We are in the middle of the macroeconomic shift we have been predicting and positioning for. In the last quarter, both growth and inflation rose simultaneously, as this is a very bullish environment. A lot of speculative assets went up. Now, inflation will stay high, and growth will level out. Let’s look at both the data around growth and inflation in more detail. 

Inflation

The rising 2-year yield indicates growing inflation expectations. This is unsurprising as commodity prices lead to CPI numbers, and they are all going up. Our long positions in Copper and Silver have been performing great because of this! 

Another strong leading indicator is shipping rates. With a ton of disruptions, we have seen these go up by quite a lot.

The Shanghai Containerized Freight Index up by 240% compared to a year ago. 

This reacceleration in inflation will surely strain average households, reducing their consumption capacity. Also, on the producer's side, things get more challenging as inflation increases again. Let’s take a closer look in terms of economic growth. 

Growth

Institute for Supply Management

The ISM, or Institute for Supply Management, is an organization that publishes a monthly report known as the ISM Manufacturing Index (PMI).

This index measures the manufacturing sector's economic health by surveying purchasing managers on various business conditions, including new orders, production, employment, supplier deliveries, and inventories.

The ISM Manufacturing Index is a great leading indicator for economic growth because it provides timely insights into business conditions in the manufacturing sector, which is a significant component of the economy. Changes in the PMI can indicate shifts in economic trends before they are reflected in other economic indicators, making it valuable for predicting future economic activity.

A reading under 50 signifies slowing growth, and the Headline number has been under 50 for 3 consecutive months.

The Portfolio
So how do we play this dynamic?

It’s not all bad news, as volatility is decreasing. This is a very bullish sign but as stated above, it's crucial to avoid certain market areas and focus on others. Small-cap and speculative investments should be avoided. For example, the Russell 2000 has dropped 16.9% since Q4 2021, and highly speculative assets like GameStop have seen significant losses, with many investors losing half their capital.

 Due to the fact, the portfolio is performing great, and we just got out Natural Gas and Bitcoin in time, I will be keeping the current portfolio on for this next week also.

Utilities Sector (XLU) -1,9% Since Entry 14^th of June

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

Insurance (IAK) -0,8% Since Entry Fri 30^th of June

Insurance is a tremendous defensive sector for slowing growth.`

Healthcare (PINK) -1,3% Since Entry Fri 30^th of June

Healthcare is another amazing defensive position what is sure to pay off in these times of slowing growth. 

Technology Sector (XLK) +3% Since Entry Fri 30^th of June

As slowing growth remains the theme, we need to increase the quality of the portfolio. The Tech giants continue to deliver what makes them deserve a place in the portfolio.

Copper -4,2% Since Entry Fri 24th of May.

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

SILVER (SLV) +14,3% Since Entry Fri 26th of April

Silver is an inflation hedge and a store of value what makes it perfect for the current macro dynamic.

Gold +15,6% 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) +4,1% 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 

Netherlands (EWN) 2,7% Since Entry 14^th of June

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

India (INDA) +17% YTD

The signal remains bullish on India as its world-leading economic growth is set to hold at these levels. Probabilities point towards shallow accelerations in 2H24 on buoyant domestic demand and government spending as well as strong credit growth. 

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

All the best,
Philippe