The Year of Contrarian Thinking
Stray Reflections
Wed 21 Jun 2023 - 15:00 BST / 10:00 EDT
Summary
Jawad shared 3 big ideas - first, despite all the macro uncertainty we are in a secular bull market and these markets usually last around 15 years and this one started in 2013. During such periods pullbacks are narrower and shallower. Second, each decade has a zeitgeist which is a trend that turns in to a mania - it was gold in 1970s, Japan in 1980s, Internet in 1990s, China’s entry in the WTO in 2000s, Software in 2010s. In 2022 that zeitgeist unravelled mainly in Silicon Valley, and Jawad believes Climate is the zeitgeist for this decade with the race to zero emissions being the catchphrase. Here we must focus on China and EVs. Thirdly, on the US economy it’s much more robust than consensus believes in the short-term with sensitivity to interest rates being at historical low and there being secular tightness in the labour market. There is no credit crunch on the horizon.
Topics
What is happening that shouldn’t be and what is not happening that should be? Answering anomalies: Why aren't equities going down despite all the bad news? It’s a secular bull market. Why are housing stocks soaring despite the fastest Fed tightening in forty years? It’s demographics, stupid. Why are oil prices falling? Oil is starting to price in a negative demand shock from the global energy transition
What if the greatest trick the market ever pulled was convincing investors that we’re still in a bear market? Zoom out. A secular bull market is in progress with favorable demographics, strong household finances, and higher productivity. Earnings and multiples to be supported. Very bullish
Every decade, there is a theme that captures the zeitgeist and expresses itself as investment mania. A classic bubble forms and ultimately pops. It was gold in the 1970s, Japan in the 1980s, Nasdaq in the 1990s, EM and commodities in the 2000s, and software in the 2010s. What's the investment zeitgeist of this decade? Climate. The race to zero. Bullish on China EVs
It is more valuable to consider why we aren’t currently in a US recession rather than nervously dreading one. Our job is not to predict the future, it’s to see the present clearly. What we see is that rate sensitivity is historically low, credit crunch concerns are exaggerated, and the labour market will remain tight.
