Portfolio Update – January 2023

The US headline inflation rate is still coming down from high levels, having come in at 6.4% for January, and is in a clearly falling trend.

The now larger uncertainty is on the economic growth side, with the growth rate of real GDP barely holding above 0% on a YoY basis. If 2022 was a year focused on inflation, in 2023, the story will be about growth and whether a "soft landing" becomes possible.

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eToro Post – Prediction versus Preparation and Why Diversification Matters

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The legendary credit investor Howard Marks (founder of Oaktree Capital Management) wrote an investor memo titled "You Can't Predict. You Can Prepare." in 2001.

Although more than 20 years have passed since these words were written, the message is almost eternal for investors.

The probability of consistently succeeding as an investor in this endeavor and regularly making money over decades is vanishingly small. This is why, as a capital manager, I constantly come back to the title of Howard Marks' memo, even though the memo was written from the perspective of a credit investors. Still, the words ring at least as true for a diversified macro-oriented portfolio, such as the All Seasons Portfolio.

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Insights – The Case for Gold in a Diversified Portfolio

Gold is a popular investment due to its ability to hedge against inflation, low correlation with the stock market, and its relationship with real interest rates. Using modern portfolio theory and the efficient frontier, investors can find the optimal allocation to gold in their portfolios that balances expected returns and risk. However, the optimal level of gold allocation will depend on an investor's specific investment objectives, risk tolerance, and financial situation. Therefore, adding gold to a well-diversified portfolio can improve its risk-return characteristics, particularly during periods of market stress.

In this article, we explore gold as an investment and inflation hedge, and briefly touch on how it fared in the inflationary year of 2022. We further look at the current case for gold in terms of real interest rates, the M2 money supply, and discuss how the gold price performs relative to also other currencies than just the US dollar.

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Portfolio Update – December 2022

2022 is over at last, and I am sure many have been looking forward to be closing the books for this eventful year and again start focusing on what lies ahead instead.

It has been one of those extremely rare years where three of the major asset classes - stocks, bonds, and gold - all have a bad year at the same time. This, of course, has had a negative impact also on the All Seasons Portfolio. While it is disappointing, this is an opportunity to train humility and remember that no strategy is always going to perform every year. Rather, over a cycle, we will witness good excess return over cash at lower volatility than the stock market.

At the time of writing this post (which comes out a bit late) 2023 has already commenced much stronger, and we are out the gates at a very good pace. While it is far too early to count the chickens before they hatch, at least we are getting some respite from the sour emotions of yesteryear.

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Portfolio Update – November 2022

The US headline inflation rate is still coming down from high levels, having come in at 7.1% for November, and is in a clearly falling trend. This is evident also from the Month-over-Month number, which remains low at 0.1%. This has led to easier communication from the Fed for smaller rate hikes (not to be confused with a "Fed pivot", which requires rate cuts). But, the "higher for longer" narrative emphasized in the December FOMC meeting press conference was a wet blanket for equity markets.

Another part of the inflation story, which must not be forgotten, is the relationship between cost of living versus the development of wages. See the chart below, which depicts this difference since the autumn of 2020, which clearly shows that the average American has in real terms become poorer, as the wages have not kept up with costs. Additionally, that gap is widening, which can be a contributor to a coming recession, as a salary does not buy as much goods, after utility bills, interest on mortgages, and food.

As for my All Seasons Portfolios' performance in November 2022, this was finally a good month with gains of more than 5%, after a rather difficult 2022 YTD. Check out this monthly portfolio update post to learn more about it, and where we are in the macroeconomic cycle.

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eToro Post – Outlook for Commodities from Q3 2022

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A recent interview with Goldman Sachs global head of Commodities Research, Jeff Curie, on Meb Faber’s podcast (episode 445: https://mebfaber.com/2022/09/26/e445-jeff-currie/, available on most podcast apps) caught my interest with a summary of the commodities outlook and where we are in a commodity supercycle with current underinvestment in the supply side

The main take out from this interview is that this last year’s increase in commodity prices is not caused by Russia, but the underlying structural issues were caused by policy and underinvestment in the sector in the last decade, which Russia has taken advantage of.

In this brief article, we summarize the key message of the interview and what lies ahead for the energy sector and broad commodities for the next years. We are most likely set up for a new commodity supercycle, so prepare your portfolio accordingly.

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