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Whisky distiller Lark Distilling [ASX:LRK] is down nearly 20% in late Monday trade.

The good news is Lark has enough grog to drown its sorrows.

The bad news is others aren’t drowning their sorrows with Lark’s whisky nearly as much as before.

Lark said it now expects 2H23 net sales to be $7.4 million, down from $9.6 million in 1H23.

4Q23 sales are expected to be $3.9 million, ‘cycling some one-off sales in 4Q22, a more challenging trading environment and consumer confidence in general.’

4Q22 was Lark’s record sales quarter, with net sales of ~$6.8 million.

That means the company expects 4Q23 sales to be down about 43% year-on-year.

LRK shares tumbled to a new 52-week low. The distiller is now down 55% over the past 12 months.

Whisky distiller $LRK is down nearly 20%.

Good news is $LRK.AX has enough grog to drown its sorrows.

Bad news is others aren’t drowning their sorrows with Lark’s whisky nearly as much as before.$LRK expects 2H23 net sales to be $7.4m, down from $9.6m in 1H23. pic.twitter.com/h5tNADk0v5

— Fat Tail Daily (@FatTailDaily) June 26, 2023

Whisky sales tank amid consumer spending pain https://t.co/un3VAKOHaJ

— Business Review (@aus_business) June 26, 2023

Those following my work know that my preferred haunt is in gold mining companies. And the last 30 months have been a test of my resolve and sanity.

Have a look at how the ASX Gold Index [ASX:XGD] performed during this time:

Source: Refinitiv

There have been several rallies and dips over this period. A real roller coaster ride.

What’s discouraged many investors, even the seasoned ones, is that the index hasn’t broken out to the upside to set new highs.

It tried in April 2022 and again this April (at around the same time too) before retreating.

And that slump last year from April to late September was painful for those who experienced it.

Could it happen again this year?

I believe that it’s unlikely. The reason is that last year’s slump coincided with the US Federal Reserve and other central banks coordinating to raise rates aggressively, combating inflation that they’d all said in late-2021 was ‘transitory’.

For all I know, the rate rise cycle is largely done. The US Federal Reserve Chair Jerome Powell hinted in the most recent meeting this month that there could be one or two more rate rises as inflation remains stubborn.

But looking at the headline inflation figures in the US, it’s eased significantly, as you can see below:

Source: Investing.com

That doesn’t mean they’ve solved the problem of inflation. That’s a different story. These headline figures don’t really reflect what we’re paying for on a day-to-day basis.

But based on the trends that we’re seeing with these headline inflation figures; I foresee that there’s much less room for rate rises.

Hence, we’re likely to see better days ahead for commodities.

That’s good news for long-suffering gold enthusiasts.

But there are caveats and opportunities.

https://commodities.fattail.com.au/a-momentum-traders-trash-is-a-contrarians-treasure/2023/06/26/

Everyone loves investment metrics.

The financial holy grail is a metric so total in its implications, it can explain everything.

Maybe in a few decades, when the India Jones franchise runs out of MacGuffins, we’ll get a film with a mad finance professor scrambling across bazaars and ancient libraries in the pursuit of The Equation.

In the meantime, we’re left with incomplete metrics, ratios and multiples that tell part of the story but can’t capture all of it.

So here’s an interesting one.

The Rule of 20.

40 years ago, Jim Moltz came up with this rule, postulating that for a stock market to be fair value, the market’s forward PE multiple and the annual inflation rate should add up to less than 20.

That is, if the stock market’s forward PE is 15 and the annual CPI is 5%, then the market is fairly valued at 20.

Source: Business Insider

The Rule of 20 would have signaled in 1999/2000 that the market is overvalued.

And what about now?

Schwab’s Liz Ann Sonders showed that Moltz’s Multiple (let’s call it that for alliterative purposes) is coming down sharply, falling ot the lowest level since the mid-2020s.

“Rule of 20” (combines S&P 500’s P/E and CPI y/y) has fallen to lowest since mid-2020 … still suggestive of a relatively expensive market, but a major improvement relative to peak a year ago pic.twitter.com/Z15fFXZXxF

— Liz Ann Sonders (@LizAnnSonders) June 21, 2023

You’ve likely read plenty of commentary and armchair strategists piling on what happened in Russia over the weekend.

Here’s more thoughtful commentary from the Financial Times to add to the pile.

For Russia, there is no normal to go back tohttps://t.co/47wutNxNgO

— Robert Armstrong (@rbrtrmstrng) June 25, 2023

What is the market not pricing in?

In the latest Fat Tail podcast, Greg and I try to answer that question.

One key area the market is overlooking — net liquidity still sloshing about and distorting the effects of tightening monetary policy.

You can watch the latest episode here.

➡️Recent profit downgrades suggest an #ASX correction is imminent.
➡️Forward orders are signalling a slowdown in business conditions.
➡️Why the stock market usually rises during a rate hiking cycle … and why it falls when the cycle eases. #WNPI https://t.co/Im5xjuLSlc

— Fat Tail Daily (@FatTailDaily) June 23, 2023

‘Innerwear’ retailer Step One [ASX:STP] is up 15% in early trade after the peddler of underwear said it expects FY23 EBITDA to be 22%-27% higher than FY22 at $11 to $11.5 million.

However, the earnings boost is expected despite falling revenues.

FY23 revenue is slated to be 10% below FY22 at ~$65.6 million.

Why is Step One expecting higher EBITDA on lower revenue?

‘Effective management of the advertising spend as Step One continues its focus on prioritizing profitability.’

Despite today’s jump, the stock is down nearly 90% since hitting an all-time high in November 2021.

 



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