We are halfway through 2016 already. The world is stunned by the Brexit vote, which caught almost everyone by surprise — causing some mayhem in the global markets. What this means long term remains to be seen as the referendum is a non-binding agreement. But the move to leave EU has sent shockwaves across Europe, with local political parties starting a rhetoric in nine other countries about their own referendums to leave the EU. Brexit could be the first domino to fall leading to something big.
With the vote going in that direction, the odds of interest rates rising have all but collapsed. The markets were already pricing the odds of a raise early next year, and but after this vote, there have been calls to not raise, but actually cut the interest rates! The other central bankers – ECB, BoE are expected to announce that they intend to step-in to stabilize the markets.
What does this all mean for the macro/global economy. Its hard to know…except that it brings more volatility and starts the next innings of currency wars. The US$ continues to rise against the global basket of currencies, but interesting the Japanese Yen has been rallying as well. Keeping an eye on the currency can provide a good pulse on how different markets are perceived in the overall global economy.
Outlook for July 2016
As things stand, there are a lot of headwinds facing the economy. Potential recession/depression troubles still exist. The bond market, commodities market, transportation market, manufacturing market indices are all sending very strong signals that all is not well in the world. Some sectors are seeing an “earnings recession”. It is for this reason that gold and silver, typical safe havens, has done well in the first half of the year. Generally speaking, things haven’t changed much since my Outlook for 2016 (from January) post. Be sure to check it out for further investment ideas.
I recently decided to liquidated 1/3 of my portfolio and move to cash. I still continue to hold DGI stocks, and am focused on reducing the overall number of holdings. The reasons have been shared in this post. As I already discussed in that article, I want to concentrate on a smaller number of holdings and the only sector that I am bullish on is the precious metals space — gold and silver. Over the course of last couple of months, I have initiated new positions in Silver Wheaton (SLW.TO) and Pan American Silver (PAA.TO) and will be looking for any weakness to add more. I am also looking to upgrade to a better quality of gold mining stock. I own IAMGold (IMG.TO) and the company has had some management issues — a company that I do not mind selling, hence the reason I wrote a covered call on it last month during the ensuing panic after the Brexit vote.
I am currently reading and learning a lot about the mining industry. Its a space that I do not understand very well, and I hope to build my knowledge up. The commodities continue to be hated, but the moves in H1 2016 have been promising. Perhaps this is the start of a new bull market? Or is it a dead cat bounce? A false start perhaps? No one really knows…but I think its a good time to start loading up some shares in the sector as its one area I find presents good opportunities.
It is interesting to note that gold/silver have had an incredible performance so far this year as the US$ continues to rise (which normally has inverse correlation). So, when the tide turns around US$, we can expect gold/silver to really take off.
As it stands, our current portfolio diversification is as shown below:
July is expected to be another slow month when it comes to dividend increase announcements. I am expecting only one company to announce an increase our portfolio.
- Omega Healthcare Investors Inc (OHI) – last increase was 1.75% in Apr 2016
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.