U.S. and Global Stocks
Thus far, global markets have essentially shrugged off any major risks from the outbreak of 2019-nCoV, the designation for the new SARS-like coronavirus outbreak in China. We note that markets especially in the U.S. remain in an overbought condition, and vulnerable to a correction — either in time, as a sideways movement, or in price, as a more sudden drop, probably of 5–10%. A deterioration in news from China, or alarming development in the virus’ spread, could certainly precipitate a correction. And as we have often noted, there are plenty of other “excuses” out there — geopolitics, unexpected developments in the ongoing impeachment proceedings in the U.S., etc.
The available evidence suggests that such a correction would be a good opportunity for investors to add to favored themes — in our case, the U.S. markets broadly, and within those, themes oriented around disruptive technology in the cloud, AI, cybersecurity and cyberwarfare, payments, med-tech, biotech, software, and e-sports and electronic gaming. We are also still enthusiastic in the longer term on the U.K., as it breaks from the EU and turns towards a growth-centric economic and regulatory model closer to the U.S. (and indeed, closer to its own longer-term history and culture).
Cryptos and Other Digital Currencies
We read recently that central banks covering about 20% of the world’s population have indicated that they were likely to offer digital currencies within the next three years. (We do not refer to these as “cryptocurrencies,” which properly speaking should refer only to decentralized digital currencies such as Bitcoin, and not those administered by a central authority.) The effects of official digital currencies on cryptos remain unclear; cogent arguments could be made in both bullish and bearish directions. Cryptos remain a highly speculative endeavor, really only suitable for a portion of your “mad money,” and not your retirement portfolio.
Gold
Gold has shown some appreciation during the current anxiety about 2019-nCoV. We believe that the financial and economic landscape in 2020 warrants optimism about a slow-and-steady advance for gold. While investment dollars will be seeking stocks for appreciation, central-bank driven liquidity should help all financial assets, and increasingly, as concern about the eventual end of the current expansion enters some investors’ minds, there will be demand for gold. Central banks around the world, eager to declare their independence from the U.S.-dominated financial system (which of course they cannot really achieve), will be buyers as well.
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