Great buying opportunity to build on our core theme!

Welcome to another edition of The Minimalist Portfolio. Here, we don’t spend any time on narratives; we get straight to the point based on data!

In summary, this edition will continue the theme of:

- Inflation in the US accelerating

- Europe coming out of its recession (the bottom was the last quarter of 2023) 

We have been positioned for both and will keep building on this theme. Let’s look at the data in more detail, and after we get into the portfolio,

 Growth

We mainly focus on the US, which is still home to the most significant stocks and economy. In terms of growth, however, the US is relatively flat. The exciting part is inflation, so let’s focus on other economies in this growth section and revisit the US in our inflation section.

In China (what we are long), industrial growth has accelerated by +7% compared to last year. This is sure to impact inflation and the global economy.

Europe is a great place to invest right now. As mentioned in the introduction, it ended its recession in the last quarter of 2023 and is now experiencing economic growth. In addition, contrary to the US inflation is going down.

Inflation

Let’s get into the most essential part of what is happening in the market now. The way Consensus and the Fed are wrong on inflation is quite extraordinary.

As you know, we measure everything using the rate of change terms.

The rate of change measures how a quantity changes to another amount, typically time. This is one of the critical parts of the strategy as it allows us to front-run and have more detail on what the data is doing. Instead of arguing whether things are high or low, we talk about whether they are accelerating or decelerating up or down.

The critical point is that the base effects (comparisons) of US Energy Prices will only ease from now until year-end 2024. Just look at Natural Gas (on the watchlist), which has been up +67% since March!

Another significant place that front runs the CPI and PPI prices everybody looks at is the prices of metals. They’re all going vertical (chart below). Even Gold has made it to new all-time highs (we are long).

We are also long Silver, which has been doing great and finally we get a good price to enter in Copper. More on that in the portfolio section below.

Yet another reason why inflation will not be going down is to be seen in one of the largest components of inflation metrics being Shelter.

The Case-Shiller Index is a leading indicator for shelter inflation because it tracks home price changes. Rising home prices often lead to higher rental costs due to increased demand for rentals. This price change typically affects shelter costs with a time lag, allowing the index to predict future shelter inflation.

According to the leading indicators, CPI will likely break above 4% by the first quarter 2025. Owning inflation is the best way to combat it as an investor.

Let’s get into the portfolio to show you how to do this optimally.

Portfolio

As stated in the introduction, the central theme is Europe coming out of its recession and inflation in the US going up again. In keeping with this theme, I’m grateful we can make some transitions in the portfolio due to healthy corrections in assets we like.

The first move I’m making is transitioning from our position in the USD to finally being Long Copper. 

The second move is closing our defensive US Insurance ETF, which has been performing great for the France Index.

Let’s go over the full portfolio.

Energy Sector (XLE) -3,8% Since Entry Fri 19 Feb 2024

This sector increases with inflation regardless of growth. It’s the only all-weather inflation sector.

WTI OIL +0.2% Since Entry Fri 23 Feb 2024

While the U.S. Government keeps declaring victory on inflation, we will keep buying inflation. The Global Industrial & Manufacturing Cycle bottomed in December of 2023 what remains Bullish for oil.

EXIT US Dollar Index -1,1% Enter Copper

To build on the theme of rising inflation I’m adding Copper to the portfolio now that we finally have the chance due to a healthy correction.

SILVER (SLV) +12,1 Since Entry Fri 26^th of April

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

Gold 13.5% 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.

Germany (DAX) 5% Since Entry Fri 19^th of April

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

EXIT US Insurance (IAK) +15,9% YTD
Enter EWQ (France)

I’m closing my position in Insurance. It has performed excellent, but we are getting a buying opportunity in Europe, and I would like to capitalize on it.

European Recession ended in Q4 of 2023, making it a great place to allocate capital.

India (INDA) +11,1% 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.

China (SSE) +2% Since Entry Fri 8th of March 2024

China has strongly accelerating Cyclical Data. Including China to the portfolio increases upside while also making sure we include global diversification. 

Bitcoin (BTC) +52,7% YTD

I’m not a crypto expert, nor am I a long-term holder, but 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.

I hope you enjoyed this edition of The Minimalist Portfolio. I’m grateful you’re here from the start, and I’m looking forward to outperforming you together!

All the best,

Philippe.