Summer is almost over, and things are getting very interesting in the global financial markets. The talk of town is the start of EM currency crisis. August saw the spectacular fall of Turkish Lira and with it, the Turkish markets. While the media played it as a local event that would not effect the global markets, that tone shifted very quickly, as other EM currencies started falling — Argentinian Pesos, Indian Rupees, South African Rand, Brazilian Real all took a pounding in the last few weeks of summer. Not only the EM contagion is starting to play out, but also developed markets look precarious — with Euro trending down, British pound heading down; Aussie dollar and Canadian dollar are starting to show weakness too thanks to the housing bubbles — anyone and everyone you talk to, advises running to the safety of the almighty US dollar. With everyone piling on one side of the trade, it doesn’t take much of an imagination to figure out what happens after this crisis plays out…
Add to the fact the ongoing tariff war crusade initiated by the US administration. While the initial winner seems to be the US (and the US$) most international trading partners, including its closest allies, have indicated being treated unjustly and looking for alternatives. If history teaches us anything, tariff wars almost always never turn out as originally intended, so it will be interesting to see how the bureaucrats maneuver the upcoming minefield.
So, in just matter of months, we have gone from a narrative of “coordinated global growth” to “EM crisis/global contraction”.
Outlook for September 2018
The start of global slowdown & run up in US$ means that commodities are getting slaughtered. The recent pullback in basic and precious metals sector has pulled down my overall exposure down in the space. It was hovering close to 50% over the past few months and now has fallen with the uber-bearishness on gold and other commodities.
However, gold remains the ultimate hedge against central bank policy errors and I continue to take the other side of the popular trade. I will continue keeping a close eye on the Dollar Index and look for further opportunities.
Since I have a sizable position in the materials sector space, I do not intend to make any aggressive moves, but I may nibble a bit more if I see some screaming buys. If you are looking to build some long term/core positions in commodities space, this is a great time to initiate as the sector is absolutely hated and everyone is piling on one side of the trade. For e.g., silver which is part precious & part industrial metal is severely undervalued imho and will soon have a $13 handle in the coming days. Most miners in the space have already gone through extreme cost cutting to get to where they are currently, and demand far exceeds the global supply thanks to the dual nature of the metal.
I am happy sitting on my current positions and let the market play out. I am also looking closely at other real assets to weather the storm of the oncoming massive devaluation of fiat currencies. As of Aug-31-2018, 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.