We have been asked over and over these past several weeks when we thought the bleep was going to hit the fan, and the market take another big plunge. The economic and investing environments are confounding — the tape action has the appearance of a bull market, yet so many professionals in the investment and asset allocation business are keeping trillions in cash on the sidelines. They are waiting for the “inevitable” comeuppance that is sure to arrive when the bleep hits the fan.
Well, while they have waited, as we noted above, trillions of $,£,€,and ¥ stimulus has hit the fan. This money printing can spur longer-term high inflation, but for now, it is driving markets to be stronger than economic fundamentals might suggest. The situation is quite precarious from an economic standpoint, and at the same time it is quite bullish from a liquidity and monetary perspective. We remain cautiously bullish on the growth companies which we have often pointed out are well situated to benefit from the way the U.S. and world economies will operate in the future. Market participants have generally focused on the stimulus, but many professionals have missed much of the rally. They believe that economic realities (which are not great for many old-line companies) and fear of political outcomes could easily halt the U.S. stock rally.
While we all are aware that a correction or rotation can occur at any time, we also know that such a correction or rotation will be moderated by the huge flow of liquidity mentioned above. If speculative buying in certain sectors or groups turns into selling, it may not mean a market crash, since much of the money may stay in the market and just move to some new sectors. The indexes could mask a lot of movement from one sector to another, without money ever leaving and causing a massive selloff.
When we look forward, we still believe owning certain stocks as well as precious metals is going to work out well. In the near term, having some hedges in place could be useful. Of course, having cash is good when times are uncertain, but remember, there is a longer-term issue with cash. While there may be little certainty about the short term, we are confident that the future includes a lot more monetary debasement … and therefore asset-price inflation. So, we don’t want to be bearish as the trillions settling on the sidelines earning a negative real return will have to start moving into investment assets at some point.
Our strategy is to hold stocks which are in tune with the trends of the new economy which have and will continue to be developing over the next few years. This strategy includes holding some cash to use to buy good-quality companies on dips when corrections occur.
Finally, portfolios contain gold shares which act as a hedge against a lower dollar, massive deficits leading to potential inflation in the future, or economic or social disturbances such as we have recently seen in some U.S. cities. Gold is a hedge against a weak U.S. dollar and higher income taxes on corporations and individuals which will be created if the U.S. moves from a primarily capitalist system to a more socialist system in the next few years.
Thanks for listening; we welcome your calls and questions.
