https://www.forexlive.com/news/energy-is-setting-up-to-be-the-trade-of-the-decade-20220329/amp/
“Bulls make more money than bears. Being an optimist about life is a
great attribute as an investor.”
-Stanley Druckenmiller (source)
Markets are in a bad way at the moment. The S&P 500 has fallen for five straight weeks and is down 1.2% to start a new week. Ten-year note yields have hit 3% for the first time since 2018 and the market is terrified of Fed hiking.
The US dollar is sizzling on a perfect storm of rising rates and risk aversion.
Looking at the charts, there has been major money to be made for bears in the past six months. The pandemic-bubble stocks have popped in dramatic fashion, with some down 90%. Tech bulls are being carried out.
Druckenmiller himself has made money in every kind of market. He’s one of the great macro investors of all time and was George Soros’ right-hand man when he made the famous bet against the Bank of England.
But he also recognizes perhaps the single-most important thing in investing: The long arc of history is a chart traveling upwards and to the right. Human progress is unstoppable. Every company is filled with smart, capable people working every day to make it better, to invent, to innovate, to streamline. Fighting that tide is unwinnable in the long term.
Right now, markets are delveraging. I think this is probably the most-important chart in markets right now and I will be interested to see the latest update mid-month.
There are plenty of macro reasons to be concerned. Inflation is high, supply chains remain snarled and central banks are determined to cool prices. Then there’s a war in Ukraine and an impossible covid problem in China.
But I can look out a year and see China finding a way to live with covid and price stabilizing. Whether that’s with Fed funds at 2% or 3% isn’t that big of a difference. Once the Fed takes its foot off the brakes, risk assets will rise again. Investment will flow out of the US dollar and the long march upward and to the right will continue.
In terms of secular themes, the green transition is the defining challenge of our time. The energy market is wildly misunderstood and will be the trade of the decade. That will extend to mining and metals used in green tech. The problems are immense but they will eventually be solved.
Another legendary investor — Warren Buffett — held the Berkshire annual meeting this year. He’s the most-studied investor in history but his edge isn’t just how he values companies, it’s much simpler than that. His core belief is that the United States will continue to grow. He’s a true patriot who happened to be born in a country that’s met his lofty dreams — at least economically. It’s that optimism, belief and conviction that’s the bedrock of his success.
Buffett’s success is unique because he bet in the right direction (long) and on the right horse (the US) but he and Druckenmiller have been through many economic cycles and far bigger challenges than a series of 50 basis point Fed hikes. They both understand that staying optimistic is the right trade.
So while markets are overwhelmed by bears at the moment, recognize that chasing negativity and betting on terrible outcomes is a poor strategy.