The first tremors are appearing in the stock market, with volatility making a huge comeback. Earlier in Feb, the market saw a correction and volatility jump after being depressed to record levels for years. Of course, shorting vol was something that traders were taking lightly ignoring the risky nature, and has wiped out their working capital overnight.
Turning a more wider view, the new Fed chair has taken command and it appears that he is taking a different approach. As I mentioned in my Outlook for 2018 post, the US$ will be the most interesting asset to observe in the investing universe. The moves are already pretty apparent as the slide has accelerated since the start of the year. The US budget deficits are getting more media attention, the US government saw a brief shutdown — only to kick the can down the road for a short while, interest rates are rising while the currency is sliding — the US market is now behaving like an emerging market!! These are interesting times, no doubt. I will be keeping a very close eye on the US$ and continue to position myself to protect my purchasing power as the world’s reserve currency continues down the devaluation path.
Outlook for March 2018
With the slide of US$, we can expect to see asset prices starting to inflate. Assets such as US stocks have already been inflated over the years, but there are other places where opportunities exist. The biggest opportunity lies in the commodities market (hence my oversized exposure to the Basic Materials sector). Some other areas that provide good investment opportunities include: International markets (non-US equities), non-financial assets that can benefit from sliding US$ such as REITs, pipelines (i.e., real assets/infrastructure plays) etc, and Value-focused plays (the Value-factor has underperformed compared to Momentum-factor for almost a decade now!). The following chart was put together from Bank of America as to what the 2018 rotation is expected to look like. I don’t agree 100%, but definitely agree enough with the outlook to warrant a share. You can read more details about this BofA call here.
As of Feb-28-2018, our overall portfolio diversification is structured as shown below.
Looking for investment ideas? Check out this Top Investment Picks for 2018, where 35+ bloggers present their top pick and a reason to invest in those securities.
What are your thoughts on the points mentioned above? Do you have any specific thoughts on the markets and looking at anything interesting? Share with a comment below.
Full Disclosure: Our full list of holdings is available here.