The “popular press” tells us it’s time to buy stocks…
But is it really?
We highlighted Apple as an example in last week’s Insider Weekly. By all respects, Apple is a great company. Lately it looks like the dish served is apple crumble. Bottom fishing investors are screaming it’s a buy. And its short-term chart does make it look somewhat attractive.
Now let’s zoom out a little. Here’s Apple going back to 2012.
Still think it’s a screaming buy?
We picked on Apple because it is a profitable, well-run company. It’s just not cheap (trading at a forward P/E/ of 24x). Now consider all the malinvestment that’s been taking place, and consider that if Apple is still overvalued, then pray tell, what the rest of the market looks like.
Which brings us to our definition of a screaming buy…
COMMODITY BULL: JUST BEGINNING
Every great bear market in commodities was preceded by raging capex spending.
This time around, commodity prices have gone up a bit, sure. But have we seen miners and oilers bring out their capex cheque books? Nope.
While nothing is ever perfect, the chart below gives you a fairly good idea that higher commodity prices aren’t likely to bring on additional supply anytime soon.
We pointed out variations of the following chart many times before, but it bears repeating. From a macro perspective, commodities are as cheap as they’ve ever been.
Given the length of time commodities have been out of favor (and the degree to which they have been out of favor), the upside will likely surprise everyone (even us) in magnitude and duration.
ALL THINGS TRANSITORY…
Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.
This week, Insider member Andreas chimed in from Guatemala:
We bought yesterday our bread over here in Guatemala in local supermarket and my girlfriend who can remember the prices quite well informed that the price jumped from 15 Q to 23 Q. Same package. over 50% increase. Wow.
And Clint shared this photo with a comment, “Forget baby food. This is where the hot pockets, chicken nuggets and pizza usually is!”
As Member Sean put it — a picture is worth 100 200 words (due to inflation).
BRACE FOR BLOW UPS?
Our mission here at Capitalist Exploits has always been quite simple (though, admittedly not an easy one)…
We focus on playing for asymmetry. We focus just as much on capturing the upside as we do on also reducing downside.
The way we do this is by buying sectors with macro tailwinds at the point of (hopefully) maximum pessimism (only known in hindsight).
Most fund managers can’t do that as it’s a much harder story to sell — be patient and understand what we’re doing and why. No, most want solid great returns from day one, no matter what. Which is why, when you’re managing money and you get a bad quarter, you have to go explain yourself. Two quarters and your tail is between your legs. Three quarters and you’re in deep trouble.
On that topic, our buddy Kuppy recently shared his thoughts on what likely lies ahead for the markets in the days and weeks to come.
We highly recommend you read Kuppy’s entire thread here.
WEEK’S HUMOUR
Have a great start to the new week!
