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And once more…into battle!

Before the month is out, it’s time I look back & share a H1 portfolio update. Of course, in the wake of last year’s Q4 carnage, it wasn’t all that surprising to see markets chalking up a near-perfect YTD performance across the board. Equally unsurprising was the US market’s continued leadership…which seems like an inevitability these days, to the chagrin of long-suffering European & value investors. [Um, aren’t they synonymous?!] So here’s the scoreboard – as usual, my H1-2019 Benchmark Return is a simple average of the four main indices which represent the majority of my portfolio:

On average, a 13.4% benchmark gain…led by the S&P with a 17.3% gain (bested by the Nasdaq, which boasted a 20.7% gain). More surprising was the robust performance of the FTSE 100…despite a tsunami of Brexit nonsense, it still managed to deliver a 10.4% gain. [Not an index-related fluke – the more domestic FTSE 250 & the AIM All-Share (despite a glut of profit warnings) clocked up (on average) similar gains of 11.2% & 7.1%, respectively]. As for the ISEQ & Bloomberg Euro 500, they did themselves proud too, recording respective gains of 12.3% & 13.6%.

Overall, this is a reversal of the 13.5% benchmark loss I reported last year. Which, noting the S&P’s consistent out-performance, is an unwelcome reminder European markets are still actually lower/no better off than end-2017 levels! And really, I’m just cherry-picking here – my European benchmarks have pretty much gone nowhere for the last four years. And again, that’s another flattering perspective…believe it or not, Euro indices have mostly traded sideways for close to two decades now! [Read ’em & weep: FTSE 100, ISEQ, STOXX Europe 600]*. Sure, you still earned a dividend yield…but this savages the comforting notion that equities will always make you decent money/are the superior asset class in the medium & long-term. Though maybe, just maybe, there’s a silver lining to that bag you’re holding:

Ignore all those cute little 5 year US vs. Europe divergence charts people are sharing. Europe’s way past those now…in fact, at this point, it’s arguably far more of a despised contrarian/widow-maker bet than most investors could & would ever possibly imagine!

Whatever this may actually imply..?!

[*We should pause here & pay homage to #UKFinTwit, which seems to report 20%+ gains almost every single year, despite the AIM All-Share scarcely exceeding such a return over the last four years…and somehow chalking up a loss over its entire 24 year life! Guess the promoters & fraudsters were the only real winners here..?!]

But frankly, the real win here for investors has been the breaking of Powell. Or more correctly, the perceived breaking of Powell…as the market greeted his appointment with the faulty assumption that he’d aggressively raise interest rates & be fiercely independent of the White House, despite scant evidence he possessed the necessary iron in the soul. [This isn’t 1979…and he’s no Tall Paul. Looking back, the original narrative was clearly an unexpected by-product of the media’s anti-Trump fantasies]. In reality, it took a mere eight months for Powell’s re-education to commence, as equities crumbled in October last year…

And it took the bond market just six weeks to catch on, with the 10 Year UST peaking at 3.24% in the second week of November, to decline over 50 bps by year-end & then (after a Jan-Feb pause) another 70 bps odd – that’s a collapse of almost 125 bps in the main risk-free rate in just eight months! [To end H1 at 2.01%]*. Of course, equity investors are a more nervous bunch…it took a second market reversal (end-April to end-May, the #TrumpTariffTantrum) to finally convince them of the sanctity of the Powell Put, so they could finally relax & embrace the broad sunlit uplands of new record highs.

[*Leaving the US – in yield terms, if not political – flirting with apparent banana republic status, noting the Greek 10 Year recently traded sub-2.0%, while the global bond market boasts over $13 trillion in negative-yield debt!]

There’s some important points we need to highlight/re-iterate here:

– First, we’re still climbing a #WallofWorry. Talking heads are always ready to fan our lurking fear & expectation that the punch-bowl will be snatched away any minute now…and so, accordingly, markets & economies around the globe will inevitably crash. Such incessant jeremiads are a perverse ‘this time is different’ call to arms, and there’s an obvious question I ask again & again in response:

‘Do you really think we came this far….after decades of deficits, trillions in money-printing, and tens of trillions in sovereign debt…to suddenly decide one day to get fiscal religion, turn off the money spigots, and embrace the agony of full-blown cold turkey?!’

Yeah, of course not…

– Second:  Ever since Greenspan & the Crash of ’87, the Fed’s been in thrall to the markets – vs. the underlying economy, which politicians & bankers wisely used to focus on – while the Global Financial Crisis sealed this deal with the devil, enslaving the rest of the major central banks globally. Despite that, as investors, we’re still always jonesing our supply will be cut off…but fortunately, unlike the average addict, we’ve discovered a fool-proof way of ensuring this never happens. Consciously, or unconsciously, we’re cynical enough now to know the short-term pain of head-faking an occasional bear market (which, thanks to the media, is now a mere 5-10% market reversal) is more than worth it, as the politicians & central bankers panic all over again, and the promise of fresh rate cuts, quantitative easing & fiscal stimulus mainlines through our veins (ooh, what a rush!). And so, onward & upwards…that’s how the Wall of Worry really works.

So yeah, it probably all ends horribly…but not yet, as St Augustine would plead!

