Well, the FTSE and DAX are dropping again today. Why? Well, we've got talks of banning Russian oil imports, possibly Russian gas imports, too. Guess who Europe is depending on for a big part of its oil and gas supply? “Russia is the origin of 26% of the EU's oil imports and 40% of the EU's gas imports.” (https://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/index_en.htm). Plus, Russia and Ukraine make up a big part of the world's supply of wheat (check the price action there, too, looks like freaking WHEAT futures have been outperforming the SPX and NDX for the last year even before the war spike).
Long story short, hang on for dear life, fellow Europeans, we are very likely headed for a stagflation situation (economic stagnation coupled with high inflation). Gold and silver may actually perform well in 2022 with all this happening, but obviously oil was the big winning bet if you bought it at any time between the last 6 months and last week.
I don't know what's the outlook for stocks. I think that the FTSE and all other European indices are pretty undervalued so I don't see them dropping as much as US stocks, but at the same time Europe will be much, much more affected by the war in Ukraine than the US. It does feel like this is a good time to stock up on… stocks. I'm personally playing it safe and going for broad indexes because I think a lot of struggling companies may go bankrupt from the inflation and interest power combo. There are a LOT of zombie companies in the UK and US (https://www.investopedia.com/terms/z/zombies.asp). In the UK, we've already started seeing energy companies go belly up over the last couple of months because of gas prices although interestingly enough, the number of company liquidations in England and Wales haven't gone up that much (https://www.statista.com/statistics/310406/uk-insolvencies-total-number-of-company-liquidations/) nor have they gone up in the US (https://tradingeconomics.com/united-states/bankruptcies). Still, I think that the rate hike in 10 days time will: 1) shake the markets; 2) make a lot of businesses think twice about how they'll be able to keep going on in their business. If we see rates going up to 1.5% over the next 12-24 months AND we keep seeing high inflation, a lot of companies will go bye-bye.
In terms of specific companies / industries to pick, I am currently going for:
- consumer defensive companies: solid earnings and manageable debt plus a good dividend will keep me sane (hopefully)
- REITs: I'm trying to profit from house prices (by the looks of it, I won't be getting a house myself soon so gotta get the next best thing!).
Otherwise, I am continuing to buy my global stock market indexes and global tech indexes along with FTSE indexes, the iShares Europe fund and, obviously, gold.
How are you positioning for the markets? Are you taking profits and keeping cash or are you doubling down on your stock bets?
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