Our weighted average return in July was +0.09%. Since 2015, we have generated a net return of +33.57%.

In terms of investment strategy performance, our weighted average net returns for July were (a) +0.62% for conservative strategies, (b) -0.01% for balanced strategies, and (c) -0.05% for aggressive strategies.

July was a relatively calm month in global financial markets. At the end of the month, the US Federal Reserve lowered US interest rates for the first time in 11 years. Although this move had been anticipated by the bond market, many hoped that the Fed would cut rates by 50 basis points. Moreover, Fed chair Jerome Powell stated in his commentary that this was not the start of a “lengthy cutting cycle”. This was a considerable disappointment to those who had been clamoring that the Fed had raised rates too much too soon and were supportive of a more robust rate cutting strategy. In the meantime, the European Central Bank hinted that there was more easing on the way. The ECB also confirmed that Christine Lagarde (who is pro accommodative monetary policy) would replace “Super” Mario Draghi in November as Europe’s head banker.

Unfortunately, at the end of the month, US president Trump decided to impose yet another round of tariffs: 10% on an additional $300 billion of Chinese goods (starting September 1st).

As such, August began on a chaotic note. Stocks sold off and the long end of the US treasury curve saw massive buying. Last week, on August 14th, the US 10-2 year yield curve inverted on an intra-day basis (on a technical note 10-2 year yield was not inverted by the end of that day’s trading session and it has since steepened). This set the financial media world alight and the term “inverted yield curve” has now started to appear in casual conversations. The term that tends to follow “inverted yield curve” is “recession”. Most notably, many dwell on the fact that inverted yield curves have occurred in and around every recession over the past 60 years. We will be preparing a separate commentary on the nature, causes and implications of yield curve inversions, but I would like to point out three additional inversions that have happened since the end of July that I believe merit serious attention.

First of all, on August 13th, the editorial staff of the Wall Street Journal came out strongly against US trade tariff policy (“The Navarro Recession, II”). Media mogul Rupert Murdoch owns the WSJ. Murdoch also owns Fox News, and has been Trump’s most influential supporter. This was an unequivocal warning shot to Trump that his trade antics must cease before economic uncertainly elsewhere hits the US economy and costs him the next election, which is only 15 months away. The WSJ exercised considerable tact by squarely placing the blame on Trump’s chief trade negotiator Peter Navarro, giving Trump a very convenient scapegoat should he decide to listen to reason and alter his current, heavily disruptive trade strategy.

Secondly, on August 13th, Trump announced he would delay many of the tariffs scheduled to be implemented on September 1st until December 15th “Just in case some of the tariffs would have an impact on U.S. customers.” This was the first time that Trump admitted that trade tariffs hurt American consumers. Not only did he acknowledge that tariffs “might have an impact on people” but he also stated that he delayed the tariffs “so that they won’t be relevant to the Christmas shopping season.” It remains to be seen if he continues to loosen his stance on tariffs “just in case they have an impact on US consumers” before “election season”.

Thirdly, over the past week, financial market commentators have begun to talk about the possibility of negative US interest rates and/or that US interest rates would never rise again. Just like the words “this time is different”, history has shown that this sort of talk is highly indicative of inflection points.

Bonds are overbought, cyclicals are oversold, non-commercial shorts on copper futures (traded by large speculators and hedge funds) are at record highs. And how can I not mention gold? We finally made money on our gold exposure, but have been taking profits on what seems to be panic buying. There will be more opportunities to trade gold in the future, but panic buying, similar to panic selling, is not usually a wise course of action, especially for long-term investors.

On behalf of our Client Portfolio Management team, I thank you for your continued trust and support!


FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.