Very Important Updates to the Portfolio!

It’s been quite the week! Managing your capital can be an emotional rollercoaster unless you have a tried-and-tested process focusing on measurable data instead of opinions. 

One of the best examples of a short-term panic attack was India. Everybody had an opinion about what was going to happen. Because I am very vocal about my bullish outlook on India, I heard quite a few comments about it. 

As I write this, our long position in India is making fresh all-time highs! 

Investing is all about the highs and lows, and I will not pretend I don’t have any lows. European equity markets were already under election pressure earlier this week, but the Putin headlines created a strong sell-off.

I will make some changes to the portfolio, as you will see below. While the commercial financial media throws around ideas and never comes back to them, I take full responsibility and remain fully transparent. The media gets you in; I update you and, if needed, get you out optimally. 

In global macro, we don’t commit money to physical 20-year projects or things like that; with just a couple of clicks, we can get our money out. I’m taking my money and moving it elsewhere. I will cover this in the portfolio section below.

I’m not predicting that WW3 is about to start, but I am making the call that we are in the middle of the transition from increasing growth to slowing growth.

In the previous regime of growth and inflation going up, everybody could make money—even some internet Roaring Kitty person on GameStop. As they say, when your cab driver tells you to buy stocks, the market top is in. I consider this the degenerate modern-day version of that saying. 

To be clear, I’m not saying everything will crash from here, but we do need to be a bit more defensive. I’ll discuss this all in the portfolio section, but first, let’s get into the data on growth and inflation, which continue to be the most essential dynamics determining where we are and where we are going in the market cycle.

GROWTH

We had NFIB Small Business Confidence coming out this week.
This Index is a monthly survey conducted by the National Federation of Independent Business (NFIB) that measures small business owners’ economic outlook and business conditions in the United States.

It assesses various factors such as plans for hiring, inventory levels, earnings trends, and overall business expectations. This index is important because small businesses are a significant component of the U.S. economy, often seen as a barometer for economic health and growth. 

As you can see, confidence has gone down dramatically in the past few years. As inflation accelerates, I don’t see it getting any better.

NFIB Small Business Optimism

INFLATION

Consumer Price Index (CPI)

One of the most significant data points was on inflation with the Consumer Price Index. In my opinion, the reaction to a slight decline is completely exaggerated. We are still very elevated and will continue to be so.

The bigger picture also includes the fact that the Federal Reserve might think it is doing a good job and won’t have to raise rates or even cut them, which would cause inflation to really go up.

As you should know by now, I don’t care too much about CPI data, as it lags the commodity prices by quite a bit. Commodities have been going up very strongly what we are long, so that can’t be good for the goal of getting inflation down.

For some reason, however, some Wall Street media thinks inflation will decline steadily. They need the Fed to practically bail them out of their positions by cutting rates.

Let’s get into how we can position ourselves for the upcoming market regime.

 PORTFOLIO

 As it’s been a very volatile week, we have the opportunity to make some changes and improvements to the portfolio. These are: 

• We are exiting France and entering The Netherlands as they are positioned more favorably.
• Replacing Energy Sector with the more defensive Utilities Sector 
• Exiting China and allocating it to Natural Gas. As this has been on the watchlist for a while I’m very happy we get to include it in the portfolio now. 

Exiting Energy Sector (XLE) at -7,6% Since Fri 19 Feb 2024
Entering Utilities Sector (XLU)

Great sector to be long now that growth is slowing. Very stable and defensive. 

Weekly Chart XLU

Industrial Sector (XLI) +1,2% Since Entry Fri 31 May.

The Industrial sector is a great place to allocate capital in a macro environment of rising growth and inflation.  

Weekly Chart XLI

Copper -7,9% Since Entry Fri 24th of May.

Copper builds perfectly on our theme of rising inflation and rise in chip production. 

Weekly Chart Copper

SILVER (SLV) +8,5% Since Entry Fri 26th of April

Silver continues to build on the inflation theme, performing very strongly. 

Weekly Chart SILVER 

Gold 13,8% YTD

Gold has been solid historically in the given macro environment, especially relative to the S&P500. It’s a true classic for holding up as a haven asset in higher-volatility environments. 

Weekly Chart Gold

Germany (DAX) 1,9% Since Entry Fri 19th of April

As we are bullish on Europe, it’s great to have exposure to Germany, which is considered the continent’s engine. 

Weekly Chart DAX

Exit France (EWQ) -10,3% Since Entry Fri 24th of May
Entering Netherlands (EWN)

As the European Recession ended in Q4 of 2023, The Netherlands is a great place to allocate capital. 

Weekly Chart Netherlands

 India (INDA) +13,9% YTD

The difference in real growth between India and the median G20 economy is set to reaccelerate in 2Q24, while India is already the global growth leader through 2024. 

 India (we remain long of India $INDA). All of these countries saw new orders accelerate, improvements in employment, and accelerating input costs. 

Weekly Chart India

Exit China (SSE) +0,1% Since Fri 8th of March 2024
Entering Natural Gas

Natural Gas is one of the most powerful energy/Inflation plays we can possibly put on. Very happy to include this in the portfolio 

Weekly Chart Natural Gas

 Bitcoin (BTC) +51,2% YTD

I’m not a crypto expert nor am I a long-term holder but the when the excitement about another bull market starts it makes more noise and draws more amateur investors in than anything else. This makes it a self-fulfilling prophecy and something we want to participate in. 

Weekly Chart Bitcoin

I hope you enjoyed this edition of The Minimalist Portfolio. I’m grateful to be outperforming together! 

All the best,
Philippe