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Tag Archives: don’t fight the Fed

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part IV)

17 Friday Jul 2015

Posted by Wexboy in Uncategorized

≈ 5 Comments

Tags

asset allocation, bubbles, bullish, developed markets, don't fight the Fed, emerging markets, frontier markets, macro investment thesis, Nifty Fifty, wall of money

Continued from Part III.

OK, so here’s an end-June snapshot of my current portfolio allocation:

Wexboy Jun-2015 Portfolio Allocation

[NB: And here’s my portfolio a year ago (from this post) – the majority of subsequent changes are obviously due to sales/purchases & the share price appreciation/depreciation of (mostly disclosed) holdings. Notably, my minor Hedge & Nat Resources allocations are now eliminated on sales of holdings, while my new US & Undisclosed (a new asset class I’m still working on) allocations reflect undisclosed new holdings. I’ll also highlight my Cash allocation’s pretty minimal, with the priority on Fixed Income (which is how I basically consider my Alternative Asset Opportunities (TLI:LN) holding) & Event-Driven (essentially, my NTR plc holding…noting, in particular, last week’s announcement of a return of capital/wind-down) 🙂 ]

Some big & small changes, obviously – but in the scheme of things, it certainly isn’t a radically different portfolio. But what were you expecting…did you really think I’d turn on a dime & completely transform my portfolio? Um, maybe if I was some hard-charging hedge fundie. But for the average investor, the more rapidly & radically one’s portfolio changes, the more likely it’s the result of poor/faulty decision-making! And I suspect this is even more true of thesis-driven investing – the biggest & most rewarding theses tend to develop/evolve over a long period of time, and likewise so should your portfolio…

Now, let’s consider some potential portfolio allocation implications, in terms of my current macro investment thesis. [Keeping in mind my recent Four Feds commentary]:

Emerging/Frontier Markets:  My underlying emerging/frontier markets thesis hasn’t changed a jot since I wrote this post (& its follow-up). But sentiment remains negative, with investors/commentators focusing on specific country surprises & disappointments, and the narrowing growth gap between developed & emerging/frontier markets. Currency weakness, esp. against the dollar, hasn’t helped either. But emerging/frontier markets are still the world’s growth engine, and will continue to trounce developed markets in terms of absolute growth. And the narrowing growth gap’s mostly due to starkly differing fiscal/monetary policies…investors might well ask themselves which policies are more sustainable? As for currency weakness – yes, it’s a short term hit, but it also improves their terms of trade substantially.

But doubters question whether a new export-led growth surge is even possible, citing lower developed market growth/demand. Which strikes me as a remarkably stupid argument…if you expect lower Western growth, surely it strengthens the case for high growth emerging/frontier markets investment?! Many which now appear to be reaching an inflection point, where domestic middle class/consumer demand’s emerging as a new growth driver, reinforcing or even supplanting existing export-led growth.

Continue reading →

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part II)

24 Wednesday Jun 2015

Posted by Wexboy in Uncategorized

≈ 5 Comments

Tags

blue chips, bubbles, bullish, China, don't fight the Fed, Europe, floating world, Greece, Japan, Nifty Fifty, quantitative easing, US

OK, I posted Part I a month ago (and here’s its prequel, Welcome to the Floating World…), so you may want to skim those posts again. [Especially as the world’s changed so much since then…what with the bond markets going crazy, Greece staying crazy, etc. 😉 ] To briefly summarise:

The central banks ‘control the price of money, and everything else is a function of the price of money‘, and post-crisis they embarked upon the greatest price-fixing experiment ever – an echo/amplification of the entire era leading up to the late ’60s/early ’70s. Consequently, sustained near-zero rates has meant there’s a wall of money that’s slowly but surely being forced into the equity market. And just like the early ’70s, investors have & will continue to exhibit a distinct preference for Nifty Fifty stocks, i.e. large cap/blue chip companies which guarantee (or at least offer the illusion of) predictable quality & growth in an uncertain economic & fiscal environment. Small & mid cap stocks may be neglected accordingly, but will probably end up getting dragged higher regardless.

As for liquidity, central banks will basically find it impossible to reverse the explosion in their respective balance sheets…Pandora’s Box is now open. And GDP growth may prove irrelevant – since positive/accelerating growth is likely to underpin/encourage market sentiment & valuations, whereas weak/negative growth will simply elicit fresh expectations of central bank stimulus. Most of all, regardless of potential rate increases (or bond market volatility), the absolute level of yields means stocks will arguably remain cheap at any price…

But I really don’t have to make the argument: If/when this bull market keeps marching higher, I have no doubt we’ll be spoon-fed all the erudite & compelling arguments we need to justify it, ’til investors can no longer help themselves & inevitably turn the market into a self-reinforcing bubble. I’m not saying this is necessarily a logical process (what bubble is?!) – but I am saying it could easily happen, plus I’m also saying it could well turn out to be unprecedented…

 [Again, it’s worth remembering two recent & very relevant quotes:

Buffett – ‘Everything is a function of interest rates. Interest rates are like gravity.’

Tepper – ‘Don’t fight four Feds!’]

So, what are the implications for my portfolio?

Continue reading →

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