Potentially undervalued counter-cyclic asset class

21 sept 2020

Hello, Thanks for viewing.

Really nice to see the encouragement and feedback from my last post about the gold/silver ratio.

This is to share another of my recently entered, but shortly to grow significantly in size, positions. Boring old Commodities. If you look at a long-term chart, commodities have been on a largely downward slide for over 29 years. I just looked up a 100 year Commodities chart and had a chuckle reading how a blogger was calling the bottom on commodities in 2017 when the index was around 40% higher than now (blog.gorozen.com/blog/commodities-at-a-100-year-low-valuation). So, I realise that it is unlikely that I started looking into commodities right at the bottom of the market. Still, there are good reasons to be a buyer.

1. From TA, it looks like we are nearing a bottom. I would tentatively put it between $5.40 and $3, however, things can change quickly and I decided to start creating a position,
2. I like Ray Dalio, I like him so much I have invested into GSG despite overall very negative outlook on ETFs (please please don't invest in GLD). So Ray Dalio was talking on a YT video with Tony Robbins (yeah the guy with the huge teeth) about his all-weather portfolio. Since, in early 2019, I was trying to find a way to "recession-proof" myself in expectation of a recession (The US was nearing its longest and weakest expansion in history with rather high debts - I never would have guessed that in a recession that already overvalued stocks with no chance of producing a dividend return would become the stock-market darlings). Check out the basics of his portfolio here: lazyportfolioetf.com/allocation/ray-dalio-all-weather/ Now, I haven't done all of it and I probably won't. I started with stocks (up to 30%), Precious metals (supposed to be 7.5% but I have replaced a significant portion of the bonds in the portfolio with precious metals - because of the negative real return of treasuries. I have posts about the S&P500, Shiller 10 year PE ratio, and my treasuries entry - which would have been in Oct 2018 - if I did pull the trigger. At the time, I thought the bonds return was too low to warrant an investment... turns out 3% wasn't that low after all.

Long story short, I am probably 30% precious metals, 10% bonds, 30% stocks, <1% GSG but adding more up to a goal of 7.5%, the rest is cash looking for a home in income-producing real assets at some future date (and some crypto). I am buying, even though I think we aren't yet at the bottom, just because of how difficult it is to pick the low point in the market.

Commodities have bottomed out in 1929 (that seems a significant date), the mid to late 1960s, and a 10 year down-trend pulled back around 1998-9. I am especially interested in the 1929 bottom, that happened around the time equities reached all-time high valuations in terms of PE and Market Cap/GDP (of course these have been exceeded in the current market). I feel we are approaching a 1929 type of moment.

There are some interesting things happening of late; massive demand increases and shortages for both physical bullion and lumber (lumber isn't on the ETF) as people move away from intangible assets and populated main centres etc. There is a very real possibility that people will look to other tangible things, things with inherent value, should paper assets and a vast array of financial derivatives blow up (again). Add in the Fed's goal to stoke inflation (and then stop it again when it reaches its target) and we have at least a possibility, an outside chance, that Commodities will be valued higher. I'm sure I had more to say, but I am watching the Dow drop like a stone.

Protect those funds

22 sept 2020

Nota

This is when my research indicated it was a good time to enter bonds. I have a much more in depth analysis in previous posts on the SPX / Shiller PE about my reasoning.

However, in general I regard bonds and treasuries as an asset class I will not touch at present valuations - better to hold gold and stable undervalued dividend (at a yield well above stated inflation) producing assets instead instead. I hold most of my equities in utilities producing 7-11%+ at the moment.

29 sept 2020

Nota

I have been exiting better-performing / less stable equity positions and adding the following (for diversification (I am trying to build a 7.5% percentage of my portfolio that is based on Commodities as per Ray Dalio's "All Weather Portfolio" and general bullishness reasons);
Cameco Corp,
ETFMG Prime Junior Silver ETF (to leverage gains when silver follows gold to new highs),
Global X Uranium ETF,
iShares S&P GSCI Commodity Indexed Trust (despite it being overweight in energy commodities),
VanEck Junior Gold Miners ETF (180% upside potential even if the gold price doesn't increase),
Van Eck Vectors Rare Earth/Strategic Metals ETF,
Adding 15% to physical silver positions held in non-bank vaults.

So, While Ray Dalio would just buy a 7.5% position in one Commodity ETF, in my efforts to reduce the % of the position on energy (near-term global slowdown and reduced energy consumption overall), have been trying to pick winners. Precious metal physical or equity positions are not included in this - I am focusing on Uranium equities and rare earth equities to build-out a Commodity position. I would like to reach a 7.5% position by the end of the year.

I am not a fan of ETFs generally (and ETFs add significant unwelcome risk to precious metals positions), but with some items like the GSCI Commodities and equity ETFs they work well enough. In an market updraft the mre marginal miners tend to have outsized % gains versus the more productive/ liquid miners / higher margin in the ETF, so as it is a speculative position anyway, I am comfortable holding some equity ETFs.

I know equities aren't commodities, but it is a bit hard to buy and store uranium or rare earth minerals or to find an ETF that is linked directly to the underlying commodity price - if you find one please let me know.

I was thinking of buying and storing Nickel or Cobalt in Singapore at silverbullion.com but the storage costs are a bit high (although you can take out a loan on a portion of the market value of the stored metals) and I see Nickel price down maybe 40% over the next 1-2 years or thereabouts. medium to long term though, Nickel would make a good physical commodities position due to increased battery demand and general depletion of mines.