| “Calm seas never made a good sailor.” — FDR |
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| Choppy Charts Friday War, inflation, Fed hawks, tangled supply chains, skyrocketing commodities: There’s a long list of reasons to be bearish at the moment. But calm seas don’t make good sailors, and calm markets don’t make good investors. So, maybe it’s time to be contrarian? Investment bankers have a long weekend to figure out how to turn Twitter shareholders into Tesla shareholders, but we crypto-savvy investors know markets never close. Let’s look at some charts and decide if the bears are all rowing upstream. People are bearish: |
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| The AAII survey suggests stock market sentiment is at a 30-year low. That’s clearly overstating things, but people are undeniably bearish. And they are all bearish on the same things (tech, growth) and for the same reason (rates). It’s hard to argue with the logic, but it would be out of character for Mr. Market to let that many people be right. The best contrarian indicator is correlation: |
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| The 90-day correlation of bitcoin to Nasdaq is up to 0.6. It could go higher, sure, but when things that are fundamentally different trade like they are fundamentally the same, it’s time to start thinking about what could change. Not everything is correlated: |
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| The oil services sector has outperformed the housebuilding sector by 90% YTD. Long energy/commodity stocks/short interest-rate sensitive stocks is so obvious of a trade it can’t possibly work, can it? What could everyone be getting wrong? |
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| The futures market now expects Fed funds to top out below 3%. If we’re already past peak expectations for terminal rates, there’s a good chance everyone is positioned incorrectly. What’s changed? |
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| Fiscal policy is less inflationary: Tax receipts (blue line) are surging while expenditures (red line) are falling (admittedly from a crazy high level). The federal budget deficit narrowed to $1.7 trillion in the 12 months to March, down from over $4 trillion early last year. What else has changed? |
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| Supply chain issues are easing. Inter-Asia shipping costs (above) have fallen the most dramatically, but other routes are substantially lower as well. Moving things on trucks remains expensive, however: |
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| Trucking PPI is up 34% YoY, which is unfortunate. Unless you happen to be a trucker: Walmart raised its annual pay for long-haul truckers to $110,000 this past week. It’s not just truckers that are benefitting: |
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| Wages continue to rise the fastest for the lowest quartile of earners. So, things are maybe not all bad. And with sentiment as bearish as it is, not-all-bad is probably good enough. |
