LINK: Five Trades That Most Have Gotten Wrong
1) Short Trump
*** we have added to equity positions ***
2) Long Dollar
*** our USD exposure in Euro accounts is completely hedged ***
3) Short bonds
*** we did not flee bonds and have added to names we like on price weakness ***
4) Long Banks
*** we do not have any targeted exposure to bank stocks ***
5) Short Healthcare
*** we have held onto our healthcare positions and have added to our biotech holdings on dips ***
Central bank purchases resulted in a spectacular rally in investment grade bonds.
What do you think will happen if they start purchasing blue chip stocks?
Banking has a fascinating history, and has played a seminal role in the forging of the modern world.
Today, as banks furiously try to keep up with technologies and new ways of attracting and maintaining clients, it bears consideration as to what their roles will be in the future. Will they fall pray to today’s aggregators and connectors? Quite possibly.
In a world where more and more of your everyday purchases are sourced from Amazon, why not carry a balance on your Amazon account? Surely they could come up with enticing reasons for you to do so. Looking for a loan? Surely Google could personalize and rank your best options. Need to make a payment? Facebook has a decently sized network of users (1.6 billion and counting)…
Source: http://www.schwab.com/public/schwab/nn/articles/Anatomy-of-a-Bond-Bear-Market-What-to-Look-For-When-Yields-Rise
Rising rates provide considerable head winds for conservative investors that are overweight in fixed income securities.
This article from Charles Schwab does a nice job explaining how to adjust your fixed income strategy accordingly:
Yesterday, Shopify (SHOP US) powered to new highs. Shopify is a small cap stock, but we have long been intrigued by its incredible potential and ability to successful grow its sales platform. As such, it is one of our biggest equity holdings and has delivered tremendous alfa to our equity portfolios.
We first wrote about Shopify in August of last year:
LINK: Take a Look at Shopify’s #s Today
LINK: Analysts Liked Shopify’s #s
In December of 2016, ‘The Motley Fool’ recommended Shopify as a top pick, and followed up its recommendation this week:
The World Economic Forum is currently underway in Davos, Switzerland. It seems that this year the Masters of the Universe that assemble there on a yearly basis are concerned about the global upswing in populism and the shade it tends to cast on the localized effects of globalization:
LINK: Davos Wonders If It’s Part of the Problem
Here are some charts that further illustrate the ‘Davos Disconnect’:
The majority of our fixed income returns over the past number of years have come from Emerging Market bonds.
In the wake of Trump’s election victory, rising rate assumptions, a higher US dollar and a higher anticipated degree of trade protectionism led to a strong sell off in Emerging Market bonds. We took this sell-off as a buying opportunity.
The following link sums up our investment rationale quite well:
LINK: Fear Not Emerging Market Bonds
Although mark to market pricing and wider bid-ask spreads can lead to higher volatility in Emerging Market bonds, we have found that choosing healthy companies in the right sectors can generate outstanding risk adjusted returns for long term investors.
Only ten years ago, four of ten largest companies in the world by market cap were from oil and gas industry and only one tech company (Microsoft) was included in the list.
As of December 30, 2016, five of ten largest companies in the world are tech companies and only one is from oil and gas industry (Exxon Mobil).
| Top 10 companies by market cap | ||
| Rank | 2006 | 2016 |
| 1 | Exxon Mobil | Apple |
| 2 | General Electric | Alphabet |
| 3 | Microsoft | Microsoft |
| 4 | Citigroup | Berkshire Hathaway |
| 5 | Gazprom | Amazon |
| 6 | Industrial and Commercial Bank of China | Exxon Mobil |
| 7 | Toyota Motor Corporation | |
| 8 | Bank of America | Johnson & Johnson |
| 9 | Royal Dutch Shell | JPMorgan Chase |
| 10 | BP | General Electric |
Source:Bloomberg
Right now we are not interested in the demise of oil & gas companies or decrease in the number of banks between top ten companies. We would like to turn your attention to tech companies.
Here are a number of charts from legendary bond investor Jeff Grundlach of DoubleLine Capital:
I particularly like this chart of historical performance:
I would not no advise to bet against US stocks, but its clear that there is more compelling value to be found elsewhere.
Netflix keeps on widening the moat when comes to original programming. Now Netflix is not a ‘Warren Buffett stock’, but it has some very salient features that Buffett has sought out in his favourite holdings, namely pricing power. The more people Netflix gets hooked on their shows, the more leverage they have in terms of pricing.
We got into Netflix under $100. Its done very well:
