Skip to main content
No. of Recommendations: 2
Here are some of my investment thoughts as the U.S. economy enters into a "late cycle" stage of historically-low unemployment levels, with the U.S. yield curve almost inverting as the Fed promises a total of three 25-bps rate hikes for the remainder of 2018.

FWIW - I have been writing a macro newsletter since the early 2000s and as of today, am working as a portfolio strategist for a global Fortune 500 company. Here are some of somewhat scattered thoughts. Comments are highly welcomed.

* There is no set timeline for the end of the current bull market. This is especially true today given: 1) it has taken a uniquely long time (based on post WWII standards) for the U.S. economy and for U.S. consumer confidence to recover. As of today - despite 4.1% U3 unemployment - higher wage pressures are still missing. This may be due to higher-paid boomers retiring and being replaced with lower-paid millennials; even if wage pressures increase, it may not necessarily translate to higher inflation since many millennials will likely use their higher income to pay down their historically high student loan indebtedness, 2) Europe and many EM countries are still operating significantly below potential output. The caveat here is that what happens in China today now has an impact on global and even U.S. asset prices, and the timing of the Chinese economic cycle is highly unpredictable.

* Tech remains the leader - no surprise here. Stocks that are on my Watch List include some MF favorites, such as ANET, BKNG, AMBA, IIVI, IRBT, NVDA, CRM, AMZN, BIDU, BABA, FB, NFLX, EXPE, APPL, PYPL, ENV, MKTX, and WDAY. The accelerated appreciation in some of these stocks over the last 12 months is concerning, but I don't see an impending top just yet [tech bubble valuations aside - when Ross Perot's EDS IPO-ed in September 1968, it did so at a 118 P/E, while proceeding to rise another 900% until early 1970 - all of this while the U.S. 10-year yield rose from 5% to over 7%).

* I speak to many macro strategists and many of them have been touting commodities. It's actually not a bad time to "invest" into oil futures, per se, given the backwardation in the WTI futures curve (you get a positive carry). But the world just experienced a "commodity super cycle" that stretched from 2001 to 2014 - with a brief pause during the 2008-09 GFC. This commodity super cycle was only able to manifest itself because of historically low oil & gas CAPEX during the 1980s-1990s, along with a once-in-a-lifetime, structural rise in demand due to China's industrialization. With the record amount of CAPEX having poured into the sector from 2001-2014, and with the Chinese economy now maturing, any demand increase is only cyclical in nature. As such - unless WTI declines to $40-$45 again - I don't have any particular interest in investing in oil-related stocks, especially if the holding period is several years or longer.

* Natural gas is still not investable. I spoke to the CIO of a very successful commodity hedge fund a couple of weeks ago and he asserts the price of natural gas at the wellhead should be closer to zero, since a significant portion of the U.S. natural gas output is simply flared and possess no economic value.

* Gold has been in a 7-year bear market. CAPEX has been slashed by more than 60% since the 2011 peak but mining supply remains steady. Marginal cost (AISC for marginal mines) is probably at around $900 to $1,000 and I see gold prices declining to that level as the Fed continues to hike rates over the next 12 to 24 months. Since gold acts as an insurance to a catastrophic economic scenario, one shouldn't expect to profit much from holding gold over time (after all, no-one expects or wants to make money from their insurance policies). With the rise of bitcoin as an alternative "safe haven" storage (mostly for ultra high net worth families that live in potential war zones) and untrackable cryptocurrencies such as Dash or Monero, gold has also lost some appeal as a storage of value.

* U.S. retail remains very difficult. FIVE, TJX, and ROSS remain immune; SPG has stood firm over the last 12 months given the high-quality nature of its properties. But with AMZN ongoing improvements in brand selection and delivery times - and with the rise of size customization in apparel and shoes - traditional U.S. brick & mortar retail will continue to underperform.

* Will the TSLA distribution model put pressure on the traditional U.S. auto dealer network over the next several years? Why can't most U.S. consumers go online and customize their automobiles and have their vehicles delivered to their door?

* Perhaps most importantly - assuming the U.S. yield curve inverts as inflation spikes and the S&P 500 subsequently experiences a >20% correction sometime in the next 12-36 months, which companies or industries will lead the next bull market?

Would welcome any thoughts or comments.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.