The Roaring 20s
I've said it before and I will say it again, I'm a perma-bull. And boy am I excited about markets today.
There are some areas of concern such as office real estate and what inflation is going to end up doing to the consumer in the short term, but if one looks out just beyond the edge you can't help but think that we are on the precipice of some sensational times.
There has been plenty signalled about quantitative tightening and the negative effects on the overall market. But I'm going to argue the opposite right now, we live in one of the most stimulus rich environments in the history of modern finance.
- Recent US public policy is going to lead to approximately $1.4Tr in fiscal stimulus measures from now through to 2030 in various industries such as infrastructure, semiconductors, and energy. European and Australian fiscal policy is much the same.
- There is also an incredible amount of private market stimulus led by AI investment, both from a software (LLMs) and hardware (semiconductors) perspective.
- Public led (forced?) private demand for more capex due to the onshoring/deglobalisation trend is not one that will disappear any time soon either.
- And to finally top it off, the ultimate stimulus package has arrived too for the United States biggest export. War.
- There is a multi-frontal conflict across different regions, and we are seeing east/west proxy wars in full swing.
- The opportunity to use existing, fast expiring stockpiles and restocking is incredibly desirable for NATO.
- The desire to counter Chinese military spend is another strong thematic and NATO is going to end up spending a ludicrous amount in a short time to increase their military strength.
- Wars mark the bottom of markets for good reason!
And as for our domestic economy, there is going to be absolutely no loss of demand of raw materials. None of these proposed changes will happen with any kind of fall in medium to long term demand for commodities.
This is fiscal stimulus like nothing we have ever seen. Historically we have only seen stimulus during times of economic stress, but instead we are about to get stimulus during a time of economic strength.
And as a result, the greater fool theory has been in effect in bond markets has shifted to commodities. Bonds rallied post GFC due to QE, where central banks became uneconomic buyers of bonds. This is no longer the case but there is a new uneconomic buyer in town, governments will become uneconomic buyers of almost everything under the sun. Australian infrastructure spending to increase while employment and materials supply is constrained? Sure, why not! And this is a trend that is repeated across many countries too.
So, what does that mean?
We're going to get inflation.
We're going to get higher rates.
We're going to get higher incomes.
And frankly being invested is the only way to hedge these concerns. If you are invested in real companies generating real cashflows by participating in sectors with strong stimulus, surely there is only one path for market returns to follow?
Are you feeling bullish yet??