Thursday, November 16, 2023

Morning Note: Looking Forward

Amidst our constant reminders that the present equity market setup remains somewhat precarious, we also continue to hint that our go-forward thesis sees unique global opportunities ahead -- beyond, that is, what's left in the current cycle.

Crescat's Tavi Costa points to one that we agree makes great sense going forward:

Yes, resource-rich economies, both from a valuation standpoint and given our view on the dollar during the next cycle, are one of those opportunities... Whether or not now's the time to take on full positions, well, that remains to be seen.

With regard to Brazil, their aggressive early response to inflation, along with very cheap equity valuations, inspired to us to take a position in anticipation of outright policy easing earlier than the rest of the world... That position is presently up 20% year-to-date... Our other two individual foreign country exposures are Mexico and Vietnam, up 25.13% and 13.26% respectively, year to date... However those two are more about near-shoring of manufacturing (Mexico), and "friend-shoring" away from China (both Mexico and Vietnam).

Also, with resource-rich countries in mind, we very recently diversified our broad emerging markets exposure into an ETF (DEM) that captures a bit more of that theme than does our older core position, with a high dividend (6.05% past 12 months) objective along with it... DEM is up 4% during the brief time we've owned it.

Now, taking a step back from boasting about our returns on these particular positions, we hold no delusions that they're not subject to our present base case scenario, which is recession in 2024... Per Tuesday's note:

"If we indeed happen to escape the woods without recession, and inflation settles back in at the Fed's 2% target, all's good in the land of equities, and we'll introduce, and add to, positions/asset classes that our long-term thesis says will shine over the years to come... Presently, however, odds that we'll be able to capture them at more attractive (cheaper) levels over the coming months are simply too high to ignore."

Hence, we've just carefully scaled in to this point.

Stay tuned.

Asian stocks were mixed overnight, with 8 of the 16 markets we track closing lower.

Europe's in the red so far this morning, with 14 of the 19 bourses we follow trading lower as I type.

US equity averages are mixed to start the session: Dow down 15 points (0.04%), SP500 up 0.16%, SP500 Equal Weight down 0.10%, Nasdaq 100 up 0.07%, Nasdaq Comp up 0.08%, Russell 2000 down 1.01%.

As for yesterday’s session, US equities closed mostly higher: Dow up 0.5%, SP500 up 0.2%, SP500 Equal Weight up 0.5%, Nasdaq 100 flat, Nasdaq Comp up 0.1%, Russell 2000 up 0.2%.

This morning the VIX sits at 13.76.

Oil futures are down 3.96%, nat gas futures are down 0.85%, gold's up 1.12%, silver's up 2.39%, copper futures are down 0.33% and the ag complex (DBA) is down 0.67%.

The 10-year treasury is up (yield down) and the dollar is down 0.27%.

Among our 32 core positions (excluding options hedges, cash and money market funds), 21 -- led by SLV (silver), SPTL (long-term treasuries), LTPZ (long-term TIPs), GLD (gold) and EMB (emerging mkt bonds) -- are in the green so far this morning... The losers are being led lower by Dutch Bros, REMX (rare earth miners), XLE (energy stocks), XLP (staples stocks) and Range Resources.

Now, more than (or as much as) ever:
"People get all excited about the price movements, but they completely misunderstand that there is a bigger picture in which those price movements happen. Price movements only have meaning in the context of the fundamental landscape. To use a sailing analogy, the wind matters, but the tide matters, too. If you don’t know what the tide is, and you plan everything just based on the wind, you are going to end up crashing into the rocks."

--Colm O'shea

Have a great day!

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