Key insights
- The author questions current market valuations, particularly in AI, amidst rising bond yields and inflation concerns. They outline a potential US strategy involving geopolitical gains, higher energy prices, controlled Fed policy, and inflation exceeding bond yields to manage debt. While this could support a bull market, the author doubts its short-term feasibility, suggesting a defensive approach similar to Benjamin Graham and Berkshire Hathaway. The author's portfolio is split between growth stocks, dividend stocks, and bonds.
So, stock market seems to be holding right now despite so many reasons for a bear market. It is overvalued with historically high P/E ratios based on assumptions that AI will be the most profitable thing ever, and will be perfectly capitalized in next 5 years with amazing growth for next 10 years.
Bond prices are still low, very low; while yields are rising rapidly with inflation concerns. Will these concerns hold or not? Even Donald Trump doesn’t know the answer to that. But to me US strategy seems clear, take some geopolitical gains while increasing energy prices (means higher inflation but also higher gains for US oil producers + stronger demand for USD), somehow try to keep Fed in control not to raise interest rates, and make inflation higher than bond yields to melt debt/gdp ratio while USD valuation holds.
This scenario would be great for a bull market case if executed perfectly, it would mean even today’s high valuations are in discount. But I doubt if this can work at least in next 1-2 years.
So this reminds me graham’s strategy. To buy bonds when market’s heated and bonds are discounted, to keep cash in hand for a bear market. Same as Berkshire doing now.
What do you guys think? Are you implementing degensive strategies? How are you doing so? And how does it effect your portfolio now?
For me: 50% growth stocks (2 mega, 2 midcap), 15% dividend stocks (weight in one real estate based), 35% bond etf