A Tide is Turning


By Monish Chhabra ǀ January 31, 2022

The start of the year 2022 has marked the end of an era. The turn of this tide is here, and clear.

Nothing symbolizes it better than the following graph, which compares the performance of two assets in the market – ‘software’ versus ‘food’.

Both graphs start from the base of 100 in the year 2008. The one sloping upwards represents the large-cap technology business in the US. The other one sloping downwards represents together the major agricultural products like soyabeans, corn, coffee, wheat, cattle, sugar, cocoa etc.

Both assets fell similarly hard during the 2008 crash. Tech recovered pretty fast by 2010, while agriculture came up for breath a little later in 2011.

Around mid-2011, they were on similar grounds. At this point, the floor just fell out from below the farmers, while the techies were put on a rocket ship.

Over the next five years, the technology businesses kept rising relentlessly, while agriculture couldn’t catch any major break.

As if the pain wasn’t already enough, things got turbocharged for both at almost exactly the same time around mid-2016.

This is shown in orange from there on. Tech's rise steepened to hit the top of its green band, while agriculture fell straight down to hit the bottom of its own band.

Agri products then spent two years from 2019 to 2020, hitting the bottom of their band, again and again. While the software business hit the top of its band repeatedly, also for two years from 2020 to 2021.

This could have gone on longer. Something at the top can keep nudging along, while something at the bottom can stay in the pits, without any end in sight, until the day when the turn comes.

And turn it did. Right from the start of 2022.

Technology, which tried to rise out of the top of its long-term band, fell right back into it. Statistically, once inflection happens at the top of this band, prices fall at least to the mean dotted line in the middle of the band.

Agriculture, on the other hand, finally broke out of its band that had kept it in the downward trend for 14 years.

We have witnessed more than a decade of relentless money printing by the central banks. We have accepted cloud-level payouts for the cloud companies. Now, the markets may be ready to look again at the ground beneath us, that actually feeds us.

A new era has started. A new cycle is turning its wheels away from one set of winners to another.

Now let the market do its dance. And step along well.

This write-up is for informational purpose only. It may contain inputs from other sources, but represents only the author’s views and opinions. It is not an offer or solicitation for any service or product. It should not be relied upon, used or construed as recommendation or advice. This report has been prepared in good faith. No representation is made as to the accuracy of the information it contains, nor any commitment to update it.