Friday 18, March 2022

The future

Stanley Druckenmiller, possibly the best trader of all time, said something one time about a high proportion (40%) of his calls being wrong. The market is basically valuing stuff right, most of the time. Of course, trends go on too far and valuations become untethered from reality, but mostly the valuation is right, in the sense that the price today is an good guide to the price tomorrow (give or take some carry adjustment).

However, things are looking as though they are looking iffy now, and it seems to me that we may be close to a turning point in:

• money-burning early stage tech (I don’t have a favourite example, but Atomera ($ATOM) looks as though it might be an example),

• house builders. Interest rates are going up, central banks are tightening. They do that by killing interest-rate sensitive bits of the real economy such as housebuilders.

• yield curve flattening. This can be done by (e.g. going long shorter dated treasuries, and short longer-dated ones, in such a way that a parallel shift of the discount curve causes no pain),

• Industrial metals, such as copper. This has had a good run, but if capital spending is going to get killed off, demand will fall quicker than supply,

• China. I hate China, but it’s hated by everyone right now (especially as Pooh Bear is such a fan of Putin), but when the last bull has capitulated, it might be time to buy. I am cautious about this, because it feels like the RMB might start rising to its natural level, which will be a big headwind for China equities,

• Brazil and Latam. These produce food commodities and energy. OK, Chile produces copper, which I said I’m bearish on, but mostly it’s food. In an inflationary environment, it’s good to hold real assets,

• European equities which are exposed to Russia. Whatever the attractions of Russian energy assets are, it’s going to be decades before Russia is welcomed back into the fold. Currencies prices are hard to manipulate, and it’s interesting that the Rouble has been strengthening lately. Maybe Russia is coming back already, but I would expect it to take years.

Of course, I avoid putting a specific time-scale on these predictions!