May 16th, 2023 | 09:10 CEST
US payment default looms: PayPal, Citigroup, Globex Mining
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
US facing default: Even PayPal is under pressure
Social security, interest payments or even other government contracts: As the US government spends more than it takes in, it has to take on debt. But the debt ceiling is imminent. Without an agreement in the US Congress, there is a threat of default and, thus, a major loss of confidence. As Handelsblatt reports, Congress has raised the debt ceiling 102 times since World War II. This time, the two parties are under time pressure, and the upcoming election campaign is casting its shadow. The Republicans could try to use the debt dispute to water down parts of Joe Biden's climate legislation. If the US Democrats remain tough, a default could severely damage the US's reputation. Even lower ratings are conceivable. In the short term, interest rates could rise, and the economy could come under pressure. Handelsblatt quotes economic experts who expect the loss of up to eight million jobs in the event of a prolonged national bankruptcy in the USA. Since the US is an importer of many products and US government bonds are considered a safe haven, the distortions could be significant.
US financial stocks in particular could suffer. The payment provider PayPal is currently trading at its lowest level since 2017. There is a risk that lower consumption in the US will weigh on business. While PayPal is well positioned in online payments and makes life difficult for the big banks, such a large market penetration can also backfire in a crisis. The share has not yet fully priced in this risk. Investors should currently refrain from catching a falling knife with PayPal.
Citigroup: Commercial real estate as a source of danger?
Citigroup is also not very promising. Although the Company could profit from the crisis of the US regional banks, the subsequent risks are already looming. Experts see a need for correction in commercial real estate due to higher interest rates. At Citigroup, net interest income accounts for almost 60% of turnover. Business with companies is also strong, accounting for more than 60%. If, in addition, the US defaults, the pressure on interest rates is likely to increase further and weigh even on the business of large institutions like Citigroup. So what can investors do?
Globex Mining: Massive gold and more
Now that the gold price has consolidated beyond the USD 2,000 mark, more and more observers see room for a dynamic breakout to the upside. If this scenario occurs, many smaller gold projects, which today are still trading at significant discounts to resources in the ground, are likely to face a revaluation. An interesting option for any form of crisis is Globex Mining. The Company is involved in more than 200 commodity projects in North America. These include precious metals as well as industrial metals and lithium. Despite the many opportunities, the share is only valued at around EUR 30 million. The share price was more than twice as high just a year ago.
Like many other growth companies, Globex Mining has probably been punished by the market in recent months. However, as the Company has numerous other potentially scarce commodities in addition to precious metals, the business, which extends through joint ventures, profit-sharing or property sales, should tend to pick up speed. In addition, with the large number of projects, new drilling results can be announced regularly. After the share price jump in April, the price gains of that time are already gone. This could be a second chance for all investors who see prospects in the Company.
With the banking crisis, the threat of a US default and industry transformation - the coming years could be turbulent. It is not for nothing that the gold price is currently trading near its all-time high. Many industrial metals are also desperately sought from safe sources. Therefore, Globex Mining's strategy of only including projects in North America in its portfolio could pay off. While financial stocks are under pressure for various reasons, the hour could soon come for commodity conglomerates like Globex Mining. The share appears interesting but is still a speculative investment.
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