For some time, the big question we have been asking ourselves is whether the central bankers won or lost? That is, will we get a self-sustaining recovery or slump back into negative or slow economic growth. Well, we have waited and we think now that it is the self-sustaining recovery, with all its implications, which we will look at in due course. The consensus is for at best slow growth battling against a number of headwinds due to the overhang of the GFC, debt levels and demographics. Over the short and medium term we are happy to go against that consensus and think a relative boom is much more likely as the colossal global stimulus finally catches fire and central bankers throw more fuel on in some jurisdictions- and big ones at that including Europe, Japan, China, Australia and Canada to name a few.

So the risk is that you will not be invested heavily enough and be caught wrong footed in real problem areas- bonds primarily.


USA stocks, outside tech, look fully valued, but they will not be falling much- although we hope they do, so we can buy them. Other markets look better and some look downright cheap to us. We think earnings will rise and rise a lot outside of the USA. Therefore, assuming at least respectable world growth above 3%, and we think closer to 4% is likely, then we want to be heavily involved in the big players including China, India, Japan and Europe where we like both the core and the periphery and we particularly like France which we think outperforms all comers including Germany.

All these stock markets are cheap or very cheap in our view. Assessing the market via price earnings won’t do as earnings are depressed. Earnings have a long way to go up if economies recover, which is our base case. Therefore we think stocks globally outside the S&P have a lot further to go for many years. If we are wrong we think the downside is limited so we like the set up and we want high conviction to hold the position and trade around the volatility to maximize returns.

Regarding US technology stocks, we think they are still reasonably priced and the bull market in those stocks won’t end before there is a real bubble. That is conservatively at least 50% above current prices. So being out of that sector is not a wise move and being short is likely to be even more ill considered.


Bonds had their shot and it was an incredible run. Now bonds are a real risk here and we would be disposing of them. There is nothing attractive about holding them even if we are wrong, and if we are right holding bonds will be very costly to the portfolio. We would exit government bonds in particular across all durations.


Currencies are the most interesting of all. We think the US Dollar continues its run for a while longer, but the others are on the verge of a come back including the Yen and the Euro. Therefore, we wait for opportunity and think the turning point will be around the first Fed rate rise.

We are not buying much yet, but we think there will be a very good opportunity in Yen and Euro. We think AUD and CAD have further to go, but we are not short- we are waiting. We also think that some emerging markets are worth buying and we like Mexican pesos and Indian Rupees in particular.


Commodities have had an ugly run and we think they run a little lower and turn with the USD. So we are close and feel that resource companies offer good value here so markets including Australia and Canada are on the buy list, contrary to the opinions of many- although both markets are setting post GFC highs so we are not the only buyers of these markets. The opportunity we are looking at is primarily in oil. Clearly it has fallen precipitously and volatility has increased dramatically. That is providing trading opportunity for those adept enough, but also a long term bull set up for a squeeze on prices between now and the end of 2015. There seem to be a number of calls out there for $10-30 oil prices. We do not think this will happen, but would provide an exciting trade set up if it did, so we can only hope.

As economic growth accelerates, demand for oil will be driven up just as supply is squeezed. The move may well be dramatic and swift so we will be placed early and prepared for a volatile ride. Other commodities will follow suit. We do not think that analysts have recognized that high prices for most of the last decade have suppressed demand and are therefore unaware of how extreme the demand response may be while they focus on supply.

So in a nutshell we, like most global developed equity markets, are preparing to buy beaten down currencies and oil potentially for a significant spike.