When it comes to a tightening cycle, it is usually a good idea to simply short the Zombies. But it is also worth putting in the effort to understand the actual drivers of the business models, and not simply take everything at face value. Some Zombies just like being zombies.
Tangibles tend to be more of a hedge against poor outcomes (in a broad, macro sense), and less of a measure of risk appetite. For market watchers, there may be more of a signal in a fire breathing dragon than in Krugerrands.
When companies with little to no long-term viable future are constant headlines for anything other than filing Chapter 11, it is an indication that financial conditions remain (too) loose. Sometimes the anecdotes matter.
These are not short-term issues, and they cannot be ignored for long. “When it rains, it pours” but sometimes it doesn’t rain and sometimes it floods.
Wine prices will be elevated as the crops produce fewer bottles to be released in later years. That is the story of the food commodity complex; longer than anticipated consequences across a broad swathe of things that matter. It might be the case the weather will create an amazing 2022 vintage. But we will all be wining about the inflation until we find out.
There are numerous issues beginning to compound for the emerging world. The first is the price of commodities. While some are exposed to some, few are exposed to all. That means the dollar strength and their local currency weakness will feed on one another for a stable supply of necessities.