Set out below is an excerpt from our December 2017 quarterly update to investors.
Please note that the information is suitable only for wholesale investors, as defined by the Australian Corporations Act.
Outlook for 2018
Our view remains the same. We are bullish, especially on selected emerging growth companies. We are in a sweet spot where inflation is low, interest rates are low and global economies are growing with no major economies in a recession. The IMF this week upgraded their global growth forecast for 2018 to 3.9%, its highest level since 2010.
Ray Dalio is the founder/chairman/chief investment officer of Bridgewater Associates, often quoted as the world’s largest hedge fund. His personal worth is estimated at US$17bn. He is a great researcher, thinker and strategist, so when he speaks we listen.
Ray Dalio made these statements at the World Economic Forum in Davos early in 2018:
“If you’re holding cash, you’re going to feel pretty stupid”
“we are in a Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws.”
“there’s a lot of cash on the sidelines, I don’t just mean investor cash, I mean banks have a lot of cash, corporations have a lot of cash, so we are going to be I think inundated with cash… leading to a potential market blow-off”
“we’re in the later part of the cycle… this is classic late cycle behaviour”
From Technical Investing’s point of view, this is exactly what we have been talking about and what our funds are positioned to take advantage of. We are targeting emerging growth stocks which are delivering on good investing themes; we will see money flow into these late cycle investments.
Cash on the sidelines should come in with the fear of missing out and drive an accelerated blow-off move up. Of course nothing is certain, however this is classic behaviour – it can run for quite some time and it’s good that we are getting confirmation from one of the world’s largest and best investors.
Dalio commented that whilst he doesn’t know how long this stage will be (“it could be a year”), he did think that in two years it’s likely we could have seen some problems and rate rises might have pricked the balloon. We are also of this view and believe there will be a time to be sellers, especially if the market and these stocks enter a blow-off up stage. We will be looking for signs of that, but at this point we believe more time and rises need to occur before we become active sellers.
For the full 15min interview you can click here:
Sentiment levels are very bullish, excessively so. This means that the market could have a pullback at any point. However, we have not seen a lot of volatility over several months. Volatility is usually what is required before a major change in trend.
So we remain positive in the market and very positive selected investments. If world growth is improving then growth companies and resources should be good areas to look for opportunities.
Some areas of the market look over priced with some growth stocks looking to have moved well ahead of reasonable valuations. Others continue to look quite attractive. So selectivity now is the key. Gold, copper and certain other resources look as though they can go higher.
Business confidence is high, consumer confidence is still lagging. Further good news should change that. We have seen figures suggesting self-funding retirees still hold 17% cash – with increasing confidence, some of that should also enter the equities market.
The information herein is believed to be reliable, however may not have been verified by TI. TI assumes no responsibility for errors, inaccuracies or omissions in this document. The information contained in this document is general in nature and has no regard to the specific investment objectives, financial or particular needs of any specific recipient. The Directors and/or staff of TI and/or their associates may have a personal interest in securities mentioned in this report. Please note the information and opinions contained in this newsletter are not investment advice and should not be construed to be a recommendation to buy or sell the Technical Investing Absolute Return Fund, securities, commodities, currencies or financial instruments referred to above.