I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Saturday Reflections, I take time out to reflect.
Are we exiting the U.S. Tech supercycle that started after the GFC and entering a new market regime? Wasif Latif of Sarmaya Partners thinks so:
In May 2024 I published our inaugural paper on the Return to Tangibles: our view that the next major secular market theme will be a commodity super-cycle. We posited that this renewed investment and growth cycle in commodities would be driven by a series of macro, geopolitical and fundamental catalysts, shifting the market leadership to tangible assets. Two years later, the Return to Tangibles continues to play out as we see Act I ending and Act II getting underway in this three-act secular theme.
Here’s his chart of past theme-based multi-year cycles:
Latif says we’re facing a series of catalysts taking away from the ZIRP (Zero Interest Rate Policy) and shale energy supply glut era into one where energy and other commodities are becoming scarce again. These catalysts include the Covid-stimulus inflation spike of 2021, the Russia-Ukraine war in 2022, the ever-increasing U.S. deficit, and now the Iran war. I would add to that a deglobalization impulse where less trade and more hoarding takes over from just-in-time supplying and free-ish trade.
Latif says we could face a stagflationary bust similar to what happened in the 1970s, with high inflation and low or even negative economic growth. Or we could continue seeing an inflationary boom.
investment implications
Growth stocks could continue to do well, in an inflationary boom, but not under stagflation in which their inputs costs will rise while they’re unable to raise prices into a weak economy.
In stagflation or inflationary boom, you don’t want to be holding bonds.
Of course what you do want is exposure to commodities and commodity producers (see $PDBC, $PICK, $XLE, $IXC, $GUNR) and precious metals and miners ($GLD, $SLV, $GDX, $SIL).
My current flow allocation portfolio looks like this, providing a 30% potential allocation to the “return to tangibles” theme. As well, value and international funds lean more towards tangibles than an allocation to S&P 500 index beta which is dominated by big tech.
Right now, based on 200 day moving average signals, all bond sleeves are defensive (entirely uninvested right now). U.S. real estate and U.S. small cap momentum have recently moved from invested to defensive, so I am partly in and partly out, because I invest or uninvest in weekly 25% tranches. Gold is defensive, sitting about 5% under its 200-day MA.