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Are We At a Tipping Point?

Feb. 29, 2024
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Wiko Steyn
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Wiko Steyn

Safe Haven Update

The US financial market and essentially the rest of the world's markets are still in a very precarious position. We have rampage inflation squeezing the consumer to the breaking point, while the federal reserve, banks and politicians will have you believe that they are in possession of all the necessary tools to fight inflation. We have some bad news for you, in this instance, it is simply untrue. Yes, they can raise interest rates to destroy demand and we might see a slight relief in inflation. Unfortunately, there are two reasons why this act alone will not reduce inflation to their target levels or what they like to call, restoring price stability. 

One. This inflation is more supply-driven than demand-driven and we are unlikely to see significant improvements until the supply side is restored. This is due to a multitude of factors, but mostly Covid-19 and the war in Ukraine.

Two. Countries like the US is built on a debt-based economy and their growth is almost completely reliant on an ever-increasing debt. They can't afford to raise rates to the necessary levels, because they will default on their own debt interest payments.  There has been plenty of articles on the death of fiscal austerity and the possible impacts on the markets. What is too much debt? Where is the tipping point? Does it even matter? Well, we guess we will find all the answers to these questions, probably still in the next decade. 

Some more doom and gloom, in the form of a dark cloud hanging over the US. Will the US go into a rrrrrecession? So now things get even more complicated for the federal reserve, do they want to be increasing interest rates in a slowing economy. Because, if they raise interest rates too high and inflation does not come down, they are walking into a hurricane called stagflation. At this point in the article, you should appreciate the delicate balance required to maintain the stability of the world's economy. 

We do not like to make forecasts because even the best investors can't successfully predict the market direction repeatedly. We will instead give our broad bull and bear case. If the US goes into a recession or any other bad news might push the S&P500 down another 10-20% and growth might fall even more. Any positive news regarding inflation or the US economy might start a decent rally. We expect that tech and biotech will lead the rally as demonstrated in the last two days of this past week. These were the stocks first to fall and they will most likely be the first to bottom.

Where does this leave investors?  Well, we think Peter Lynch's quote is most appropriate now. 

Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves. 

We would also direct the reader's attention to the graph showing what an investor's returns would look like if they missed the 25 best days for the last 30 years. It is simply impossible to time the market, but that does not mean an investor can't use risk management or hedging strategies. Right now, we still have a lot of cash in our 5 FU Investment portfolios and we will continue to deploy the cash using Dollar-cost averaging.    

 

Portfolio Update Summary

We have added to all ten stocks in our Safe Haven portfolio bringing them to a 50% allocation.


 

Disclosure

This is not financial advice and only the opinions of the author. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. The $10K is not real money and only a demonstration of a typical portfolio. 


 

 


 


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