As we continue to lap the initial stages of the pandemic, a lot of numbers are going to start showing year-over-year peaks: GDP, earnings growth, inflation. Looking forward, everything may start to look like deceleration — and since the market is a discounting mechanism that looks out to the future, it will have to digest that deceleration. Often such digestion manifests as selling, so we would not be surprised to see some consolidation and rotation as the market moves forward through the coming data.
The impact of ESG considerations on commodity prices that we noted above make us aware of that the investment environment is becoming one in which what is “rational” and what is “real” becomes a challenge to determine. Shifting social mores and ideological trends can have a significant impact on the global economy regardless of their rationality, or lack of it. This is the environment in which investors must make decisions, and it is a challenging one.
We are not bearish; we remain fundamentally constructive on stocks in the sectors and industries we have identified (especially “picks and shovels” in the technology sector, and cyclicals). We are bullish on the commodities identified above, with the caveat that some — steel and copper, for example — are in bubbles, and investors should buy the dips rather than chasing the peaks.
Bitcoin and other highly speculative risk assets are in a bubble that would be fundamentally challenged by any withdrawal of the copious liquidity that has flooded the global financial system since the crisis Rubicon of intervention was crossed last April. That withdrawal may not be imminent, but it should be on the radar of those who are participating in the speculation.
Gold and other precious metals have begun to show modest improvements. For the past few weeks we have offered our view on the possible regulatory pitfalls that may await cryptocurrencies in a world of official central bank digital currencies (CBDCs). Cryptos have taken some of the wind out of gold’s sails as prospects for inflation have grown; but we think that longer-term, gold is likely to retain its crown as the asset which, par excellence, expresses skepticism about government incompetence and fiscal overreach.
Thanks for listening; we welcome your calls and questions.
