Why China Is Buying So Much Corn

Good morning! 

In this week’s Dirty Dozen [CHART PACK]  we look at net share issuance and buybacks, compare this era to that of when FDR was in office, dive into the Ag market, corn demand, soft commodity positioning, and what this means for inflation. We then end with a bullish setup in the cannabis space, plus more… 

Let’s dive in. 

  1. Ray Dalio published a short piece (link here) last week where he compares the Biden administration as well as today’s economic environment to FDR and those of the 30s. There are no doubt a number of similarities, as well as differences. But one thing is clear, we’re moving back into an era of big government.

2. BofA notes in their latest Flow Show report that the acceleration in buybacks and stock inflows should be greater than the annualized new supply of shares (highlighted in yellow). Long-time MO readers know that the Equity Supply & Demand Equation is a critically important thing to watch. So on the surface, this is a positive but what they don’t account for is the fast-growing supply of crypto which is diverting flows from equities. I have a Market Note on this topic going out tomorrow.

3. This chart from Bernstein shows that developed world net issuance is at levels not seen since the GFC. Though things are a bit different in the US where announcements like AAPL’s $60bn buyback authorization last week, are helping to return quarterly buybacks back to pre-pandemic levels (AAPL).

4. With financial conditions the loosest they’ve ever been, it’s plenty easy for companies to borrow to buy back these shares.

  1. The end of April brings us new monthly charts to look at. The big takeaway from looking at global equity markets on the longer-term timeframe is that that path of least resistance is up… With that said, things are certainly getting stretched and we’re firmly in the Climatic phase of the Buy Climax, though these can and often do go on longer than most expect. One of many great-looking monthly charts is Japan’s Nikkei Index. The chart is coiled on the monthly, having formed an outside-inside-inside pattern. This is a breakout pattern. My bet is it sees a strong break higher here.
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