Today, I’m going to introduce you to my friend Mark. He’s a businessman. Our daughters go to the same swim class.
The other month, Mark told me he was moving to buy a big block of empty land in suburban Melbourne after the previous development plans for it fell through.
His business is generating lots of cash, so he can afford to finance it for at least five years.
That’s while considering whether to go all the way and build on it himself or sell it off down the track. Or he could subdivide it.
A month or two is a long time in markets.
This Monday, at swimming, Mark was feeling a lot less sure of the idea. He still has 10 days to pull out of the deal.
The big bank economists are suggesting a 15–30% drop in the housing market could be a possibility. But they said that in 2020 too.
He doesn’t really need the money. Why go for this potentially risky move and create more stress? Any business owner has plenty of that already.
But what if all those forecasts are wrong? Or he holds on to the land for 10 years or more?
That’s a lot of questions for two men sitting beside a noisy pool. I said my piece…and backed him to buy the land.
I don’t believe the housing market will fall as much as the bears say…or interest rates will rise as much as the market is currently priced in.
It’s also why I’m eyeing off property stocks all over the ASX patiently, but greedily as well.
It will only take this situation to revert a little and they’re going to look cheap on a long-term basis.
In the short term, the market is unpredictable and risky. But look out five years, and things look a lot brighter and more positive.
It’s not just property shares, either. Oh, my goodness, small-cap stocks have been smashed for at least six months.
Even the bastion of the previous bull market, the battery mineral plays, are now crumbling under the current pressure.
You and I face the same dilemma as my friend Mark and his property. Is the party over or is this a short-term glitch?
My thinking is the same here as it is above. Bear markets are when you’re SUPPOSED to buy up your long-term favourites. After all, you’re getting cheaper prices, right?
I’m not saying this is a trader’s market.
I’ve pulled my horns in on that front. But if you’re prepared to look out more than 12 months, now’s the time to start nibbling on the stock that can run big when the bull market returns.
You don’t have to go all in at once.
It’s not as if the trend toward electrification and decarbonisation stops because of inflation or the price or money rises. If anything, it makes it more urgent.
The best way to bring down the price of oil — and therefore inflation — is to undercut its market with cars that don’t use gasoline and trucks that don’t use diesel.
Diesel is the big one here. The refining margins for this are exploding because there’s a shortage of the stuff in Western markets. This pulls up the price of crude as refiners bid on oil to cash in.
That’s a problem for all of us because diesel feeds into everything: planes, trucks, and machinery.
The market isn’t stupid. There’s now every incentive to turbocharge the shift from ICE vehicles to electric.
You don’t even need a green agenda to justify it. The economics with diesel and petrol so high make fossil fuels look terrible.
We could have a win-win here where increasing adoption of electric vehicles brings down inflation and improves pollution simultaneously.
Now, a recession in the short term could suppress car buying and therefore demand for battery minerals. That’s what the market is doing now.
However, the lead times on mine projects are so long that the world can’t stop investing. In fact, it needs to go BIGGER now so that the supply is there to meet the demand in 2025 and beyond.
If private investors won’t step up to the plate now, either from hesitancy or fear, then it’s highly likely car makers, or governments, will just do it themselves.
This is another reason why I find the bearishness on Australia misplaced. We have a continent full of the natural resources that the world needs to get off fossil fuels.
I plan on capitalising on this bear market as much as possible to buy up cheap battery (and property) plays. I don’t know what that will look like at the end of 2022. But I’m pretty sure it will look great by 2026.
Stay tuned for more!
Regards,
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Callum Newman,
Editor, The Daily Reckoning Australia
