The market atmosphere is changing. The French election brought an end to another chapter of the European saga. It is time to reevaluate my investment plays.
Most companies I own have good perspectives for future growth, but I don’t mind reducing positions in 2 or 3 stocks, especially, if they might face macro headwinds.
Additionally, while managing portfolios, I always like to periodically take some money out of the table. This strategy has served me well in the past.
Therefore, I am reassessing the main macro themes guiding my investments.
Macro themes
Until the second round of the French elections, I was playing 4 macro themes:
- Long US manufacturing
Trump is focused on creating more manufacturing jobs. The border tax is a good example of a policy that could be a tailwind for US manufacturing. Corporate tax might also help manufacturing profits.
- Long Inflation
If Trump is capable of executing his policies, it will most likely result in an inflationary economic landscape. Therefore, I am betting, among others, on luxury brands with high pricing power to play a possible inflation outburst.
- Long Europe & EUR
The perspective of a victory by a traditional center candidate in France, made me bet on the resurgence of Spanish banks.
- Long Uncertainty
There are several risks in the previous longs. Trump might get blocked in several of his initiatives, Le Pen put up a serious challenge in the French election, (i.e., European populism is not dead), and the Brexit might have unexpected impacts, among other risks. This made me think about a strategy to balance my portfolio. I choose gold and gold miners to counter the prevalent uncertainty.
The Background
Since the beginning of March, market themes changed focus from the US to Europe. The French elections offered a good market theme until the voting date.
Photo Credit:Â Christophe Becker
Before the elections, in the article How to trade the boom and bust of populism in Europe, I updated my market plays by proposing a long trade in European banks. The reasoning was simple – if Le Pen won, the EUR could be over. European banks would have their balance sheets automatically converted to their national currencies, which, with the exception of the Deutsche Mark, would be lower than the EUR.
