is there. My colleague Brian can guide you to some of the best opportunities in the space.

Best,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator