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Keep Balance!

Updated: Oct 31, 2023

I see someone begrudgingly writes that “the only reason the U.S. stock market continues to rise is that the economy and earnings are so weak that investors expect ever-increasing quantities of Fed stimulus to keep pushing prices higher. And it's only a handful of the most over-valued companies that are actually rising.” (Nutstuff would argue some of this yes but it is not just for this reason, but actually that many companies that were in growth mode before this environment have now become hyper growth). Most of these are US companies with US innovation. This last point is important and more on that separately, as discussed yesterday

China today is back in a bull market. KWEB US ETF! With a year-to-date gain of 16.3%, the CSI 300 is the only major index apart from the Nasdaq to have delivered positive returns to investors so far this year. And while most international investors that hold equities are invested in large-cap US tech names, very few are exposed to Chinese assets in any meaningful way. The widespread belief that China faces a "Minsky moment" has not so far materialised.

Of the three major risks I see threatening this latest move none as of yet are flashing red. Thisisn't to say there are no risks to investing in this nascent bull market. Chinese companies, likecompanies everywhere else in the world, remain vulnerable to the very fragile global growth environment. And major uncertainties remain about what the future China-US and China-EU relationships will look like. Of course the US could still squeeze China by restricting

semiconductor exports. And the US could squeeze Hong Kong by imposing stringent financial sanctions (even if this is unlikely, it is still a possibility). Against these risks, however, it has to be acknowledged that the US dollar is no longer rising (which is good for emerging markets and very good for Hong Kong), that oil prices are low (which is terrific news for Asia), for now! and that interest rates are also very low (which forces investors into higher-risk assets). This combination of a stable US dollar, cheap oil and low interest rates has started more than one past bull market in Asia-and now seems to have done so again!

INFLATION....JIM MELLON my good friend out with some prescient thoughts last night

which I know he is happy I pass on, and I struggle to disagree with a lot of what he thinks and

on the inflation issue which is so key. Whilst I struggle to see it show up anytime soon in wages, rents or property prices anytime soon, in food security and environmental it absolutely must be considered. ... BANNISTER reminds; “Inflation has been a snipe hunt for a long time. I’ll wait until I actually see a snipe before I expend munitions in its direction.”

Jim writes; “I haven’t written one of these letters for a little while, as I have been engaged – and not as successfully as I would like – in writing my new book, Moo’s Law, which is about the new agrarian revolution. It will be out in August though, and soon be available for pre-order. Everything to charity.

Anyway, in respect of my missive procrastination, there are only so many times that I can advise everyone to buy gold and to lace their portfolios with metathematic investments. (Those aren’t drugs, by the way!) And, to be wary of the US Robin Hood bro’ market, which has become increasingly frantic and narrow.

So, I will say it again – watch out in the US, particularly in the Nasdaq stocks, and keep holding the precious metals and their surrogates. The US will have an inflationary boom starting next year; the kindling for that is in the hearth, and the Fed and Treasury are busy pouring the gasoline onto the fire now. The same applies to the UK, parts of Europe and to everywhere else where caution has been thrown to the winds and the monetary presses have been running hoI have no idea who will win the US presidential election, but neither of the candidates strikes me as being particularly good for the markets post-November. The Trump administration has not covered itself in glory vis a vis the pandemic, and is seeking to inflame matters by talking up law and order as a counter-theme to the BLM movement, which is in itself somewhat of a reflection of the deep seated inequalities in US society.

Trump is also reigniting the war of words and tariffs with the EU and with China, all

designed to play to his core base. Meantime, be in no doubt that if Biden – currently the front runner – wins the Presidential election, this will not be a good thing for enterprise and stocks, especially as Democrats would most likely take the House and Senate at the same time.

I read an “if you can’t beat em, might as well join em” article today – always a bearish signal – and I note that the Nasdaq, now up quite a bit for the year, is 16% above its long term 200-day moving average, and that has not ended well in the past. But there are of course, less risky ways of making money than jumping on the bandwagon of the Teslas, Amazons, Zooms etc. – and that is to stick to the obvious beneficiaries of the great macro trends. Yes, of course that includes clean meat, climate change solutions and health/longevity companies, but let us leave those aside for this letter.

In an inflationary environment – and I have been heralding this for some time – precious metals, inflation linked bonds (TIPS), and probably real estate (particularly residential, but only after a shake-out), will be the places to be. There are some people who have lived their lives as gold and silver bulls, and like stopped clocks they are about to be really proved right.

Gold is termed an anti-fragile asset by Charles Gave, a really sage man, and so it is. It does

particularly well in times of stress – and who could not say that we are not in one of those now. Some market practitioners only see the green on the screen and act as though nothing is happening, only upward movement.

They might be right about a V-shape recovery, of a sort at least, they might be right about

disruptive technologies, and they might be right that the US and UK and Chinese and German and 189 other nationalities of consumer are ready to spend, spend, spend, but they are not right about the valuation of markets.

I still think UK shares are generally cheap, weighed down by Covid chaos, and by lingering

Brexit doubts, and I think Japan is a great market to be invested in. But just you wait and see, there’s a crash coming in the US, and it won’t be long in arriving. There might, might be a melt up before, but participating in it will be like risking all on a game of pass the parcel, when safer, more-likely-to-succeed investments are all around for us to see, if only we have eyes.

Meantime, please keep holding the stodgy and boring stocks that will survive – in the UK,

Lloyds, Phoenix Group, RSA, Legal & General, Prudential, Whitbread, all dull as ditchwater, will be the ones to spring out of the traps when things get going. But don’t have more than 50% in stocks overall; 20% in precious metals, 10% in cash (GBP or JPY by choice), 10% in inflation linked bonds, and 10% in metathematic investments. I’m going to give you a quick flavour of the latter: US alternative milk sales (soya, almond etc.) were about 1% of the milk market a decade or so ago; they are 16% now.

Plant based meat sales are about 1% now. You know where I am going... Jefferies, a big US investment bank, estimated about a year ago that it would take 10 years for Beyond Meat to be tracking at $1 billion of sales; it is now estimated to be doing that this year. This pandemic has been a curse; I am just leaving the Isle of Man where we have been for 100

days. They have handled it brilliantly, but no one likes lockdown and I must say I am excited to be travelling.

If we don’t do something about the food supply chain, we will be confined to barracks several more times before we slip our earthly moorings. It is quite clear to me that everyone needs to think about food. For their health, for the environment, and for the planet generally.”....

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