“The superior investor is attentive to cycles. He takes note of whether past patterns seem to be repeating, gains a sense for where we stand in the various cycles that matter, and knows those things have implications for his actions. This allows him to make helpful judgments about cycles and where we stand in them. Specifically:
- Are we close to the beginning of an upswing, or in the late stages?
- If a particular cycle has been rising for a while, has it gone so far that we’re now in dangerous territory?
- Does investors’ behavior suggest they’re being driven by greed or by fear?
- Do they seem appropriately risk-averse or foolishly risk-tolerant?
- Is the market overheated (and overpriced), or is it frigid (and thus cheap) because of what’s been going on cyclically?
- Taken together, does our current position in the cycle imply that we should emphasize defensiveness or aggressiveness?"
"While there are a number of other valuation metrics we can explore, suffice to say that value stocks presently offer up notable... well... "value" relative to growth stocks."And
"Clearly, much like the attractive valuation and income setups with regard to US value over US growth, large cap foreign equities presently possess notable advantages over US large caps."With regard to those "other valuation metrics", we track a total of 5 within the valuation component of our "PWA Equity Market Conditions Index."
The price-to-book value for the S&P 500, which happens to presently sit just a hair below its tech bubble peak:
And Warren Buffett's favorite valuation metric, total US equity market cap to GDP. Which... well... there's nothing historically close to this indicator's present "over-valuation" reading:
So, if Vanguard has it right, our migration of late to a US value and foreign equity bias places our clients in very good shape within the equity portion of our core allocation going forward!
In fact, while Vanguard's outlook (influenced primarily by present valuations) is not encouraging for US equities (growth in particular), macro experts like John Hussman and Jesse Felder -- who do some of the deepest work in this space -- actually have 10-year projections in the negative for US equities in the aggregate.
Now, about those pockets of opportunities; we’ll expand on those below by offering up brief descriptions of/cases for our top positions (aside from short-term bonds):
Here's VPL's country breakdown based on weightings within the portfolio:
"...among the top five producers of most of the world’s key mineral commodities, being:Aussie equities' technicals don't look long-term shabby either; themselves finally breaking above their 2007 high (after failing to sustain a breakout pre-covid):
Additionally, Australia is the world’s largest exporter of black coal, iron ore, alumina, lead and zinc and the second largest exporter of uranium."
- the world’s leading producer of bauxite, alumina, rutile and tantalum
- the second largest producer of uranium, lead, ilmenite, zircon and lithium
- the third largest producer of iron ore, and zinc
- the fourth largest producer of black coal, gold, manganese and nickel and
- the fifth largest producer of aluminium, brown coal, diamonds, silver and copper.
FEZ (Eurozone 50 ETF): Per the first two charts under VPL above, the reversion case is made here as well. And suffice to say that if we've learned anything over the past few decades, it's that a massive driving force for developed market equities is the actions of their respective central banks. And, make no mistake, as I type, the Eurozone's has become the world leader in monetary policy dovishness. At the moment we'd place the Bank of Japan 2nd.
“5G is not just an incremental improvement over 4G — it is the next major evolution of mobile communication technology. It will massively improve download speeds and reduce latency, but more importantly, it will facilitate significant technological progress in a whole range of sectors, such as the Internet of Things (IOT) and autonomous driving.
The electronic components that enable 5G technology will rely heavily on silver to ensure that the global 5G platform performs seamlessly. In a future 5G-connected world, silver will be a necessary component in almost all aspects of this technology, resulting in yet another end-use for silver in an already vast and versatile demand portfolio.
At present, 5G deployment is still in its early stages and, as such, 5G-related silver demand currently constitutes approximately 7.5 million ounces (Moz). With the rollout of 5G in the coming years, however, silver’s role in the electronic applications used in 5G is forecast to rise significantly to approximately 16 Moz by 2025 and as much as 23 Moz by 2030, which would represent a 206 percent increase over today. For comparison purposes: in 2010, silver’s use in the once-emerging photovoltaic industry was approximately 40 Moz, and by 2018 it stood at 80.5 Moz.”
If by now you're beginning to think that we're ignoring US equities altogether, that's definitely not the case. It's just that we express our US exposure by breaking it down by sector, and individual securities, as opposed to investing in the trackers of the major diversified indices. Altogether US equities account for roughly half of our exposure to stocks, as we'll explore in Part 5...
Attention non-client subscribers, a reminder: Nothing on the blog should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the reader.