Recent market panic again in April was ignited by fears of rising rates, future recession and China similarly to the prior two bear corrections (2018 q4 and 2020 q1). We are still at the crossroads that I wrote about over the past two Market Updates and thus the stock markets are battling back and forth between bouts of feeling inflation is running away versus then feeling there are signs of peak inflation. While this has been playing out the past few months, the trading just in the last week of April was a great example of the battle between these two sides. Some more light will be shed on this with the Federal Reserve comments May 4th.
Whatever the reason(s) for the current Chinese lockdowns, it appears to me that China is using lockdown measures to juice inflation by causing more supply chain issues to hurt the West. All the while the Russian invasion has produced massive windfall in oil revenue for Iran and Russia amidst the US restraint upon its own energy complex. A possible positive to the China lockdowns though is that it could cause enough slow-down to deflate the recent inflation. As is often said in the commodity markets, “the cure for high prices is high prices.”
Meanwhile the war in Ukraine appears to be an increasing grind amidst the passive and nervous approach by Western allies to confront Russia which supports a theme for defense spending. As I wrote in my February Market Update “war in Ukraine’, “Using historical analogies, the collective world leadership opposing Russia, seems to me like Neville Chamberlain in the face of Hitler’s threat with no Winston Churchill amongst them (ex Pres. Zelensky). Thus, I do not see any real deterrent to Russian aggression at this point. Sanctions are like a “traffic cop on valium” (to quote Robin Williams) to Putin.” So the opportunity in energy services I wrote about in that update still seems viable to me.
Remember, I invest my own money just as I do my clients, so I truly know periods like this are stomach churning when looking at the short term. I would ask you to think back on past bear corrections to let history be a guide to you. On May 3rd during CNBC’s ‘Halftime-Report’ show, guest Brad Gerstner of Altimeter Capital explained how people always say they want to wait to invest during a correction but corrections occur at a moment in time that will have a lot of uncertainty and when it occurs no one wants to buy anything.” Like then, this too will pass, when I cannot say for certain but data leads me to believe this year could see a huge bounce after the mid-term elections.
So barring a nuclear war, and in that case stock markets are likely a moot point, I believe the market is going to remain in this neck-breaking trading range through the summer and likely until the US Mid-term elections. So near term I expect more the same that we have seen since this past December: significant market swings. The good part of significant market swings though, is that they offer opportunities to trade. Legendary investor Warren Buffet’s annual letter to shareholders put out February 26th said that he wasn’t finding any attractive investments or acquisitions. So as Mr. Gerstner said later on in his segment, “It’s notable that Berkshire (Hathaway) after having net sales of $7 billion in 2020 and 2021 and has deployed over $50 this year.” Looking out past the next 6 months, I am so excited: I’m seeing some of the most attractive opportunities in many areas that I’ve seen since the end of 2018 and 2009 Q1.
I continue to say: emotions and investing is like drinking and driving: a horrible mix. Should you have questions on your account or strategies like those I’ve laid out in this update please contact us at your convenience. We can easily do video call or phone call. Please visit www.OxfordRA.com for commentary and future updates.
I remain grateful to work for you as your advisor and I wish you a joyous weekend ahead.
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