There is no direct call to action here, just thinking out aloud and musing about the past quarter’s winners (all the fund managers are putting out their various quarterlies, which for the most part are full of navel gazing).
What’s worked over the past quarter (total returns)? Mostly frothy lithium stocks that (to me) have a good chance of being in a bubble (extrapolating conditions into perpetuity) and a mix of very bubbly tech, with a smattering of coal.
It’s very hard to buy those names…
Of course, that’s partly the point. You’d argue they must be “underheld” relative to some other steady state that gives rise to the mispricing. That’s the counterargument.
However, the risk is that they are very vulnerable to a change in the narrative at these high valuations: the market becomes afraid that China will continue to impose lockdowns to fight COVID forever or something similarly “out there” but just as impactful. For coal and energy, it could be the end of the war; for lithium perhaps a technological development that competes in the battery space (which is meaningful given the very long-term growth such valuations imply) or just good old-fashioned monetary policy crunching the demand which affects commodities, including the above.
To that point about lithium, consider that aluminium sulphur batteries are a thing. They seem to work. They are abundant, behave well (not flammable) and the raw materials are found in countries that behave well (no geopolitical risk).
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