Is your investment strategy adapted to current events?
New opportunities are popping up because a lot is happening.
I hope you are doing well, and your week was wonderful.
U.S. and China
Nancy Pelosi visited Taiwan, and China is pissed
Beijing has reiterated its intention to achieve “complete unification” with Taiwan (One China). China (at least) claims for example that the Taiwan Strait is not an international waterway and violated Taiwan’s air defense zones many times. Taiwan fights back.
A broad competition between the U.S. and China is driving a possible breakup. Both countries focus on boosting their self-reliance, reducing strategic susceptibilities, and decoupling their tech sectors from each other.
Congress is pushing industrial policy legislation to increase competitiveness for critical (future) technologies. The U.S. has also announced sanctions against Chinese companies, bypassing sanctions on Russia.
Why is that important?
No. 1: You have to know. Taiwan is where most chips worldwide are being produced. Whoever controls Taiwan controls all the tech companies in the world. That includes everything that uses chips, including for example the car industry.
No. 2: With Pelosi’s visit, the U.S. reinforced its leading position in the world, and this fosters the dollar as a reserve currency. At least I think that was the plan.
Europe is also in the midst of exploring the right balance between openness and security—between giving up the benefits of interrelationships and trimming the vulnerabilities of dependence. This is not a process that is entirely focused on China and Russia. It is a process that will fundamentally impact relations with other countries.
The question is.
Which agenda is leading the process?
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The U.S. unemployment rate fell to 3.5% - the lowest since Dec. 06, 2019 (Nov-Rate)
I am curious how long this low level can be maintained. From my standpoint, not too much because the big players such as Amazon, Facebook, Walmart, and other large corporations are already reducing staff.
Uri Geller has also shown up again
He said that he protects the USA with his spiritual shield. And promptly, lightning struck the White House ground and injured a few people. Uri - this has to improve.
The coming months will be stormy
Midterm elections are in November. A large portion of the U.S. Congress may change. President Joe Biden has not covered himself in glory so far, so I expect the Republicans to regain the majority. Making it impossible for Biden to start any further steps on his agenda.
I think oil companies and evil banks (both traditionally the enemy of Democrats), will face headwinds from the Democrats. Pharmaceutical companies - that’s going to be interesting. They used to be “the bad guys” too. Right now, they’re more likely to have the upper hand.
Winter will bring a lot of clarity, not just to the political landscape
The next interest rate decision is due in September. After two interest rate increases of 0.75% in a row, some people are demanding even more - to get inflation under control. The Fed is already taking its position: James Bullard said he sees no risk of a recession. Source
History shows that two higher, successive rate hikes significantly reduce consumption, especially among low-wage earners and the middle class. Further increases would be an even greater hit to the economy, and as a result, a recession could be more severe, instead of mild. I think James Bullard is way off base. Or he has a different agenda.
The looming recession also transforms the business models of former revenue generators to risk factors. For example, buy-now and pay-later providers (Affirm, Grab, Afterpay) are seeing falling stock prices because many consumers’ credit scores and the likelihood of repaying their debt drop. That increases risk - always bad from an investor’s point of view.
Fading commodity prices (oil, tin, copper) are also seen as a foreshadowing of a recession. I see this more as a long-term buying option. Especially tin and copper. I will position myself soon because tin and copper are in nearly everything that runs by electricity. Be it cars or data. Without solder and copper, very little happens. Imagine the economy blooms again. I will still wait a bit until I hit the buy button.
I’m also looking for dividend shares of companies whose products are in constant demand.
Right now I’m thinking is this direction. People always need to eat. People always need energy. And in times of a never-ending pandemic, pharmaceutical companies are probably not a bad choice either.
What the math says
Dow: - 0.6% at about 32,655
Dax: + 0.7% at about 13,573
The Euwax sentiment of private investors slipped on Thursday 04.08.2022 to -17.7. The lowest level in twelve months. So, despite the modest recovery this week, nobody is freaking out to party.
The question is, how long is the liquidity of private investors strong enough to continue a rally?
Meanwhile, institutional investors bet strongly on rising prices. They shopped calls like crazy.
Does that mean that they will soon start investing again?
At least this points in that direction. The put/call ratio on the CBOE is at a low level. This means they are speculating on a continuation of the rally.
The question is; what’s their time horizon?
US funds have raised their investment ratio by 8 points from 47% to 55%. Still well below the average investment ratio of well over 70%.
Except for light, nothing follows a straight line, not even a recovery. The steam of this rally is likely to run out soon without very positive news.
Therefore, I still wait and say.
The information in this article is my personal opinion. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. They are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk. Investing in the stock market can always lead to a total loss of the capital invested.