- Asset & Industry rotation
- Money slowly returning to Growth. It is early, but happening
- Commodities still hot, but will fade in 2023
- Commodity cycle in War, De-Globalization and Supply-chain disruptions
Asset & Industry Rotation:
Is the market in a bear market? Measured by the indices, a bear market is down 20% or more. In this definition yes, we are in a bear market. looking and asset and industry sectors no, we are not in a bear market we have seen a rotation from Passive, ETF Growth style investing into Value and Commodity Investing. Oil & Gas stocks are certainly doing well – food related stocks are in a uptrends. Cathy Wood ARK ETFs are the poster child for the peak of the blind growth investing that topped in February 2021. Unfortunately for LOTM, it turns out Blockchain and Crypto (one of our favorite groups) is also now considered a growth asset and not a store of value. Food, Energy and most Commodities are doing pretty well.
Money slowly returning to Growth. It is early, but happening:
LOTM recently sent an email noting that we are seeing a return of share accumulation into Genomic companies. Price declines from February 2021 to today of 50% to 80% is pretty common. Unloved and purged from institutional growth portfolios, we are seeing the early accumulation of genomic stocks by value investor with longer time lines for ownership than momentum based growth investors.
- Know Your Self / Know Your Company
Know yourself / know your company is key to determining your investment style. No one style is always in favor. The more you are aware of the different styles of investing and their characteristics, the better you can adjust your investment strategy. At the moment Value & Commodities are the hot sectors.
Commodities still hot, but will fade in 2023:
In a recent interview, David Rosenberg stated that we have jammed four years of price inflation into one year. This is too much too fast. Humans adjust and adapt. Supply-chain disruptions will get resolved. Prices always regress to the long term mean. Housing demand will (is now) lessening due to higher interest rates. Higher wage & commodity prices will raise expenses for large corporations. Large corporations will begin downsizing as a necessary adjustment (now happening) to lower demand for product awhile experiencing higher expenses and declining earning. Does night follow day? This is the normal cycle of business. The Fed will raise interest rates until they slow the economy and then rush in to save the economy as things are breaking. It is what they do. Expect falling inflation and declining interest rates in 2023 if not before. This will accelerate the return of growth stock investing. Value buyers and especially speculators are always early. We are seeing the very beginning of interest in the fallen angels of growth. It is early but if you want long-term gains you need for be early for the tax benefits. Speculators are not fools. There are reasons speculators are early to build large positions. Then come Value Investors, followed by Momentum Investors and finally the emotionally triggered – have to own it, “investors.” Cycle of life in the markets.
Commodity cycle in War, Deglobalization and Supply-chain disruptions:
From a realist perspective the USA is in a war for control of the earth. Rising US$ is part of that war to keep the US$ “the #1 currency. Gold, Crypto, the Chinese Yuan and Russian Rubble are all to be held in check in this “war.” We are in a kinetic/proxy war with Russia. The CIA has been in Ukraine since 2014 and active at this time. Interest rates rising are presented as way to bring inflation under control, but it also is a weapon of war to suppress challengers to the US Dollar. I love the USA. There are many changes that can be made to improve the USA. I am, however, also a realist in how the world works at levels above my pay grade. De-globalization and Reshoring industry back to the USA are changes that are happening and contributing to inflation and Supply-chain disruptions. These are part of the non-kinetic war that is happening. It requires construction & infrstructure spending to re-shore industries and occupational skills we lost.
National Defense industry spending will increase in areas of Space Warfare, Cyber Security, Biological Warfare. Each of these areas will all see more money allocated toward development and expansion. From an investing perspective, these are areas of opportunity. From a human perspective, it might lead to the end of humanity as we know it. This is what is ahead for us in the 2020 decade. Not to forget – “Going Electric” is certainly part of this shift as well. Going Nuclear is part of this shift. Opportunities to have positive returns are from investing are very big. It will require paying attentions and intellect to traverse this landscape. Exciting isn’t it. At the same time, very scary.
Summary:
Long-term we believe inflation will be sticky and with us for many years. We are probably entering a six-month to two-year period of a pull back in inflation. An awful lot depends on how strong the Fed wants to be in pushing the envelop with interest rates and tightening. This is a big unknowable factor, and it will impact liquidity in the markets. Remain optimistic but make sure you can survive anything the market throws at you. There are big opportunities right in front of us, but we have to cross this river first. Sorry, I grew up with westerns and covered wagons on TV – Gun Smoke era.
Things are slowing down in real estate
Existing-Home Sales Retract 2.4% in April
May 19, 2022, Quintin Simmons – link to full story
- Existing-home sales fell for the third straight month to a seasonally adjusted annual rate of 5.61 million. Sales were down 2.4% from the prior month and 5.9% from one year ago.
- With slower demand, the inventory of unsold existing homes climbed to 1.03 million by the end of April, or the equivalent of 2.2 months of the monthly sales pace.
- The median existing-home sales price increased at a slower year-over-year pace of 14.8% to $391,200.
WASHINGTON (May 19, 2022) – Existing-home sales recorded a third straight month of declines, slipping slightly in April, according to the National Association of Realtors®. Month-over-month sales were split amongst the four major U.S. regions, with two areas posting gains and the other two experiencing waning in April. Year-over-year sales struggled, as each of the four regions reported dips.
Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, slid 2.4% from March to a seasonally adjusted annual rate of 5.61 million in April. Year-over-year, sales dropped 5.9% (5.96 million in April 2021).
“Higher home prices and sharply higher mortgage rates have reduced buyer activity,” said Lawrence Yun, NAR’s chief economist. “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years.”
LOTM Research & Consulting Service
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