As a child of the 1980’s, Saturday morning cartoons were a vital part of my weekly routine. One of my particular favorites was the 1980-1982 iteration of Super Friends, which included the super villainy of the Legion of Doom. One of the villains was Bizarro, who had been created as a character in the late 1950s to be the mirror image of Superman. Solomon Grundy was actually my favorite villain on the show, but regrettably, he does not suit today’s narrative.
I have spent quite a bit of space in this letter since the beginning of the year covering emerging business cycle risks, and on June 24th touched upon the idea of a forthcoming recession possibly being a synchronized global one. Given that the last synchronized global recession started over 40 years ago, I have had to take some time to revisit and think about that period. Through that process, Mr. Bizarro kept popping into my head.
Due to recent inflation levels, people drawing parallels to the 1970s has become all the rage. I have laid out in prior posts such as Regime Change why I think that analog is overly simplistic and likely to be a poor one overall, but this is where Bizarro enters the picture.
Another staple of my childhood was coming home with my family from Friday night high school football games in the autumn and watching Dallas.
The show first arrived as a five-part miniseries in April 1978 and was then made a permanent fixture in ABC’s lineup starting in September that year. The 70s were a period of booming investment in many commodities, as higher prices incentivized capital flows, and ‘cultural flows’ then followed. As this chart shows, oil had gone up in price from below $3 for the period prior to 1970 up to about $15 by the time Dallas debuted in 1978.
A long period of higher prices, which resulted in massive capital investment and cultural glorification of the oil industry? Huh - sounds kinda Bizarro to me.
US debt to GDP was quite low entering the 1980-1982 period, after having drifted lower over the preceding fifteen years:
How’s the debt backdrop shaped up over the past fifteen years? Seems kinda Bizarro to me.
Countries blessed with natural resources benefited during the 1970s commodity bull market, as shown in the next two charts - note the difference?
Chile has historically been more leveraged to base metals like copper, whereas Venezuela more leveraged to oil. The nasty 1973-1974 oil shock-accompanied recession hit Chile hard, but Venezuela? Not so much.
Venezuela has become a political and economic basket case in recent years, but Chile is often cited as one of the most successful ‘emerging markets.’ So how has Chile done in recent history?
As we can see, the 2007-2009 global financial crisis was a relative blip for Chile from an economic perspective, with a strong commodities bull market plowing forward into 2011-2012.
And now? A decade of stagnation later capped off with the Covid era, and a 36-year-old president has just been elected amidst a resurgent Communist party movement. Chile is in the process of drafting and voting on a new constitution. The 1970s saw the right-wing Pinochet come to power as a dictator via a US-backed coup in 1973, with a new constitution drafted in 1980 via a shady ‘referendum.’ Sounds kinda Bizarro to me.
I could go on and on with other differences, such as demographics, interest rates, etc., but it’s Friday, I am supposedly on a family vacation, and need to get a life.
In conclusion, the circumstances entering this potential global recession appear the mirror image in many ways to the last global recessionary period. That global recession ushered in the era of lower interest rates, commodity booms going bust, and drawing to conclusion a decade of growth in resource-rich nations in emerging markets.
This one may end up being the mirror image, marking the end of the hyper-financialization era, with resource-rich nations emerging from the economic darkness once again. Many of those markets and related stocks may bottom first in a global recessionary bear market, as valuations in many instances are already pretty cheap, and could get ridiculously so.
For example, these two companies have about the same amount of sales, with one selling at 0.82 times and the other 2.01 times. It’s Friday, I am supposed to be on vacation, and a global recession looks like it is on its way. Sounds like a good time to have Bizarro beer? Even ‘commies’ may drink beer while nationalizing resource companies…..