A clarity hath befallen me the likes of which I've not had in a long time. This K Shaped economy that is now accepted as the norm (market is up, economy is down and looks like the letter K) and if you're not long the market you've missed out on the best August in 34 years.
Where were you in August 1984? Counting Franklins I assume.
This whole thing hit me as I was listening to the Morgan Stanley podcast on China. The recovery numbers are astronomical and we're not just talking about Wuhan pool parties. Growth numbers in manufacturing back at genuine 1980s levels, hotel occupancy at 70% capacity, air travel is back at 90% of pre-Covid levels. Duty free is up 240% year on year in China.
All domestic because...well...where else are you gonna go?
China is fixed. They wore masks and locked down right. So they're the only ones who can enjoy it - right?
Wrong. Not only is European travel ticking back up along with sentiment but China is now playing a race against the clock game of catch up on fulfilling their end of the trade deal and are buying soybeans. The beans are getting shifted at their highest level for this time of year since 2013. Prices are back to June 2018 levels and it's on it's way higher.
Speaking of commodities.,...
The below is a very telling chart. Its lumber prices in USD per thousand board feet. As you can see it's gone exponential.
US housing starts at the end of last week were up 22.6% in July and building permits were up 18.8%. People are taking the chance of free money and a desperate market to get started on the American Dream.
Only problem is inventories are down because who was expecting anyone to start a new life in a pandemic?
So there's a supply shortage (because Covid) and a demand surplus (because...well..Covid).
Lumber has obviously rocketed +100% this year (take that NASDAQ!)
But take a second and think of all the other things you need to build a house. Think of the copper doorknobs, the tools the builders use, the wires the sparky's need, the coffee before work and the Budweiser after!
JAMES WHELAN'S FIRST THEORY OF STUFF: Economies are built on young people buying houses and filling them with stuff.
There's always a catch and in this case it's the weather. Apparently there's a La Niña, something I haven't thought about since Applied Studies at school. It brings about a cooling in the pacific and typically drought in the US. Already bad weather and lower rainfall have send corn prices in the States up and I don't see this stopping. The 2012 La Niña brought the worst drought in 50 years to the USA.
Grains and Soybean prices surged.
In Summary:
China is back and they're buying because they need things and they have a deal to honour.
Home building is getting booked so fast that materials can't keep up.
Bad weather is sending prices up and this won't be fleeting.
We're long Commodities ETF QCB and happy to hold. It has the usual precious and industrial metals but also has the commodities mentioned like corn and beans and coffee. It also has cattle and hogs. Just a really good way to be a part of this journey.
We truly are standing at Base Camp looking up at Everest.
"All the best and welcome to the 20's where there's always a bubble,"
James Whelan