The U.S.
A correction is underway in U.S. stocks, as stock and bond markets price in trade war and recession risk and investors seek safe havens.
We remind readers that part of the generally accepted bullish thesis at the beginning of the year was that a more accommodative Fed was on the way. In spite of his apparent inept communication, Fed Chair Jerome Powell has begun to deliver on that anticipation, and the consensus is that he will deliver still further in coming months. Additional rate cuts seem likely to most market participants, and to us. So in the midst of a correction — when what was “natural, normal and healthy” is actually happening, and is therefore much more alarming than when it was just a possibility — investors should remember that it is likely to run its course and be followed by a rally, and should have their buy list ready.
We believe the market still wants growth, and so our interest remains focused on U.S. growth companies, particularly in tech industries with strong tailwinds.
Gold and Cryptos
Gold continues to be a major focus of interest, and has been performing well during the current correction. For many clients, we have increased allocations to both bullion and gold miners whose reserves lie in safe, law-respecting jurisdictions. We’ve been telling you since last year that 2019 was likely to be a strong year for gold, and our conviction continues to strengthen. The present rally was underway before the fears undergirding the current correction had come to a boil, and we believe that there is significant fundamental underpinning that makes gold’s rally feel different from a volatility-driven spasm. The second-quarter report from the World Gold Council outlines some of the reasons:
- Overall demand continues to trend higher, with a slight acceleration from the first quarter, and demand is still outstripping supply growth;
- Central bank purchases, especially from developing-market central banks, continues to be very robust, and is accelerating. This is likely a “structural hedge against global economic uncertainty,” and given the policy-driven nature of central bank buying, unlikely to slow suddenly.
- Emerging-market central banks may be seeking indirect dollar exposure by holding gold — which is denominated in dollars — rather than U.S-backed financial assets such as Treasuries;
- Gold ETFs are showing strong inflows;
- The increasing proportion of negative-yielding securities will keep incrementally pushing savers into gold;
- Individual bullion buyers are not yet strongly in the mix, as they usually are when a bull run in gold is nearing maturity.
We believe that for all these reasons, gold can continue to appreciate in 2019.
Bitcoin remains interesting, and our only real focus among cryptocurrencies. It has been consolidating after its appreciation so far in 2019. Bitcoin cannot yet function in the way that gold does in a risk-off atmosphere, not least because the market remains opaque and, we believe, still vulnerable to manipulation. Still, we continue to observe bitcoin closely.
Thanks for listening; we welcome your calls and questions.
