Free Whelan: When things start looking funky, start looking for gold
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In this Stockhead series, investment manager James Whelan from VFS Group offers his insights on the key investment themes and trends in domestic and global markets. From macro musings to the metaverse and everything in between, Whelan offers his distilled thoughts on the hot topic of the day, week, month or year, from the point of view of a professional money manager.
Coming back from a four-day break, and with the smell of salty air and $20/kilo prawns fresh off the back of the boat, I actually have ideas.
Just kidding, the market is still in a very funky place at the moment and while I don’t see any black swans, or even dark grey swans, I do see some data points that give me pause for thought.
First up; Chinese Q1 GDP just dropped, and it was uppish — to the tune of 4.8% year on year.
Quarter on quarter it was up 1.3%, beating expectations.
There’s just one thing that every analyst on the street pointed to, which was that the ‘super lockdowns’ China have implemented weren’t really captured in the data.
The massive Shanghai one that’s causing all the trouble will be caught in 2Q22, and it won’t be pretty.
China retail sales for March were also out, and showed a drop of 3.5% year-on-year.
That’s the first drop since July 2020, and yes I know ‘peak effect’ is a thing but still, China usually grows regardless.
I said keep your eyes fixed on what’s going on over there last week, and I reiterate that it deserves attention.
When you see things like this, it means Beijing is next behind Shanghai.
Beijing Changping’s Sport Arena will be transformed into a Covid quarantine and isolation center as from tomorrow. pic.twitter.com/7Vk3WGMA45
— Jingzhou Tao 陶景洲 (@JingzhouTao) April 18, 2022
If you’re wondering where those things you ordered a week ago are, they’re sitting off the port of Shanghai.
To confirm, I checked the radar and yep…there’s more boats than water sitting out there.
Adjust your portfolio for a supply shock.
Companies that need to sell things to a cashed up consumer may struggle.
If Q1 US results are anything to go by, businesses in general are doing OK — so this may be the chance to exit some of these names.
Also, the cashed up consumer isn’t as cashed up as they have been because mortgage rates are ticking up.
US consumer sentiment isn’t amazing either, as per this from All Star Charts:
This blog post is a good one, it briefly touches on the fact that all of these things are priced in by the market in general.
In other words, a recession is effectively already priced in to the market.
Something to think about.
Finally, gold miners. That’s if you still think you want a little defence, but also want cashed up companies with minimal debt.
Here’s a chart from Tavi Costa at Crescat Capital — and yes you need to take a pinch of salt with his stuff sometimes — but he makes a fair point on the reasons for holding gold miners. Simply put…
S&P 500-to-gold miners likely headed lower from here.
The macro and fundamental case for owning precious metals companies vs. overall equities has never been more attractive. pic.twitter.com/WpiyodDhkJ
— Otavio (Tavi) Costa (@TaviCosta) April 14, 2022
I prefer MNRS, the Betashares Global Gold Miners ETF, for my exposure there. Ex-Aussie gold miners, hedged (although the USD has a rocket under it at the moment) and a great way to gain access.
It just hit a fresh recent high and I see no reason why it can’t carry on.
All the best,
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