It’s interesting how a much-ado-about-nothing conversation about everyday items revealed larger economic and political realities.
The first is economic, and the latest example of food inflation. The price of eggs shot through the roof, doubling in the past year, becoming a meme on social media. The root causes won’t surprise us modern sapiens. First, bird flu is regularly affecting chickens, and spreads like wildfire in their hyper-productive crammed habitat. Rings a bell, anyone? This has resulted in culling millions of birds over the past year, leading to a production shortage. The second factor is higher cost of fuel/transport, and packaging as we know too much about in our globally messed-up supply chain.
The second is political, and the latest crispation point between right and left. Who would have thought that gas stoves would become controversial? Well, in this day and age, the natural gas is a fossil fuel pinpointed for producing carbon dioxide, which is the primary greenhouse gas causing climate change. Besides, health organizations claim that air pollutants emitted by gas stoves are unsafe, and could be linked to respiratory issues. The scene was set to oppose right-wing libertarians, who saw the latest interference from the Government into individual rights, and left-wing wokists, who seized the opportunity to impose new constraints for the greater good.
Beyond the political fuss, there is a widening gap between advocates of individualism, and those who hope for a collective effort to respond to new humanist endeavours. It is not a question about who’s right, but rather where our civilization should go next. I let you the sole judge of that.
In the meantime, more prosaically our economy and its lemmings will call the shots. Full-year 2022 earnings season is starting. Banks are painting a mixed picture, a strong economy in FY22 that faces uncertainties coming into 2023, from geopolitical fire in Ukraine, tensions on energy and food, to persistent inflation. And we’re back full circle onto our eggs story. JP Morgan expects 2023 net interest income to be lower. Wells Fargo plans for lower revenues, and credit deterioration in its consumer business.
Looking at macro parameters, US rates are retreating, USD weakens, gold is powered up by Chinese reopening, so are Chinese stocks. Markets have been overall risk-on since the start of the year in an otherwise bleak environment. In our mind, this is bound for some profit-taking, certainly on US stocks. For the year ahead, we remain reasonably confident on sectors such as healthcare, and renewable energy. Our preference for higher yielding stocks and bonds with short duration remains. We are also enjoying the progressive re-weighting of emerging market assets in our portfolios. We turn positive on blue chip crypto as we’ve noticed a recent uptick in interest from large institutionals.