Strategy for the Summer – Keep it Simple.
The most useful thing I can say today is to remain rigorous, simple and strong. Don’t try to be clever. Here’s my thinking:
1. The US economy is strong, it is the “best house on the block”, and it is likely to stay that way for the next 18 months. Given the vital role it will play in the election in 2020, we can count on the President taking every step to ensure it stays that way.
. stick with US centric stocks that meet the rigorous criteria of high yield, low P/E, high margin and strong growth.
2. The President will be using the “cover” of the strong economy over the next few weeks to optimise his political gains vis a vis a “China deal”. So expect all manner of China centric volatility, tweets and vacillations.
. Avoid anything linked to China.
3. If in doubt go into cash and live to invest strongly at the upturn in October. Don’t rush. Remember there are still dangerous black swans. Some are in view now – the E.U. elections this week and the subsequent threats to order in Europe. The same for Brexit and the UK. Some are over the horizon but ultimately no less threatening – how we should learn to live with China, how to deal with immigration and climate change, how to shift from yesterday’s discredited world of nationalism (America First) and embrace the new opportunites of globalism. And some are especially relevant here in the US as well as elsewhere – how to cope once and for all with the extreme levels of corporate debt before they disrupt the foundations of the system. But these are for the future.
4. The immediate black swan concerns the state of our administration, and the failure of leadership and statesmanship at the top. Lying, incoherent, poorly briefed and incapable of a clear strategic long term view, the US leadership is apparently unaware of the dangers of nationalism in a new and complex global world. The mismanagement of the US today is a pandora’s powder keg waiting to explode.
. keep building your holdings in gold and stick with the safest US markets.
Have a good day, James.
James is an advisor to the King Group of Wealth Managers at Merrill Lynch.