Bubbles
Outperformance of Growth sectors most likely has run its course. It is time to shift Growth vs. Value allocation to neutral, downgrade Semis, and upgrade Energy to overweight.
In Section I, we audit the market’s “soft landing” narrative in response to a meaningful challenge to our cautious stance from recent financial market developments. We acknowledge that US economic growth was stronger in the first half of the year than many investors expected, but we are unmoved by the recent uptick in “soft landing” hopes. A “soft landing” outcome very likely necessitates interest rate cuts before recessionary dynamics emerge, and it is far from clear that rate cuts or (especially) an easy monetary policy stance are likely to materialize over the coming year. As such, we continue to believe that conservative portfolio positioning is appropriate. In Section II, we discuss some simple approaches that we use when valuing the major asset classes that we cover. We conclude that global ex-US equities and ex-US developed market currencies are the main assets that can be considered “cheap” today.
Innovative Tech will face macroeconomic headwinds in a new “higher for longer” interest regime. Yet, the long-term opportunity of the cohort is tremendous. Investors need to be judicious with the timing of adding new capital to these themes to bolster long-term returns.
Global investors should sell Chinese assets on strength this year and diversify into other emerging markets. American investors should limit China exposure. Short CNY-USD.
While the housing downturn will be fairly mild in the US, it will be more severe abroad. Continue to favor bonds of countries whose housing fundamentals will limit rate hikes.
Web 3.0 plays will boom in the coming decade. Play this through a diversified exposure to today’s main blockchain tokens. But the Web 2.0 oligopolies, like Amazon and Meta, are in big trouble.
What is the outlook for the European housing market amid rising mortgage rates and the energy crisis? Does housing represent a systemic risk? Can households weather the storm? And what are the opportunities, if any?