David Sylvain
travelbug blog My Investment Portfolio: October 2021

My Investment Portfolio: October 2021

The chart below of the 20-year relative performance of the CRB-SPX ratio shows that commodities are in a relative downtrend when compared to unique boutique s, but the ratio recently saw a positive RSI divergence indicating that they are poised for a relative rally. Emerging market equities, which are correlated to commodities, are displaying a similar pattern, though the EM-SPX ratio did not show a positive RSI divergence. RSI(5) is starting to show those “good” overbought conditions, though RSI(14) is not yet overbought. 2020 was not expected to be a good year for housing. Although most believe oil prices (and overall commodity prices) are continuing to collapse, chart 2 suggest they have been in a bottoming process since early this year. Current Assets: These represent the assets that are relatively liquid and/or expected to be converted into cash within one year. As we progress through Earnings Season, one of the refrains that investors will hear again and again is how a strong USD posed headwinds to earnings and margins. We suspect the commodity markets are about to embark on a multi-year advance which will likely alter leadership in the economy and in the stock market. As this chart shows, the weight of the old leadership in the SPX is 44.0%, while the weight of the new leadership is 40.2%. If the American consumer can continue to spend and Consumer Discretionary stocks hold up, then there is no reason why the SPX cannot rise to further highs as over half of the sectors by weight will be in relative uptrends.

 

While I am not postulating the start of a new commodity bull, the CRB-SPX can rally up to test the downtrend line (see red arrow). While the spot price of WTI crude oil did collapse last year, it is currently about $45, a level it first reached in mid-January. The segment provides a stable revenue baseline that can be a fall back for when global demand for oil dips. You can install this device easily or get a professional to do it for you. As there is the opportunity to create a ton of money, things might also get it wrong. Chemicals that make them bigger, chemicals that keep the pests away, chemicals to do whatever is wrong at the time, the answer put more chemicals on it. To put some numbers on that scenario, a Bloomberg interview with strategist Tom Lee indicated that USD strength subtracted about $10 from SPX earnings and the drop in oil prices subtracted about $7. So what would happen if the USD weakened and energy prices turned up? Supposing that USD weakness and commodity strength reverses about half of the $17 earnings shortfall in the next 3-6 months.

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