My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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  • tim@emorningcoffee.com

Where we are.....what to do?

“Outstanding long-term results are produced primarily by avoiding dumb decisions, rather than by making brilliant ones.” – Warren Buffett


Do you think that inflation is persistent, not transitory?


Are you concerned about the valuation of US stocks?


Do you think that the US$ will remain strong?


Do you think that OPEC+ will hold the line on production / output quotas?


If you answered "yes" to some or all of these questions, then maybe you should:

  • Avoid US Treasuries (except steepeners)….and in fact be wary of government bonds in countries / economic zones where central banks will soon tilt towards hawkish

  • Avoid corporate credit (investment grade and high yield bonds) except for leveraged loans that are an effective hedge against increases in short-term overnight bank borrowing rates

  • Consider equities in countries that are net exporters and / or in which valuations of domestic stocks are lower than US stocks

  • In the US, consider equity sectors that are inflation beneficiaries (energy, financials, consumer) and / or are defensive; look for companies that pay dividends and can continue to increase their payout ratio even if inflation remains sticky; and avoid expensive sectors / stocks, including many tech companies (especially high flyers) that lack defensive characteristics and / or have weak balance sheets

  • Consider select segments (location-specific) in real estate that might be under-valued and under-appreciated (e.g. defensive REITs), but avoid residential housing because of post-pandemic run-up in prices and vulnerability to increasing mortgage rates

  • Not sure what to say about gold or cryptos, help me out!

Should the macroeconomic context implied in my opening questions come to pass, what do you think about these broad investment concepts / ideas? I am keen to hear your thoughts and ideas because I have no monopoly on these. Please comment!

 

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