The very best-performing group of markets last 12 months were commodities as measured by the CRB Index. The CRB is to the commodity markets because the Dow Jones is to the stock market.
And in 2022, while the Dow fell 8.8%, the S&P dropped 19.4% and tech-heavy Nasdaq tumbled 33.1%, the CRB index rose 21.2%.
The rise with most hard assets in 2022 convinces me the commodity super cycle stays alive and well going into 2023.
Based on history, the super cycle has years to go before it runs its course. And meaning moving forward I’ll remain firmly within the camp of the bulls trying to buy commodities on weakness, relatively than selling hard assets on strength.
Nonetheless, I’m uncomfortable being a bugged-eye bull toward most all markets in the meanwhile.
As I stated in the ultimate column I wrote for this newspaper in 2022, “I’m uncomfortable being a bull until the primary quarter of the brand new 12 months has passed. I’m being patient — and it’s best to do the identical.”
Keeping me patient and restrained as a bull are several major fundamentals which have yet to totally unfold. The primary, in fact, is the Federal Reserve climbing rates at their fastest level in 40 years and the slowing of the U.S. economy.
Most economists agree that the nation is headed for a recession, nevertheless it comes right down to a soft or hard landing. And that continues to be an enormous unknown.
From CNBC with a headline, “Why everyone thinks a recession is coming in 2023,” Patti Domm wrote: “Economists have been forecasting a recession for months now, and most see it starting early next 12 months. Whether it’s deep or shallow, long or short, is up for debate, but the concept the economy goes right into a period of contraction is just about the consensus view amongst economists.”
In early December, when China abruptly abandoned its “zero-COVID policy,” it was viewed as another excuse for world economic growth to slow and spark a worldwide recession.
China claimed nearly 60,000 COVID-related deaths between Dec. 8 and Jan. 12. But in recent days a bunch of opinions are starting to alter regarding the Chinese economy as things are beginning to improve and look up.
Reported in “China’s economy is poised for a ‘burst’ of economic activity” by Goldman Sachs on Jan. 13: “The abrupt end of China’s COVID controls might hamper growth within the very short term, however the reopening is anticipated to lead to a pointy rebound in the approaching months. Our economists recently raised their full-year GDP growth forecast for 2023 to five.2% from 4.5% due to China’s earlier-than-expected reopening.”
I agree with Goldman Sachs. Over the near-term, in the primary quarter of 2023, U.S. and global growth could also be hampered pushing a bunch of commodity markets lower.
But when the Chinese economy begins to rebound vigorously and the U.S. Fed begins to slow and pivot regarding rate hikes, commodities, per se, should profit.
The markets I highly favor on the long side of the ledger in the ultimate three quarters of 2023 and beyond are cattle and hog prices, crude oil, copper, the platinum group and silver.
I’m tempted to tout natural gas, but in recent days that commodity has slumped to a 19-month low as a consequence of unseasonably mild weather and weak demand, which have been the important thing drivers of the sell-off. But natural gas does appear undervalued to me at this cut-off date.
The grain markets of late have shown a willingness to rally as ending supplies remain tight and weather issues in Argentina remain supportive. But within the absence of weather issues in the USA this growing season, I’m skeptical grain markets can rise much farther from current levels.
Nonetheless, the fate of the grain markets rests with the acreage mix this planting season and the growing conditions this summer.
A shocking recent development was announced this week that China’s population dropped for the primary time because the Sixties.
To understand the long-term economic significance of such a development comes these comments from AgWeb: “American agriculture silently is watching the best disappearing act in world history. China, the most important food importer on the planet, is entering the real-time throes of a potentially devastating population crash and the effect could possibly be immense for U.S. farmers.”
Strong headwinds face the stock and commodity markets in the primary quarter of this recent 12 months. Be patient. Don’t chase rallies. Don’t sell weakness.
And watch the news coming out of China, which is bullish on one hand and bearish on the opposite.