Portfolio adjustments for 2022 | InvestorPlace
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Are you ready to take risks? …two trades from Eric Fry looking set to generate strong returns…two hedging trades to balance your portfolio
In 2022, which of the following will have better returns?
Volkswagen or Tesla?
Gold or Bitcoin?
Intel or Nvidia?
You have your choice?
Our macro specialist, Eric Fry, goes with…drum roll…Volkswagen, gold and Intel.
Some of you might suddenly choke on your dinner. So, let’s jump straight to Eric for more color:
I expect the “character” of the financial markets to shift significantly from a “risk-driven” bias to an “anti-risk” bias.
In other words, I expect investors to behave more cautiously and timidly than they did in 2021.
Generally speaking, therefore, I would expect relatively conservative investments to outperform their relatively risky counterparts.
“Caution” certainly seems appropriate after the market’s massive sell-off in recent weeks, including today’s massive reversal that saw the Nasdaq go from 2% gains to a loss (at the time of this writing, around the end of the day).
The Nasdaq slipped into an official correction yesterday. Meanwhile, the S&P and Dow Jones are down around 6% and 5% from recent highs.
So what 2022 trends will present investors with this wonderful combination of yield and caution?
In the latest issue of Eric Investment report, he detailed several of them. Today, let’s take a look at the problem to find out which opportunities Eric sees outperforming in 2022.
*** Fantastic setup in Commodities
For the most recent Digest readers, Eric is our Global Macro Specialist and the editor behind Investment reportyou. As a macro investor, he assesses markets and asset classes from a global perspective to identify attractive opportunities.
Once a macro trend is in his sights, he digs to find the specific right investment to seize the opportunity.
It’s a powerful strategy. Over his decades in the business, Eric has unearthed more 1,000% winning investments than anyone we know in the newsletter industry.
Returning to cautious approaches for 2022, Eric points to commodities.
Now regular Digest readers know Eric’s optimism about the copper trade. In fact, yesterday Digest touched on that.
We won’t go over those details, but here’s Eric’s quick take:
Conclusion: Robust future growth in copper demand is fairly certain, but the ability of the mining industry to meet this growth is not.
This is the kind of equation that should put upward pressure on the price of copper for many years to come.
But copper isn’t the only commodity Eric loves in 2022.
The second is something our world wants to do without, but the dependencies are hard to break. And this one is likely to generate excellent returns before it falls into the bucket.
No matter how “doomed” crude oil may be in the long run, it could deliver dramatic short-term gains.
Crude’s bullish backdrop has become too compelling to ignore.
*** In the past, Eric has pointed out the fallacy of “more electric vehicles means the oil is dead”
In short, although electric vehicles will capture an increasing share of the global automotive market in the coming years, the total automotive market will continue to grow. This means that the number of gasoline-powered automobiles on the road will also continue to increase.
When you combine this reality with demand from other industries, the International Energy Agency (IEA) expects global demand to be at least 25% higher in 2050 than it is today. today.
Recently, oil demand has rebounded strongly, supporting higher prices. In fact, this week oil rose to its highest level in seven years (partly due to an attack by Yemeni Houthi rebels on the three UAE tankers).
But investors pointing to that seven-year high by saying prices are peaking are missing an important part of the equation – basic supply and demand.
As for the request, it dates from yesterday at the the wall street journal:
Global oil demand will exceed pre-pandemic levels this year thanks to growing Covid-19 vaccination rates and as recent virus surges have not proven severe enough to warrant a return to lockdown measures. strict lockdowns, the International Energy Agency said on Wednesday.
And for supplies, here is Eric:
Most people assume that OPEC and others could easily increase production to meet any significant increase in demand. But this hypothesis rests on a fragile statistical basis.
The United States has provided nearly all of the growth in global crude production over the past decade, not OPEC. Pulling this rabbit out of the hat a second time won’t be easy, as U.S. shale production peaked two years ago.
Eric points out that oil and gas companies have cut exploration budgets for years. Global investment in oil and gas exploration and production has fallen by around 65% since 2014.
It’s not hard to connect the dots:
Net-net: Abundant new supplies of crude oil seem highly unlikely.
A tightening oil market, coupled with an upward inflationary trend, gives strong reason to expect oil stocks to perform above the market in 2022.
***Two “hedging” sets to balance your larger portfolio
Copper and Oil are likely to bring firepower to your returns this year – think “the offense”.
Now let’s look at two ways to play defense: gold and a bet against bonds.
Starting with gold, there’s no denying that this trade was incredibly disappointing, not least because it did nothing as inflation surged.
As the chart below shows, the trend in the price of gold tends to follow the trend in inflation…but not this time around.
Despite soaring inflation on the right side of the chart, the price of gold has been fall!
Even so, the yellow metal deserves the benefit of the doubt, both as a hedge against inflation and as a hedge against stock market volatility…at least for now.
I still believe gold related games are worth a few dollars of investment in a balanced portfolio.
Additionally, gold could be boosted by an unexpected source…grumpy bitcoin investors.
For most of 2021, Bitcoin has acted as an inflation hedge. As yields increased, the price of Bitcoin also increased. When they fell, Bitcoin fell.
As we noted earlier this week here in the Digestthis relationship seems to have collapsed in 2022.
What we see now is Bitcoin being treated as a risky asset. As yields rise, investors have dumped Bitcoin.
But they don’t throw gold.
Below we take a look at gold versus Bitcoin since December 1st. Bitcoin lost 27% while gold rose 4%.
Remember that these two assets derive their value from a single source: emotion.
If we are truly seeing a broad shift towards a “risky” sentiment, all signs point to gold being seen as a more stable store of value than cryptos.
And that might attract some “me too” bitcoin investors who have been burned and are now looking for something more solid.
(To avoid confusion, we’re bullish on Bitcoin and elite altcoins. The analysis above refers to the mindsets behind investing in both asset classes.)
***For the second game of hurdles, consider betting against bonds
Interest rates have been falling for four decades. But Eric suggests we could finally see a reversal this year.
From his number:
As most people know, the CPI inflation rate is soaring to a 40-year high of 7%. This means that the buyer of a 30-year Treasury note yielding 2.0% receives a solid return after inflation of minus 5% per year.
This mathematics is not the type to create wealth.
Sooner or later, bond buyers could demand more than 2% interest to tie up their money for 30 years…especially because the federal deficit is still at a monthly level of $215 billion, or $2.6 trillion. dollars per year…
Without the price-insensitive Federal Reserve absorbing much of this titanic supply of Treasury bonds, who will? And at what price?
Someone will buy our bonds, of course. But they might charge a much higher interest rate to do so.
Eric is quick to point out that a sustained rising rate environment is not a certainty.
In fact, almost everyone expects rates to be much higher a year from today. And long-time investors will probably tell you that when everyone believes the same narrative in the market, surprises often result.
That said, higher rates are enough of a possibility for Eric to feel confident taking this trade as a hedge.
If you are a Investment report subscriber, be sure to check your latest issue. Eric details the specific investments he recommends for each of these trends and a few others. To learn more about how to join Eric in Investment reportClick here.
*** In conclusion, who knows what 2022 will bring, but it is unlikely to deliver the huge and large returns of 2021
Is your wallet ready for it?
Otherwise, look at the trends we covered today. They are likely to provide both returns and an additional degree of portfolio hedging.
I leave the last word to Eric:
Markets are eternally and always cyclical. Sometimes cycles take their time changing direction, but they always do…eventually.
Once upon a time, hedging was a worthwhile endeavor…
That was before fate changed and started smiling on unhedged strategies.
I believe destinies can once again change. We will see.
Have a good evening,
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