Don’t be a hero
It’s a bear market in stocks. It’s a bull market in commodities.
You don’t want to overthink that too much. But in bull markets there are times to be long, times to be very long and times to take some off.
I think we are at #3 now. While the rise in commodity prices makes it tempting to just keep adding to copper stocks, steel stocks, oil stocks, ag stocks, gold stocks and so on, that FOMO is usually best taken inverted. I have taken the opposite tact and started taking some profits on these names.
Rising commodity prices are your best friends until they are their own worst enemy.
I’m unsure what these rising prices mean for the global economy. I’m really unsure what rising food prices mean.
Consider these quotes:
- The Black Sea region (Russia and Ukraine) accounts for more than 30pc of global wheat exports
- Stocks in major wheat exporters – the European Union, Russia, the United States, Canada, Ukraine, Argentina, Australia and Kazakhstan – are set to fall to a nine-year low of 57 million tonnes by the end of the 2021/22 season, International Grains Council (IGC) data shows.
- If Russia and Ukraine are excluded, other major exporters account for 16% of global stocks or enough wheat to feed the world for less than three weeks.
- Russia is a major low-cost exporter of many kinds of crop nutrients. “No other nation has the same breadth of readily exportable fertilizer supply,” says Alexis Maxwell, an analyst with Bloomberg’s fertilizer analysis and news publication Green Markets. “Their fertilizers move to all continents.”
- ..in Russia, the share of imported seeds is almost 40%? And for potatoes, the share of imported seeds is 90%? That is, of course, farmers will come up with something over time, but at least in the short term, we should expect a shortage of basic agricultural products and a sharp rise in prices. And that’s not all either..
- The Ukrainian planting season comes up in less than 4 weeks
Meanwhile, China has been slowly accumulating wheat for some time now:
I don’t mean to imply a doomsday picture of food shortages. I really don’t know. In this blog I talk about what I see and how it influences the decisions I make with my investments. These headlines and the details make me uncertain. And I always lean to cash when I am uncertain.
That said, I don’t want to be too short. We have seen so many bad things happen over the last two weeks. If something good happens the market could flip on a dime.
I mean, what if Putin is taken out? That would be great for the world, a relief for everyone, but probably less so for commodity stocks and (maybe…) shorts of everything else. It seems a low probability, but its not impossible. I think its important not be to positioned to get punched in the face if some “white swan” like that happens.
I want to be careful to all possibilities.
Meanwhile the shorts I hold have been so bad (which is to say good to be short) that I am left wondering how much lower they can go. These names (I’m talking mostly about SaaS/momentum/covid beneficiary stuff) go down every day, even when the market rallies. There has to be some sort of bottom at some point.
The shorts I am more inclined to keep are those that are economically sensitive. At this point I’d rather have that small short dependent on consumer spending that has seen its price appreciate to an unseen level during covid than I would the SaaS name that has already fallen all the way back to where it started and is still growing 30%.
You add it all up and you end up with more cash. Less positions and smaller positions. My portfolio had a good couple weeks. I’m back to the highs. I don’t feel like this is the time to press.
It is worth taking a step or two back from the action in front of your eyes. It is not going to matter if you miss the last leg up or down or if you don’t time the bottom to the day. There are times to take risk because you can see that the market is at your back. There are times not to, because the winds, while not necessarily in front of you right now, are swirling unpredictably and so you can’t be sure just how they will settle.
Most important, I would rather wake up each morning and not have to worry too much at all. Except for the Upper Colorado River snowpack of course. I’m okay worrying about that. Its going to snow there this weekend by the way, but I think it will not be enough. It will be an average year at best and that is not going to change the trend.
What about gold? Yes, the commodity just had a big run up. However the miners (GDXJ) don’t look all that expensive when you take into account:
1. accelerating inflation: nothing new; if it was just this I’d be selling now AND
2. Russia commodity supply risk: I don’t know if this risk will materialize, but Russia does seems determined to unleash hell
3. the bear markets in stocks and bonds (which partly depends on 2.).
Add it all up and a revisit of the 2020 bull run is starting to look like a real possibility, with the miners going up in a straight line for months. (I do agree it makes sense to start taking some off the table.)
I never really know with gold so I just follow the price movement. I thought it might dip early this week but when it didn’t I bought back TXG and GCM. So I’m back to my original position sizes there except for WDO and wouldn’t you know that is the one that moved the most today. Oh well. I still think OGD and GEO, both gold drillers, should be in for a move up here and are pretty cheap ways to play gold and base metals here. OGD has to be able to turn their margins around eventually.
I see. My plays are EQX (the premium vs GDXJ is coming, they’ll have built a new mine by the end of the month, and a big one in 24 months) and GGD (mostly silver, adding ounces but probably overvalued).
[Typo in my last comment] I see, thanks for sharing. My plays are EQX (the premium vs GDXJ is coming back, they’ll have built a new mine by the end of the month, and a big one in 24 months) and GGD (mostly silver, adding ounces but probably overvalued).
I also bought some SPPP yesterday. I tweeted out how Russia is a very large producer of palladium.
What do you think of UAN? They were already in an upcycle, and should probably distribute close to their market cap in the next 2-3 years. Interestingly they trade at a significant discount to LXU, despite being a higher quality asset.
And Russia is a huge exporter of nitrogen fertilizers.
Sorry for not replying to any of these comments. After I wrote last I didn’t check the blog until today. I don’t know anything about UAN. I bought some NTR myself, but that is probably just showing my lack of knowledge of specific ag’s. I’m kinda hesitant to buy more ag’s now, and am thinking of selling NTR pretty soon. Also, don’t know about oil, same thing as Ag’s imo, it was a good run, I’m not going to try to stretch it out too much further.