Commodity Insight: Long-lasting bull markets

Stocks and commodities did a huge nosedive in the January-to-March period of this year. Both markets were pressed sharply lower as COVID-19 became a pandemic in the United States and across the globe.

And as the death cases associated with coronavirus were ratcheting higher and higher, investors and speculators in stocks and commodities headed for the same exit at the same time.

Historically, the January-March period turned out to be the most rapid unfolding of a bear market ever seen for the stock market. However, after bottoming in March, stocks turned north and posted a historic upside reversal as record highs were seen this week.

They did so with cases of coronavirus soaring sharply amid a death toll of 2,200 per day. Stocks are skyrocketing upward in the face of far worse news than seen in January to March that caused values to collapse.

But markets that go up on bad news are markets that want to go up — unless, of course, values become too stretched out on the upside and poised to take a breather. Or, something far worse.

Consider the following: On March 23, the S&P bottomed at 2,195 and the Dow Jones at 18,101. This week, the S&P hit an all-time high of 3,707 and the Dow posted a record high of 30,218.

With stocks now at record highs, discounting all the bad news associated with coronavirus, Wall Street and most analysts may be right on, calling for even higher values in 2021.

Personally, I cannot believe stocks are doing so well based on history. Still, markets tend to look down the road, and with a number of vaccines recently developed to fight coronavirus and another stimulus package from Congress close at hand, being bullish stocks for the New Year may be a wise strategy. Or, it may not be.

After all, when it comes to markets, there are always two opinions about which way values are headed. One opinion comes from the bulls, the other the bears. That is how it has always been. And always will be.

Anyway, here are some bearish ideas about stocks based on history and from the lips of smart money investors.

A few days ago, Bloomberg News posted an article claiming that $7 billion was pulled from the $172 billion Vanguard S&P 500 ETF on a single day.

Bloomberg claims it is a “mystery” who would do such a thing. I argue, “smart money” heading for exit before the exit gets too crowded. Smart money was taking cash off the table.

A week ago, Businessinsider.com posted this headline: “Warren Buffett’s favorite market indicator nears record high, signaling stocks are overvalued and a crash may be coming.”

The article stated: “Buffett praised the gauge as ‘probably the best single measure of where valuations stand’ and called it a ‘very strong warning signal’ of a market crash.”

This week, the Buffett Indicator hit a new all-time high. As a point of reference, the Buffett Indicator is now around 182.7%, compared to the 107.5% at the peak of the housing bubble in 2007.

And let’s not forget about the Japanese Nikkei stock average that peaked out on Dec. 29, 1989, at 38,915 and did not bottom until March 2009 at 7,021.

This week, the Nikkei is around the 26,500 level, still 40% below the high posted 30 years ago. It has been 30 years and still some do not have all their money back.

I am not saying the Dow Jones, S&P, Nasdaq and so forth are going to crash and burn. With the Fed and Congress pushing hard for another stimulus package and hopes of the wide array of vaccines coming online to end the pandemic, renewed economic growth is likely.

The stock markets may move higher yet. But by all historic measures, stocks should take a much needed breather and sooner than later. Stocks need a time out.

As for commodities, Jeff Currie, global head of commodities research at Goldman Sachs, stated this week that a “long-lasting bull market for virtually all commodities” is at hand.

“Every single commodity market with the exception of wheat is in a deficit today,” he said.

And, boy, oh boy, does he sound like yours truly?

The odds, as well as history, favor the notion that a period of bull markets for all commodities is at hand. At the least, three to five years of rip-roaring commodity markets is surfacing. Frankly, it may last even longer.

Drop me a line at 406-682-5010. I will enjoy your input.

And keep in mind, as Bob Dylan wrote back in 1964, “the times, they are a-changin’” — and rapidly so, I might add.