In midst of the most expected recession ever, plus signs it really is here already, I have been going the other way in terms of stock investing.
First those dreaded words "This time it is different". COVID was a once in century type event, but the reaction was a first ever. Never has the USA and most countries purposely shut down their economies before, but that happened this time. So, distortions are out there that have never happened before.
Second the oil market. I have watched it for decades. Never before with $100+ oil (or inflation adjusted $100+) have oil companies not over-drilled. This time they are under-drilling. This time many if not most banks and mutual funds are refusing to give them even enough money to maintain production. Never before have they gone big on dividends and buybacks at this stage with their Free Cash Flow. Never before has the SPR been hyper drained, yet overall inventories stayed level. That means real inventory levels are crashing.
Third Dr. Copper is tapdancing. Copper is doing great. That is being ignored. Normally Dr. Copper is talked about when healthy or sick (if you are not familiar with it, the copper price is considered a reliable indicator of the economy in the future). Not only are prices up but warehouse copper levels are at 5 year lows. It takes 7 to 20 years to bring on a new major copper mine.
Fourth is Valuation. Oil and other resource stocks are at wonderful stock valuations, best ever for oils. There are many sub 2 PE oil stocks, especially amongst Canadian small producers.
Fifth is Commodity Super Cycle. Rick Rule has been saying it has started and would take off but was not sure when. Now he is saying 2023, and if a recession, it will be delayed not derailed.
He points out the decade long under-investment in the production of metals and oil/gas. The pipeline is empty compared to a balanced market.
Sixth is the Fuse, the China reopen. China is the #1 user of most commodities; it has been shut down for years now and just reopened. Remember what happened when the USA started opening up their economy? All sorts of shortages and price increases.
So the bottom line is the Carvana type stocks are still terrible investments even though they are down 90-98%, but oils, value stocks, miners, and especially small producers in those sectors will do exceptionally well in 2023 in my opinion. Gold and Copper are already partying now.