– And third:  Trump’s tariff ‘war’ is a bit of a red herring…albeit, a present echo of a new Cold War to come. While Xi clearly welcomes any opportunity to whip up some national pride, China hasn’t reached the point where it can afford a no-holds-barred trade war with America. [Yet…what do you think the Belt & Road Initiative is all about?!] And like most Presidents, Trump’s really focused on creating a new enemy without for his gullible electoral base – and presumably to distract his enemies from Russia, another red herring – one that’s economic this time ’round, rather than military. Because I have to assume he knows tariffs can’t actually deliver – consumer prices will rise & the jobs will still be gone! Because it’s not China, the real enemy is within – it’s automation, it’s robots, it’s software, it’s disruption…

In the end, they’ll manage to cobble something together & both will declare victory to their respective bases – the state media will obviously ram that message home in China, while the tributes of Fox vs. the mockery of the #fakenews mainstream media will perversely accomplish much the same result in America.

And frankly, there’s another war looming closer to home anyway…

The Bouffanted Buffoon presides over a two-party system that’s covertly united in its gerontocracy & its secret/not so secret wish that The Squad would just go back to wherever they came from… Because they’re the hand-maidens of a coming #GenerationWar, one that potentially threatens to tear down the very pillars of today’s society. A world that’s already been squandered, both fiscally & environmentally, by Boomers who look all set to keep pissing it away for another couple of decades. But if you’re young, it’s a world where you probably have no savings, no house/mortgage, no spouse & no kids to worry about, and maybe even no actual career (despite the life-long millstone of an expensive education ’round your neck) as you look ahead fearfully to a potentially jobless techno-future. Not that you’re necessarily even looking that far ahead…if you (half) seriously believe we have just 10-12 years left to save the planet!?

So literally, you have nothing to lose…

And you’re entirely open to new ways of dividing up society’s wealth, fixing income inequality, and prioritising sustainability over the current destructive obsession with growth for its own sake. And this time you know it’ll get done right – the failures of the history books will be buried with the Boomers – and the central banks will be required to underwrite it all. Which is the only #NewNormal the young know at this point…and once people get the new religion, maybe Magical Monetary Theory can pay for it all anyway!?

And that’s terrifying for Boomers…who still want all the cake for themselves!

But hang on – as fun as this may be (or not), what matters here is how this might affect us all as investors & how we maybe start planning for/adjusting to any such potential scenario(s). I don’t necessarily have the answers, but I’m planning on a subsequent blog post (or two) re my current portfolio allocation & the reasoning behind it, which is hopefully a good place to take the first few steps down that road. And speaking of, let’s return to my portfolio performance!

First, as a reminder, here’s my H1-2019 Benchmark Return again:

And now, here’s the Wexboy H1-2019 Portfolio Performance, in terms of individual winners & losers:

[All gains based on average stake size & end-H1 2019 vs. end-2018 share prices. All dividends & FX gains/losses are excluded.]

[NB: Since I’ve reported no subsequent buys/sells year-to-date, average stake sizes remain unchanged from year-end 2018 portfolio allocations.]

And ranked by size of individual portfolio holdings:

And again, merging the two together – in terms of individual portfolio return:

So yeah, I’m pretty happy with an 11.6% portfolio gain year-to-date…

Since all I care about, in the end, is absolute performance…relative performance doesn’t necessarily pay the bills! And a 1.8% shortfall vs. a benchmark return of 13.4% is pretty irrelevant over a six month period. But focusing on the latter table, it’s obvious Lady Luck was smiling down on me – most of my holdings (unexpectedly, in my opinion, in terms of continued progress) actually under-performed my benchmark (i.e. they earned sub-10% returns), with the bulk of my return concentrated in KR1 plc (KR1:PZ) & Saga Furs (SAGCV:FH). But portfolio returns are like that…in any individual period, you can almost inevitably cherry-pick one or two winners (or losers) that make all the difference. And in this instance, KR1 & Saga Furs were both unwinding disproportionate losses they inflicted on my portfolio last year (see here).

Overall, it’s an important reminder of the iron stomach (& appropriate portfolio sizing) that’s required for serious investing, particularly in smaller & more illiquid/volatile stocks. But also, I’d venture, a timely reminder of the potential diversification benefits of adding a crypto allocation to your portfolio – as an increasing number of investors & institutions are now beginning to appreciate – though personally, I still prefer KR1’s unique portfolio focus on blockchain projects & the token economy, rather than holding crypto-currency directly.

But now it’s about time I wrap up this post…so in due course, I commit to taking a closer look at current prospects for KR1 & my other disclosed holdings in (another) new blog post (or two) – ideally, just in time for a full-scale return to the fray in September. Meanwhile, I’ll leave you with this old post…quite honestly, I’m astonished my long-standing macro investment thesis still remains pretty much as valid today as it ever was:

‘Welcome To The Floating World…’

It truly is a negative-bizarro world – one where blaring ‘Stocks hit new record highs!‘ headlines are literally (& schizophrenically) replaced by ‘Stocks reverse on new recession fears!‘ headlines the very next day!? No wonder I remain laser-focused on upgrading my portfolio with:

‘…high quality/growth stocks (esp. those boasting wide economic moats), for both defensive & offensive reasons. Defensive, because I’m still hugely concerned by the underlying fiscal & economic strength of the developed world…so I need companies that can boast a robust business and/or secular growth even in a fragile economic environment. And offensive, because (more cynically) I believe putting the QE genie back in the bottle may prove a near-impossible task…ultra-low (even negative) interest rates & unprecedented monetary stimulus could still unleash a completely unprecedented equity bubble.

And so, that being said, enjoy the rest of the summer…and enjoy the Fed this week (following by Draghi’s swan-song, in due course), and all the rest of that lovely jubbly central bank rate easing (& even fresh money printing) to come!

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