General Thoughts on the Markets

I haven’t been writing so much about stocks because I haven’t been heavily into them for a while, doing much more with commodities and now, real estate.

I still buy stocks in some companies now and then for my long term portfolio but my focus has switched, temporarily. However many of my readers want me to talk about stocks more for their benefit and to help them think about their investment decisions. That’s what I’ll attempt to do now. Keep in mind, these are not market predictions or investment advice. Just thoughts.

1. A recession is coming but probably not this year

People have been predicting a recession since the last one. I personally believe there’s a high chance we get one before Trump’s first term is done but it probably won’t be this year. For one, wages have finally started climbing, the tax reform law gave loads of cash back to individuals and businesses, inflation is picking up. All that buying power has to go somewhere so I expect increase in consumption, investment and M&A from business, and with increased wages means people are more credit worthy which means they’ll borrow more. So recession isn’t likely this year. But it’s still possible.

2. Stock Volatility is Back

This has already started playing out with the market correcting significantly this month and then see sawing up and down in the intervening days. The market already climbed so much that there’s a lot of downward pressure from people taking profits or worried about a fall, but there’s also buying pressure from people feeling wealthier, contributing more to retirement accounts and businesses doing well in the economy. So expect Volatility to stay. However considering rates around 2.5%, and S&P500 already at 2,474 I expect the index to make roughly 12% this year. If you’re a trader and know how to wrestle the market swings you can make 3-5 times that. I can make more than 25% from real estate which is why I’m there rather than stocks but it’s not a bad return. If you want to join me on that or would like to know more, read this. If you want to stay with Stocks, it makes sense to buy into the S&P 500 Index whenever it dips so you can participate in the rise throughout 2018.

3. Invest in Market Boom Companies

Commodities are climbing as demand increases. Glencore isn’t a bad idea to check out. Or Monsanto. Oil demand is picking up, it might cross $80 this year. ExxonMobil is a sensible one to look at, given their somewhat conservative play last year, low debt and huge productive assets. They have the best return on equity profile among their peers too. And they also seem to be investing the most aggressively in US shale and Gulf Coast export plans. I could go on but pretty much think of home builders, insurers, consumer cyclicals, finance companies etc. Stay away from REITs, higher interest rates are going to deck them.

Those are the working themes in my head. There are a few other companies in my spectrum that don’t fit into any particular theme, Dova Pharmaceuticals, EA, Activision come to mind that either my interest or the suggestion of people in my circle have brought to my attention.

The point is, understand the drivers of the market you’re in, and the companies you want to invest in probably before you even start drilling down to their specifics or fundamentals.

Take your time to get the lay of the land. Then invest accordingly. All the best and may 2018 be great.


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