The Week That Matters (15th to 19th April, 2024)
"There's always a bull market somewhere." Jim Cramer
“Turbulence is life force. It is opportunity.” Ramsay Clark
Professor John Mearsheimer is no dummy. He is a renowned academic in political science and international relations from the University of Chicago. The author feels Paul Krugman has been right about most things in the field of economics since 2008. Similarly, the author can’t find anyone else who has got as much right as Mearsheimer has when it comes to geopolitics over the past 20 years. And, he is very, very bearish. Old people do get cranky, but he is usually level-headed, which means his words are even more concerning.
If he is right, then oil will go through $100. Victor Shvets of Macquarie argues this will mean the Fed will become more dovish. The Fed does have a dual mandate and even TSMC seemed to suggest end demand outside of AI was slowing (PCs, autos). The rapidly declining lumber price implies a growth scare is possible too.
With a bearish hat on, the author has scanned the world to see what might look good value in that scenario. And he has come up with Canadian oil stocks! Yes, it’s a bit random but the Canadian stock market has a Trudeau discount (justified?), which means a lot of the oil stocks there could be interesting laggards.
But let’s focus on what could go right in the market. It is always better, as the author’s favorite writer once said, to be an optimist, who is sometimes wrong, then a pessimist, who is always right. Part of the issue right now is geopolitics is emotive. And as investors, we have grown accustomed to low volatility since October 2023. In a normal environment, the red we are seeing might not be as scary. Seasonally, this does tend to be a tricky time of the year.
The author’s list of reasons to be more constructive on the market includes:
Inflation expectations, which everyone seems to ignore when they are going down, might have peaked a few days ago.
The Core PCE number might surprise positively on the 26th of April.
The Russel 3000 index seems to be getting stronger, not weaker.
The CBOE 3-month implied correlation is still low. It’s in the low 20s. In real sell offs, it tends to have a 50 handle.
Earnings season is going reasonably well.
TLT might have found a bottom.
The author has no edge when it comes to international relations. He has no edge at the best of times, to be fair, but the bipolarity of sentiment has been ridiculous of late. We have gone from thinking there would be five interest rate cuts to thinking there will be no cuts. That seems excessive. The truth, no doubt, lies somewhere in between!
It might feel bad over the next two to three sessions but don’t rule out a rally. The market can do what you least expect!
The 21st Century Belongs to the Americans
You can easily make the argument that US foreign policy has moved away from the original ideals of the Founding Fathers since the early 20th Century. You could say it just went awry after President Kennedy died. You cannot deny, however, that the experiment that is the USA has produced an incredible economy.
The US Dollar is strong partly because Powell has kept rates far too high but it’s also because the USA is winning most commercial battles, no? Think technology, think medical tech, think media. It is also fantastically wealthy (land, infrastructure, universities etc.) - something the average pundit ignores. And how big will the economy be in 2030, btw? USD$30 trillion?
There’s an argument to be made that the USA still hasn’t reached its full potential. Part of the reason for that is policies from the early 1980s hollowed out the nation. The social contract that had been in place after the Second World War collapsed with the rise of Friedman. But there is clear evidence that both sides of the aisle feel there is a need for a change.
Before the Ukraine dominated everyone’s attention, for example, the Biden administration, often spoke about education and infrastructure as an investment. We forget what a sea change that was. And to be fair to Trump, didn’t he have a point about onshoring and protecting US industry?
Micron is set to receive $6.1 billion in grants from the Chips Act, according to news this week. That’s simply huge. Nations used to fight over the control of natural resources. Today, they fight over semiconductor supply chains.
Ironically, as discussed last week, these kinds of Nation-first policies are exactly what the US administration criticized Japan for in the 1980s and China more recently, but for a dumb investor like the author, it’s just another reason not to get too bearish on the US economy.
Copper
Goldman’s can’t be ignored. Yes, it gave their clients MLPs and pipelines in the 2010s but some of their calls can be prescient. This newsletter noted its report a few weeks ago on commodities. It re-affirmed its bullishness at a critical time.
The author knows Goldman’s likes a range of commodities, but he is most excited about copper, as mentioned a few weeks ago. Interestingly, Citi’s Max Layton noted this week that we might be entering the second secular bull market for the metal driven by such things as data center growth! It was interesting timing. On the same day, Oracle announced it would spend over $8 billion to build more data centers in Japan.
The trade might have legs. China is stockpiling commodities again. That is part of the reason why nickel was up on Friday. And funding has been scarce for many explorers of metals for a few years now, leading to supply issues.
The author would suggest thinking through which large international conglomerates own which copper mines in the Andes. Mines are not all the same, after all. Surprisingly, the author is discovering Japanese companies have made some very clever strategic investments over the last few years. And of course, if you want high octane, there is no better place to look than the Aussie explorers.
As always, thanks for reading. I wish you the very best with trading, business and family this week. Praying for peace.
Best regards
Mateen