You win some, you lose some.
The other week, I speculated that the market could rally with so much bad news already baked in.
I also made the case that the iron ore price was holding up a lot better than most of the market thought possible.
We’re getting a market rally…but the iron ore price is now crumbling as the pressure really comes on.
BHP, Rio, and Fortescue are copping it between the legs, but there’s momentum in the banks.
It seems like the Aussie market can never get the two big twin engines firing at the same time.
The market certainly wrong-footed me on Friday.
I had some call options on the XJO Index but sold them halfway through Friday’s dud action.
I woke up the next morning to see the US markets had surged! Those calls would have surged in value today.
Like I said, you win some…and lose some!
However, it proves a point to me. Now is the time to become constructive rather than defensive again.
My personal view is the bear market of 2022 is over and it’s time to accumulate shares for the next few years.
I know. I know. Ukraine is unresolved. Aussie energy prices are predicted to be a mess. Housing is going to crater…or so they say.
The market is looking beyond those issues now, in my view.
That reminds me…
I get The Economist delivered every week. They had a classic front cover for the edition just gone.
Check it out:
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| Source: The Economist |
I say ‘classic’ because this is almost certainly a contrarian indicator that the slowdown in housing is priced in, obviously, and certainly won’t be a ‘horror show’.
The Economist’s front page has good form as a contrarian indicator in recent years (and maybe even further back).
Here’s another one I put aside during the COVID crisis. This came out on 21 March 2020:
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| Source: The Economist |
In this case, the cover is not ‘wrong’. The world was ‘closed’ from shutdowns and restrictions.
However, the stock markets bottomed around the same time.
Then came this beauty a bit later that year about coal becoming history:
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| Source: The Economist |
Since this came out, Whitehaven Coal [ASX:WHC] is up around 530% and New Hope [ASX:NHC] is up around 350% in about two years.
Let’s come back to today.
Interested in housing stocks? I think you should be!
Here’s something else you might like to note…
Real Estate Investment Trusts (REITs) are beginning to rally.
This sector has copped a pounding over the last 12 months.
That’s because rising interest rates initially attack their position as ‘bond proxies’.
I’ve been recommending REITs for the long term since 2020.
I know at some point we would get a scare around interest rates.
My fault was to underestimate how big the scare would be.
The REIT selldown has been much sharper than I anticipated.
However, if rates have peaked, as I think they have, then REITs are looking very tempting right now.
Overall, there is little issues with occupancy and rents. The land and buildings and renters they have are all still there in the same way they were before.
What’s smashed them down is expectations and worry more than cash flow and tenants.
You can grab some now with 6–8% yields. Remind me again what you get in the bank while you’re at it.
REITs look appropriately defensive too if the market is less preoccupied with rates and more worried about growth in general.
The other month I recommended a REIT to readers of my small-cap advisory, Australian Small-Cap Investigator.
All I can do is urge them to accumulate as much as they can while it’s trading this cheap. The same is true for the entire market.
History repeatedly shows that it’s buying in the bear market, or at least coming out of it, that you can set yourself up for the next five years.
But you know what? Most people won’t do it.
Go back to those Economist front covers above. They are appealing to what people feel.
It’s an emotive headline and content that drives people to pick up a magazine, click a link, often panic sell out of a share they own…or hold back from buying when the world seems troubled.
The markets are emotional places because we are emotional beings.
I’m just as vulnerable as anybody else. But that doesn’t stop me from buying for the long haul right now. And hopefully, it doesn’t stop you.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
