I have been watching RealVision.com series on the global economy and gleaned the following insights:
The global economy is slowing down. All the numbers are indicating that Germany is nearing a recession, US manufacturing is down. Europe, generally, is having a very tough time due to many localised issues across the countries there and it is generally weighing down the European economy. Global banks are shrinking their activities to avoid 2007/2008 styled contagion of financial distress.
China is slowing down at a rate more than what the government officially publishes. For the last one year, the govt controlled financial sector has been pumping cheap loan out to create artificial economic wealth — keep comatose companies alive, keep companies expanding, fund large scale infrastructure and mute the effect of lower consumer activities.
US Dollar is considered as overpriced (too strong). The negative and zero bond yields in Japan and Europe has driven a lot of demand for US financial market assets. The emerging and frontier economies have felt it the most, seeing their currency depreciate significantly in the last 2-4 years. There is a lot of push to weaken the US dollar — from the White House as that will make their trade war with China (and other countries) more effective as per their desired economic effect, for the Fed as that could provide the next economic boost, and for investors as it means general asset price/value increase.
Gold is considered as being underpriced due to monetary policies that are aimed at reflating the financial markets whenever there's some downturn. Also, the strong US dollar is muting the price level.
Bitcoin is considered as very underpiced. Bitcoin has a market cap of $149B. If it were a private company listed on the stock exchange or a startup, it would have valuations in very many multiples of that. It's userbase is well beyond than of many companies with larger market cap, it's adoption rate is very high and it is powered by technology+infrastructure that runs into billions of USD.
Another angle of view of some of the portfolio managers is that Bitcoin is not correlated with the broader investment market and provides a better alternative to holding physical gold as against gold futures that many still see as tied to the financial markets systemic risks.
One important consensus is that Bitcoin is gaining more ground in the mainstream investment funds world. More institutional investors and family offices are holding positions in it. And this would only continue to accelerate.
There is a new global drive towards another version of QE that is built on Modern Monetary Theory (MMT). So the concept is to remove the classical limitation to printing more money and expansionary spending by government because of inflation worry. The theory states that inflation is not directly/naively linked to printing more money as usually said. And the last 2 decades is a solid proof. The theory says as long as it is not done past the level where the economy reaches full employment and GPD potential, the printed money would only unlock greater factor utilization and economic growth.
So now central banks will start printing money more than ever before. Christine Lagarde is regarded as a monetary policy evangelist, so ECB will do even more than would have under Draghi. Japan is tilting towards deflation and they are now going back into aggressive QE. China is also being propped with articifical money which they are now doing more of as they try to devalue the yuan to mute the effects of US tarrifs and weaker exports.
The worries are that there is no proven method to ensuring the money printed primarily impacts the real economy and not just inflate financial assets prices. One thing is sure though, there will be more financial asset price propping. Even if/when a recession hits globally, these artificial supply of money will not let prices be as depressed as they ordinarily would have been nor stay depressed for as long as they historically would have (pre- QE)
Practical takeaways I am considering are:
1. Do more Bitcoin holding. If US dollar goes up, my Naira value of Bitcoin goes up. And if US dollar is devalued, higher chance of seeing it reflect in my Bitcoin value than in holding plain US dollar.
2. Hold and add to my Gold positions. Strong fundamentals and narratives for good upside.
3. Stay clear of Oil. Weakening global economy (especially the manufacturing, logistics and fossil fuel based sectors) limit the upside to Oil. Even despite the Saudi Aramco facility bombing, Iran tanker hit and other issues that typically create upside speculation, Oil price has gone down to below the Saudi Aramco cut price surge even though there are narratives that there is more supply from reserves than is claimed by Saudi in supply/production recovery.
4. Stay out of Nigerian stocks until price/volume action indicates a strong price recovery. It is not just enough to spot high dividend yields, it's the future guidance (future dividend yield) that matters and when compared with capital loss vs capital preservation and sure Fixed Income yield vs unsure future Dividend Yield; I will want to be less optimistic about stocks till I see improved economic fundamentals/policies and return of investment capital to equities.
5. Do more of money market. I don't see yields going down as we will have to struggle to keep inflation from not rising while trying to attract FPI's with good real rate of returns.
6. Keep my expenses as low as possible and in Naira. PPP vs nominal exchange rate favours spending in Naira.
7. Derivatives on NSE. Watch out for the derivatives NSE is saying they are launching soon (they still said it during last month's conference type event).
8. Add to my US treasury bond holding. There is a general consensus that the developed world is heading to zero percent interest rate in the short to medium term. So far US is the only one not yet there. And as the rate differential is being arbitraged away, the price of its bonds will go up.
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