Investors Want No Part Of Risk

Another tough week for risky assets with no end in sight
US small caps take yet another down leg and are now down 7% for the year
REITS gave back some gains last week but remain our best key asset class for 2018 – up 4.1%
Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
Aggressive, domestically focused multi-asset class strategies under-performed less risky options
YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
Within equities, Growth outperformed Value as Energy and Financials experienced large loses

Currencies:

The USD appreciated yet again last week and remains in a significant Up Trend
The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
The Yen continues in a Down Trend especially in light of lower economic growth in Japan
In general, FX volatility has increased substantially in the last couple of months

Commodity indices continue in a Down Trend as oil markets had another down leg
On the flipside, grain prices have been recovering since the summer but surprisingly soybeans were down despite increased Chinese purchases
Natural gas prices were down over 16% due to warmer predicted weather and lower levels of fuel switching than anticipated
Gold and Silver were slightly down last week but their technical picture has improved recently as risky assets continue cratering
- We still view US Treasuries as best hedging option for stocks

The year of risk-off continues with little to offer us hope that risky assets will recover soon
While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
We are also watching out for any jump in inflationary expectations (which have been trending down)
- Tariffs are inflationary and will be reflected in higher consumer prices eventually
EM equities, in particular, are recovering but will end up in the red this year
- We still believe that an allocation is warranted
- Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
Leverage on the balance sheet of companies should be cross-checked for sustainability
We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

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Eric J. Weigel

Global Focus Capital LLC

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