There's always a bull market somewhere

“Do something. Come on.”
Image source: https://twitter.com/TicTocTick/status/1524131412437135360

Given what has transpired in markets over the past week, it is hard to see through the headlines of doom and gloom to the possibility of a bull market being in play somewhere.

For many, this week probably deserves a spot in the league tables of bad weeks: whether in stocks or in crypto, there were very few places to hide from the storm, short of being net short the market. The economic consequences of what has come to pass, particularly on the personal balance sheets of many individual investors who may or may not have fully understood what they had put their savings into are severe. In these times, it is incumbent on us to be kind to those around us, especially those who need that kindness the most.

At the same time, while all the doom and gloom begins to dominate the news headlines, it always helps to take a step back from the action and get a better perspective. To be clear, the trajectory of most headline market indices continues to point to the lower right side of most charts. Trillions of dollars in wealth have been wiped of balance sheets these past few weeks, and the macro backdrop of persistently high inflation and an increasingly hawkish Fed (in light of “don’t fight the Fed”) gives little comfort. Add in data on start-ups initiating further rounds of layoffs, home sales falling through, jobless claims printing higher than expected and one could be forgiven for starting to think that the world is coming to an end.

But looking below the hood, the size of the drawdowns in some of these assets (stock or crypto alike) is WAY larger. Of course, the starting point of the drawdown was arguably way too high, but putting the fear aside, the size of some of these drawdowns has taken prices back to pre-covid levels in many cases. Was this not the fire sale that everyone dreams of buying (but ultimately didn’t wait for because FOMO took over as things were going up)?

In a way, these are the very opportunities (in the good stuff) we wait many years for and being prepared for them means doing the work now and being ready to hit the button when the time comes.

As always, we never try to pre-empt moves, and certainly have no interest in catching falling knives. When the time comes for those stocks that have drawn down violently, we will be ready.

In the meantime, contrary to popular belief, there is actually a good number of bull market charts around.

There’s always a bull market somewhere – to find them, you just have to look in the right places. Here are some that we’ve found so far.

Commodities

We’ve written about the structural challenges facing commodities and how these have translated into supply-side shortages and higher prices which are difficult (if not impossible) for central banks/monetary policy to ameliorate. From energy to soft commodities to fertilisers to mining, the lack of investment into capacity expansion over the past decade has led prices to where they are now. And while higher prices are theoretically meant to draw in funding for new supply (higher rates of return – rejoice!) the reality is that a combination of shareholder pressure and tight financing means that producers aren’t really keen, if not outright reluctant, to respond to this regime of higher prices with new supply. After all, putting spades into the ground now to open new capacity for mining, for example, is a 10-15 year endeavour and who knows what things will be like by then?

On the flipside, at least in the metals space, the little quirk we wrote about before of metals being used as collateral has allowed some of the credit risk to flow into the commodities space, and coupled with Chinese growth slow down worries weigh on metal prices.

That said, even in industrial metals like copper, prices remain robust: Copper is still trading around $4/lb, which by any long-term measure is still at historical highs.

The same arguments for supply constraints can be made for Oil, which has likewise reclaimed long-term highs:

As have soft commodities like corn:

Emerging markets

Likewise, in the traditional “Emerging markets” world, with the exception of China which, as we’ve argued before, is by no means “emerging” in any sense, a mixture of idiosyncratic and macro-driven factors is fuelling bull markets in the very genres of stocks that have fallen out of favour as the world went crazy for high-growth tech, especially commodity producers and related businesses.

Turkey, for example, is home to cash-generative manufacturing businesses in refining, auto manufacturing, steelmaking and many other places which are trading near all-time highs. Granted part of the value conferred upon these stocks comes from their ability to act as Lira hedges in the face of rampant domestic inflation – a bull market is a bull market, especially if net returns after FX hedges still remain positive.

For example, refiner Tupras is trading at all-time highs (albeit in local currency terms):

Across the pond, Brazilian oil company Petrobras, while not in possession of a chart of equal impressiveness for its USD-denominated ADR, has broken out of an 8-year range while boasting an annualised dividend yield of almost 30% (c. 7% dividend yield as of the last quarterly dividend payout date).

As it turns out, the list of examples of stocks that have rather attractive prospects and price action that doesn’t require catching knives can get reasonably long if one cares to look.

Crypto

And finally, while the news headlines are plastered with the fallout from the Luna/UST saga, as well as the accompanying selloff in the broader crypto space (note: direction of causality between these two things happening isn’t as clear as it would seem, although that’s a subject for a different day), we still find ourselves with the two bellwethers of the crypto space trading at prices that are FAR from catastrophic (assuming no leverage, of course).

Bitcoin, for all the (digital) ink spilt about it, still trades above US$30k apiece. Down, but not out (yet):

Likewise, Ether is down, but not out for now:

That said, these are pretty important levels in play here. Time will tell if these levels hold, but once again, think back to the number of people proclaiming (rightly, at least in words) just half a year ago that they would gladly buy the dip at half price – if FOMO didn’t get them, maybe they’ll decide to show up now.