VIDEO: Dispatches From The Front Lines
Welcome to my latest video presentation. Below are edited excerpts. The video contains additional data and charts.
Today, I want to dive into the digital mailbag to see what’s on the minds of readers. Your emails help me calibrate editorial coverage to your real-world needs.
I cherry-picked representative samples of the latest emails from readers that reflect recurring themes. My aim is to provide answers that are timely and useful for investors of all stripes.
Will the global growth engine sputter?
“The latest GDP numbers from China seem pretty good. What’s your take? The country’s COVID crackdown has a lot of investors worried.” — Jake L.
The new numbers about China’s economy, while positive on the surface, reveal cracks in the edifice that bode ill for the global economy.
China’s gross domestic product (GDP) grew by 4.8% on a year-over-year basis during the first three months of 2022, beating expectations of 4.3%.
However, retail sales in March fell by 3.5% from a year earlier, versus an expected decline of only 1.6%. The unemployment rate throughout 31 major Chinese cities jumped from 5.4% in February to 6% in March, the highest level since such records began in 2018.
Authoritarian governments often make inflexible decisions, without input from dissenting parties, and that can lead to blunders. Russian President Vladimir Putin’s invasion of Ukraine exemplifies this syndrome. So does China’s brutal zero-tolerance crackdown on COVID. The damage to China’s economy probably will become more apparent in second-quarter numbers.
Flexing pricing power…
“Inflation is running at a torrid pace. How should I trade in response?” — Thomas H.
During periods of rising inflation, value stocks tend to outperform. In the U.S., unemployment remains low and economic re-opening continues, with domestic product growth still on track to hit 3% to 4% this year.
Bargain hunting among quality cyclicals makes a lot of sense now. Focus on companies with pricing power and low capital needs. A firm can stave off inflation, if it can raise prices without losing customers. Brand loyalty is a big plus.
So far this week, several global consumer companies that sell famous brands have beaten expectations on first quarter earnings results.
Apocalypse: Not now…
“Vladimir Putin is proving stubborn and won’t back down an inch. He has threatened to move nukes into Eastern Europe and his country this week launched an intercontinental missile. Yikes! What should I do as an investor?” — B.C.
Over the near term, the Russia-Ukraine brinkmanship is creating seesaw conditions in financial markets. To be sure, the conflict has become a grave threat to world peace. But don’t allow the scaremongers to get you too worked up. I’ve seen some analysts talk about “end-of-the-world” investing, which is silly. There’s no way to protect your wealth against nuclear war. If it occurs, there won’t be a financial system left.
But you can gird your portfolio against the volatility that’s stirred by the fear of nuclear war. You should adopt a “defensive growth” posture. As interest rates rise and economic growth continues, make sure you have exposure to cyclical sectors, e.g. energy, financials, basic materials, and industrials. Also consider sectors that benefit from growth but provide added safety, e.g. consumer staples and health care.
“This past Wednesday, the world celebrated the 420 marijuana holiday. How appealing are pot stocks as investments right now?” — Gary D.
Marijuana is one of the most powerful investment megatrends you can find. Some cannabis stocks are quality investments, but many others are too risky. You need to dig deep and analyze the fundamentals.
That’s why I wrote a book: The Wide World of Weed and Psychedelics. The product of years of painstaking research, my new book is now available in hard copy.
As they increasingly become legal around the world, cannabis and other psychotropic substances are generating huge gains. But the time to act is now, while these investments are still affordable.
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Got questions or comments? Send me an email: firstname.lastname@example.org