Jennifer's avatar
$22.2m follower assets
Glass half full in commodities
Recession talk - doom & gloom sells. I like to look at potentially positive news as well.

If you're invested in commodities, here are a few reasons to remain optimistic - hope you'll read if the market has you feeling down.

Twitter's Topdowncharts has an excellent presentation on various scenarios for a recession.
Of note, China is ahead of the curve in their economic cycle. Being the 1st into tightening/downturn, expect them to be the 1st out and into policy easing.

In which case, look to Chinese equities to recover first & remember that China has yet to reopen and experience "reopening relief euphoria" :

To what degree has the market already priced in a recession?

Some would argue a severe recession has been priced in as of this week:

"Even in the long and storied history of market meltdowns, the breadth of losses is without equal, based on data that goes back to the Great Depression."

Thursday's Bloomberg article: JPMorgan Sees Commodities Returning 10% This Summer

  • Tight stocks and low inventories will push prices higher
  • Agricultural commodities will potentially deliver 30%

Found it interesting to see the sell-off in energy on Friday when hurricane season hasn't even hit yet and the NOAA is calling for a rough one - note the Bloomberg article above was on THURSDAY calling the entire commodity complex a BUY:

"How Stocks Perform Before, During, And After Recessions May Surprise You"

I'm not blind to the potential downside ahead but I also don't believe in living in a 'dystopian echo chamber'.

As Topdowncharts stated, "this is a very unusual business/financial/market cycle."
If top economists can't agree on the severity given unusual circumstances, don't fall for the trap of believing your favourite social media account has it right.

"This is one of the most difficult times in history for economic forecasters. Even GS’ President Waldron admitted this is “among—if not the most—complex, dynamic environments” that he’s ever experienced. BofA believes we can "avoid a recession altogether"

Lastly, remember some GoRozen stats:

Constructing a natural resources equity portfolio (25% each mining & metals/ag/energy/PMs) would have significantly beaten the stock market in each of these cycles.

Maybe I am a fool, but I choose...

Sachiv's avatar
Great arguments here…not one-sided as is often found on most overviews. One question…if major rate rises continue, don’t you think the valuations that are historically a bit high, will come down 20-30%?
Jennifer's avatar
That's an excellent question, and one that I believe has even left some experts wondering (see tweets below).
There seems to be some downside left in tech which is not my area of expertise by any stretch, but have a look at NVDA P/E of 42, TWTR at 134 (!), and even TSLA at 87.

Looking at major commodity producers, TECK 6, FCX 9, SBSW 3.8, VALE 3 and RIO at 4.98 - one would think there is more upside in commodities as a rotation begins, some would say that's already underway.

Great tweet by Gigi Penna below:

Sachiv's avatar
Agreed. For example, most energy cos (regardless of oil or natural gas) came down heavily last week, even as some tech and consumer took a breather on Friday.

IMHO, stay/accumulate cash, continue to work on your shortlists (incl commodities of course) and add at 1/4-1/10 the pace you would to great businesses that will multiply over the next 5-10 years. Certain commodities are going to be more and more universally needed, and irreplaceable for example. Certain tech platforms, ditto. Which are getting cheap enough to warrant their valuations?