Hi-Tech stock prices are in the beginning stages of moving much lower in price. The companies, sometimes referred to as the “FANGS”, drove the various equity markets higher for the last two years. Their stock prices rose to levels that defied logic. Investors mistook pure speculative momentum investing as fundamental justification for the stock prices. This speculation is now in the process of unwinding and it will drag the overall market lower. ETF funds, mutual funds, investors on margin and hedge funds will all be scrambling for liquidity by selling indiscriminately. With this selloff will come bargains as funds drive the price of basic companies lower in their search for liquidity. We hope to take advantage of their forced selling.
The potential for a trade war is truly a wild card. Without this potential, interest rates around the world are destined to move higher. We are still very bullish on the world economy. With this strong world economic growth will come higher inflation and higher interest rates. If, however; a tit for tat trade war begins to unfold around the world, then the opposite will happen. We will try to adjust our portfolios quickly if this happens. For now, we are staying with the assumption that political leaders around the world are smart in the filed of economics and realize a trade war is a loser for everyone involved. Yes, we know we just used the term politician and smart in the same sentence.
We are bullish on the gold miners, the energy mlp’s, the bio-tech/pharmaceuticals and the bank stocks. We remain extremely bearish on bonds. Our fixed income portfolio is dominated by short maturities and floating rate issues.