Firstly, let me state that I believe we are still in the midst of a macro bear market. The problems that came into visibility these past few years have not seen one single solution, especially on the energy front. And on that topic, Europe is catching a bone here this winter with getting a very luckily mild winter. I hope for their sakes that the luck continues to flow, because if Mother Nature claps-back… that reality-snap will likely be very painful — financially and existentially.
With regards to markets: I think we’re finally at the point where bearish momentum has peaked, and the bulls will take advantage. Suggesting that from this point, on through the spring and into the summer months, we will likely be range-bound with bullish-leaning activity. However, that does NOT mean that we are done with the bear or that the bull has taken over and the ‘up only forever’ environment is back. Suggestions of all-time-highs (ATHs) should be discarded and ignored (if not laughed at) in my honest opinion.
Spring Showers Seed Bearish Powers
Another reason why I feel this way is that as we approach the warmer months, economic activity tends to follow the rise in temperatures; more warmth; more travel; more spending.
Meanwhile we will be having China’s actual attempt at actually opening back up, but this isn’t a snap-your-fingers-and-bang-the-activity-is-back-to-normal type of event. Not only will the return to activity take time in-and-of-itself, but the virus (whatever ridiculous version we’re on now) will also take time to spread throughout the populace. Meaning that the return-to-work wave will have its own ebbs & flows effected upon the initiative, which will effect the economic metrics. So expect a few months of that to take place, and then the momentum in production & activity can start to gain steam.
Which carries us to the latter half of spring and towards summer — perfect timing. With all of this increasing activity across the northern hemisphere, that also brings with it; demand for oil.
When we have issues with the Suez Canal persisting, and deglobalization playing out as Zeihan suggests (with increasing danger for maritime trade as the US takes a backseat on playing hall monitor for the world) there is potential for a return for shipping constraints. Made even more difficult are the struggles of the US’s domestic shippers dealing with tight margins and non-maximized loads effecting their profitability, mixed with struggles around getting parts to perform preventative maintenance & repairs to their fleets.
From the above Freight Waves article:
“Rapid demand erosion resulting from overstuffed inventories and eroding consumption coming out of an overstimulated goods economy are the main factors driving the weakening transportation markets. Those conditions are forecast to persist through the first half of 2023 at a minimum.”
…
“Spot rates did increase during the holiday season as they typically do but were nowhere close to the annual highs normally seen in this period. The National Truckload Index (NTI) measures spot rates for dry van loads moving more than 250 miles from FreightWaves TRAC contributors. The NTI fell 30% from January to mid-November but only recovered just over 13% to finish the year 20% lower than where it started.
These rates include fuel, which finished the year 30% higher than where it began on the retail market. Accounting for the rise in fuel costs, spot rates actually finished the year 30% lower than where they started. Either way, the freight market deteriorated significantly in 2022.
So while shippers can take a break from capacity sourcing problems, a more concerning problem is the rapid slowdown in the goods economy that is providing this relief.”
These metrics contribute to my position that our truckers are getting squeezed, which I have been pounding the table about for quite a while now. If these men & women continue to get squeezed we could see some bearish developments with regards to firms potentially deciding to wind-down services, or shutter entirely. As everyone is struggling to fill jobs due to the employment market demanding higher wages to combat inflation, this would be a bad development on the health of the economy. Making it something worth keeping a close eye on.
Speaking Of Seeds & Spring Showers…
As we get into the spring and summer months we will also gain more insight into the health and strength of crops and what their potential yields will be for the 2023 harvest. In case you forgot, the war in Eastern Europe threw gasoline on an already sparked fire in the fertilizer industry. 2021 saw major players in the international fertilizer inputs industry shut-in their exports with the aim of protecting their own capabilities to produce harvests for their citizenry.
Suggesting that without other dynamics being considered, the 2023 harvest could see a return of increases in food costs, if not further increases beyond what has already been seen.
So far this winter, the Great Plains have not received a very confidence-inspiring level of precipitation. Which will also effect crop yields.
Meanwhile…
We’ve got the housing market waking up to a painful reality, credit card delinquencies are beginning to rise at a rate comparable to 2008, and we haven’t heard a peep out of insurance companies with all of these sudden deaths from athletes and average citizens — while nobody seems to be willing to ask the blatantly obvious questions — that weren’t a concern prior to 2019. It has been my position since early fall that the insurance sector is likely an area of weakness that nobody is paying attention to.
It’s the directions from which we aren’t paying attention that the crippling suckerpunch comes.
And none of this touches on the difficulties of sourcing quality resources, such as steel or aluminum, thanks to reductions in production due to high energy costs…
Anyways
I’m looking forward to watching the charts of Bitcoin, GOLD 0.00%↑ UUUU 0.00%↑ SBSW 0.00%↑ and FCG 0.00%↑ and checking how accurate my thesis actually is.
*One massive benefit to having survived a Bitcoin bear market is that you’ve effectively experienced a true bear without the Federal Reserve playing daddy and catching you. None of the market has experienced a real correction in decades.