Six key reasons why I’m bullish for the rest of 2023

Bloomberg reports:

“About two thirds of China’s regions have announced spending plans for major projects such as transport infrastructure, energy generation and industrial parks this year, adding up to more than 12.2 trillion yuan ($1.8 trillion), according to a Bloomberg analysis of government statements and state-media reports. That’s an increase of 17% compared to last year.”

That looks very positive for commodities and global trade, especially for Australia.

Reason #3: The energy crisis is over

A big part of the bear market of 2022 was the effect of the Ukraine war on energy markets.

Oil spiked very high, as did natural gas, and Europe at one point looked like it might freeze.

Oil has fallen below US$100 a barrel and the price of natural gas in the USA has collapsed. It now trades around the equivalent of US$12 a barrel.

The fall in natural gas since last year is quite dramatic in the USA.

Check it out…

And oil?

It was looking very weak this year until OPEC+ gave it a shot in the arm recently by cutting production.

However, they can’t prop up the price forever. Away from the headlines, Nigeria is struggling to sell its cargoes. That’s a sign of weak demand.

I’m also privileged to be in contact with one of the most experience oil analysts in the world, and probably oil history! His name is Phillip K Verleger. He’s 78 and he’s been analysing energy markets for 50 years.

Phil tells me that higher interest rates raise the cost of buying and storing oil.

This incentivises oil firms to liquidate their existing holding rather than bid on market for it.

The oil price may hold its recent gains for a month or two but will likely settle around US$60-70 a barrel by the end of the year. That’s manageable for the world economy.

Reason #4: Global liquidity is increasing

Money went tight in 2022 as central banks tried to pull down inflation.

However, the recent banking and credit problems in both the UK late last year, and, more acutely, in the USA this year have seen central banks step in to stabilise the financial system.

An analyst called Michael J Howell has spent his working life studying liquidity and its effect on markets.

He recently appeared in The Australian Financial Review. The article, in part, said:

“Cross Border Capital’s data produces a global liquidity index by measuring data across 90 national economies and Howell says the latest liquidity cycle has bottomed with scope for a new peak around 2025 or 2026.

“The macroeconomist also says historic data shows liquidity cycles work on regular five to six-year intervals as central bankers meet their mandates.”

You can see this visually here...

I’m prepared to back this effect on the market because I can see it happening right in front of me.

The ASX bottomed out, at least for now, in March, and has been rising since. Bitcoin is also up 70% and outperforming every other asset.

Tight money took bitcoin down in 2022 and loose money appears to be taking it back up.

Advisor Ken Fisher also points out that loan growth in the EU and USA remains positive year on year, at least to the end of March. New lending drives economic growth.

Reason #5: Western housing markets will rebound this year

You don’t need me to tell you that housing took a drop last year. We got the obligatory calls for a crash. I’ve read plenty of those over the last ten years.

However, the recent pause in interest rate rises, coming Stage 3 tax cuts, combined with skyrocketing immigration in Australia will keep lifting the market.

Already I can see house building stocks beginning to rise as the market hunts the incoming demand. Take a look at the chart of Stockland (ASX: SGP) for example…

Another housing developer, Cedar Woods Properties (ASX: CWP), has looked strong in recent trade. It's weighted heavily to Perth...a housing market with a lot of potential upside. 

 I also like Maas Group (ASX: MGH) for its land holdings in NSW and QLD and exposure to infrastructure spending. 

Housing analyst Louis Christopher was recently cited as saying in the AFR…

“The Reserve Bank of Australia’s decision to keep the cash rate on hold at 3.6 per cent during its Tuesday meeting could spur buyers back into the housing market and fuel up to a 7 per cent rise in house prices nationwide this year, SQM Research says.

"SQM Research managing director Louis Christopher said the pause in interest rate rises would indicate to buyers and sellers that the worst could be over for the housing market."

Louie has an excellent track record and is highly likely to be right.

Reason #6: The outlook for interest rates and inflation has stabilised

I’m not saying everything is hunky dory. However, markets hate uncertainly. We had bucketloads of it last year.

The market, rightly or wrongly, now views both issues as within sight of the end. This will give confidence to investors to start putting their cash to work.

That’s another important point. Fund managers over in the USA already have a high cash weighting. They are positioned defensively. So is the average investor. There is as much as US$5 trillion sitting on the sidelines in the USA.

Check it out…

Paradoxically, with so much money sitting out of the market, it’s unlikely for the market to fall heavily and, paradoxically, could go the other way quite strongly.

There you have it. 6 reasons to be bullish for 2023. 

I specialise in small cap stocks.

They have been through a torrid time in the last 16 months or so. It’s been one of the worst periods in 23 years.

There has been a lot of bad news smashed into share prices now.

Personally, I see a superb opportunity to buy on the cheap and let a recovering share market lift them back up.

What can I say? Bring it on…

If you find this evidence compelling, I urge you to check out my last Top Five ‘bargain’ report here if you’re not already an Australian Small-Cap Investigator subscriber.

Let me tell you, I think now is just the start of the action!

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