Positioning for the future as we do best!

As always, I want to take a step back to get a clear overview of the whole market. I do this by examining the data in terms of growth and inflation.

In the US, growth and inflation have been rising. We are now transitioning into an environment of flat growth while inflation keeps rising.

Regarding the global economy, we are experiencing slowing growth and an actual decrease in inflation. Around the end of this year, both will transition into an acceleration.

Due to this view, you will see that the portfolio is positioned precisely for that. Global indexes are ready for higher growth and inflationary-focused plays in the US.

Currently, at the market open on the 17th of May 2024, The Minimalist Portfolio is up 14,3% while the S&P 500 is up 12,77%.

We are outperforming the Index while being globally diversified. In addition, our two energy plays (taking up 20% of the portfolio) have yet to start their move.

Let’s get into the data!

Inflation

While inflation is decreasing in Europe, it is increasing in the US, even though the Fed is trying to convince everybody that it’s not.

The last time the Fed was this off on inflation was when they called it transitory. In the 3 quarters following that, CPI went from 4.85% to 7.96%. 

Eventually, Headline Inflation (CPI) peaked at +9.1% in June 2022. This should tell you about their track record of accurately forecasting these big macro data sets.

Leading commodity prices are skyrocketing already. Wheat was up +18.8% in the last month alone and Natural Gas +19.5%. 

This will indeed be seen in the CPI and PPI releases very soon. Shelter prices are the number one item to watch within the CPI series. This category contributes 36% of the CPI reading and increased at a 5.7% annual rate to March 2024.

On the latest PPI Headline release, we can see the year-over-year number go up two times as high as consensus was expecting. As the Fed’s goal is to have this line go down.

All these things considered, I’m confident that going against the Fed’s view of inflation going down will continue to pay off. 

Growth

As discussed in the introduction, I’m not expecting growth to be able to keep up with inflation. One of the first places you can see economic difficulties is small businesses.

NFIB Small Business Optimism

This chart paints a powerful picture, with optimism reaching levels similar to those during the global financial crisis of 2008.

In Europe, economic data continues to accelerate from its 2023 Recession lows. Now, we’re starting to see consensus chase European Indexes like the DAX, which we are already long.
It has increased +4.4% in the last month and reached a new all-time high.

We saw a significant acceleration in Chinese Industrial Production growth to +6.7% y/y in April, compared to the already robust +4.5% growth rate in March.

China and Europe are accelerating out of their 2022-2023 recessions, and we are long them!

Let’s get into the portfolio to show you exactly how to play this all!
 

Portfolio

Currently, at the market open on the 17th of May 2024, The Minimalist Portfolio is up 14,3% while the S&P 500 is up 12,77%.

We are outperforming the Index while being globally diversified. In addition, our two energy plays (taking up 20% of the portfolio) have yet to start their move.

For this reason, I’m staying with the current positioning.

Energy Sector (XLE) -1,14% Since Entry Fri 19 Feb 2024

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

US Insurance (IAK) +17,14% YTD

Investing in the insurance sector provides exposure to a stable industry that can withstand a decline in growth while delivering an excellent inflation hedge.

US Dollar Index -1,46% since Entry Fri 26^th of April

Due to the relative strength of the US economy and high interest rates that might even increase, this is a great place to be. 

WTI OIL +3.44% 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 and remains Bullish for oil.

SILVER (SLV) +12,04 Since Entry Fri 26^th of April

Silver is a great addition to the portfolio, building on the theme of inflation and taking advantage of price action. It’s been performing truly amazingly.

India (INDA) +9,22% 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.

Gold 16,44% 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) 5,31% 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 European continent.

China (SSE) +4,16% Since Entry Fri 8th of March 2024

China has strongly accelerating Cyclical Data. Including China in the portfolio increases the upside while ensuring we include global diversification.

Bitcoin (BTC) +50,43% YTD

Bitcoin is always a momentum play that is starting. 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.