Comment of the Day
Video commentary for January 17th 2022
Some of the topics discussed include: China cuts rates, property shares rebound, commodities and banks breaking out, Bonds yields have high commonality, golds table.
Email of the day on an expected copper supply surplus
Thanks for your insightful reports from the meeting in Saudi Arabia. Amazing to have taken part in presentations by so many important CEOs.
I was particularly interested in your story of the mining companies salivating at the thought of all the coming increased demand for copper. Yet a number of reports I have seen recently predict that the copper price will actually fall in 2022. For example:
https://www.indexbox.io/blog/copper-prices-to-slump-in-2022-on-rising-supply/
https://www.spglobal.com/platts/en/market-insights/latest-news/metals/120721-feature-copper-market-to-be-well-supplied-in-2022
How can I reconcile these views in your opinion?
Thanks for keeping the videos going despite time changes and jetlag. It is particularly impressive that you manage to keep the audio completely intelligible, even if one isn't watching the video at the same time. That makes it possible to listen to it while for instance having breakfast, which is my habit.
My view - Thank you for your kind email and this topical question. I’ve seen these same kinds of reports anticipating a surplus this year and next. Ultimately, it is going to be a question about how many of the policies committed to at COP26 and other forums will in fact be acted upon.
Selling Out
Thanks to a subscriber for this latest memo from Howard Marks which concentrates on selling. Here is a section:
Many people have remarked on the wonders of compounding. For example, Albert Einstein reportedly called compound interest “the eighth wonder of the world.” If $1 could be invested today at the historic compound return of 10.5% per year, it would grow to $147 in 50 years. One might argue that economic growth will be slower in the years ahead than it was in the past, or that bargain stocks were easier to find in previous periods than they are today. Nevertheless, even if it compounds at just 7%, $1 invested today will grow to over $29 in 50 years. Thus, someone entering adulthood today is practically guaranteed to be well fixed by the time they retire if they merely start investing promptly and avoid tampering with the process by trading.
I like the way Bill Miller, one of the great investors of our time, put it in his 3Q 2021 Market Letter:
In the post-war period the US stock market has gone up in around 70% of the years . . . Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is the key to building wealth in the stock market. (October 18, 2021. Emphasis added)
What are the “sharp bursts” Miller talks about? On April 11, 2019, The Motley Fool cited data from JP Morgan Asset Management’s 2019 Retirement Guide showing that in the 20-year period between 1999 and 2018, the annual return on the S&P 500 was 5.6%, but your return would only have been 2.0% if you had sat out the 10 best days (or roughly 0.4% of the trading days), and you wouldn’t have made any money at all if you had missed the 20 best days. In the past, returns have often been similarly concentrated in a small number of days. Nevertheless, overactive investors continue to jump in and out of the market, incurring transactions costs and capital gains taxes and running the risk of missing those “sharp bursts.”
As mentioned earlier, investors often engage in selling because they believe a decline is imminent and they have the ability to avoid it. The truth, however, is that buying or holding – even at elevated prices – and experiencing a decline is in itself far from fatal. Usually, every market high is followed by a higher one and, after all, only the long-term return matters. Reducing market exposure through ill-conceived selling – and thus failing to participate fully in the markets’ positive long-term trend – is a cardinal sin in investing. That’s even more true of selling without reason things that have fallen, turning negative fluctuations into permanent losses and missing out on the miracle of long-term compounding.
My view - The arguments against selling become progressively more compelling the longer prices move up and to the right. It would have been a mistake to sell everything in January 2020 when news of the coronavirus was breaking unless you were equally committed to buying it all back at the first sign of bottoming in March. That visceral experience has acted as a learning experience for many investors who will have resolved never to sell. That is most particularly evident in the crypto markets where faith in the bullish hypothesis has been rewarded time and again.
China Cuts Interest Rate as Growth Risks Worsen With Omicron
This article from Bloomberg may be of interest to subscribers. Here is a section:
“Consumption remains the weakest link in China’s growth story at the moment and that will by and large continue for much of this year,” said Louis Kuijs, head of Asia economics at Oxford Economics. “We think Beijing has a bottom line of around 5%. As is the case at the moment, if growth is weaker than that, they’d feel strongly motivated to pursue more policy easing.”
Economists expect more policy action from the PBOC in coming months. Goldman Sachs (NYSE:GS) Group Inc. said there’s a possibility the central bank will allow banks to lower the five-year loan prime rate, a reference for mortgages, on Thursday. The one-year rate was already cut in December. Economists at Australia & New Zealand Banking Group and BNP Paribas see the likelihood of further reductions in the reserve requirement ratio for banks.
My view - The big question for liquidity dependent stocks is where the next big source of liquidity is going to come from. The US government is struggling to get additional spending measures passed. The Fed expects to be done with QE tapering in a couple of months and both Europe and Japan are not significantly increasing their programs. The potential for China to do more to support flagging growth is one of the few realistic possibilities for ample additional liquidity in the near term.
Eoin's personal portfolio short profit taken January 11th
One of the questions subscribers as most often is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.
The Chart Seminar 2022
With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022.
Please drop sarah@fullertreacymoney.com a line if you would be interested in attending an event next year, as well as your preferred location.
At present I am looking at a late May date for a London seminar and I am open to other times and locations subject to demand.
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