The 40-year bull market in bonds appears to be over, while the equity bull market is still maturing.
In the short run, the market acts like a voting machine, but in the long run, it behaves like a weighing machine.
The drawdown in the bonds market is signaling a potential shift in the global landscape, suggesting that it may be more advantageous to hold equities than bonds. The bear market from 1941 to 1981, influenced by events like WWII and the Cold War, led to a significant geopolitical reconfiguration and a massive rewiring of global supply chains, resulting in a lasting bear market for bonds.
Applying the same template to understand the stock market, it suggests that the bull market in equities is still in its early stages.
When considering whether the Nasdaq is in a bubble, it is crucial to take into account the significant distortion caused by monetary policy. By dividing the Nasdaq by the US monetary base, we can observe that it is not in bubble territory. On the contrary, the bull market appears to be in its middle phase.
The central bank was wrong about inflation and seems to be mistaken about disinflation as well. The central bank's actions may be amplifying the inflationary transient caused by the rewiring of global supply chains.
Producer Price Index.
While the bull market in the Nasdaq is reaching maturity, the bull market in Japan is on the rise.
Nasdaq Vs Nikkei (USD base).
In a de-globalized world, traditional 60/40 bonds to equity diversification may not suffice. Instead, it is essential to consider rotating investments between technology and commodities.
The hype surrounding AI and Automation is driving increasing demands for processing power and electricity. Investing in Uranium and Copper can be an advantageous way to capitalize on this trend in the commodity landscape.
Uranium.
Copper's performance suggests expectations of fiscal and monetary stimulus in China.
Copper.
Thanks for reading,
Guillermo Valencia
31 July , 2023