As always, we create a portfolio based on the two most important macro factors in the economy: growth and inflation. Depending on whether these are accelerating or slowing, different asset classes will work, while others should be avoided.
Right now, growth continues to slow, so we remain active in the defensive sectors. The exciting news is that we are shifting from slowing inflation to having it reaccelerate.
On top of this, the Fed is lowering rates, which weakens the dollar and raises asset prices across the board.
The big transition is that we will focus more on building commodity exposure and emerging markets that benefit from a weaker dollar.
There is another tailwind for commodities on the other side of the world: CHINA.
China’s central bank unveiled a blitz of monetary stimulus measures designed to boost the economy. They have entered their first quarter of GDP acceleration in many quarters.
Suppose China’s Cycle Low (in demand) is in AND the USA has accelerating inflation. In that case, Commodities as an Asset Class are outright long into and out of Q4 thanks to both economic powers.