Commodities tend to zig when the equity markets zag”- Jim Rogers

I first heard Jim Rogers speak at a NUS Business School event in 2012, when a first year MBA student from Canada asked what he should do with his degree upon graduation. Jim Rogers simply replied that he should drive a tractor on a farm in Saskatchewan. Everyone laughed because at that time, why would anyone want to invest in tangible real assets? Was he early on the call, or late? It all depends on market timing.

No doubt the US market has had an unprecedented run after GFC, stemming from the confluence of excess liquidity driven by QE, the surge of passive investing, and a sustained period of ultra-low interest rates. However, YTD, the S&P is (2.59%) and sentiment towards the FAANG stocks on the margin is waning.

With expectations that the Fed will raise interest rates three or four more times in 2018 as inflation increases in the US, commodities tend to be positively correlated with inflation, and even outperform in an environment of unexpected inflation.

During the quarter, agricultural commodities and precious metals positions were added into Aquamarine Value’s (AV) portfolio based on recommendations from Weldon Live. Greg Weldon provided a cogent thesis for investment in the commodity space. Given AV ‘s equity bias, Weldon Live’s research also provided a valuable platform for us to learn from a luminary in the commodities field.

Another notable event for the portfolio was Macy’s (M) stock finally benefiting from sustained capex reduction since Q215, amidst continued negative same store sales (sss) from Q215 until Q118.  Their focus on future expansion of their discount concept, Macy’s Backstage, within Macy’s department stores makes strategic sense to the cost-conscious consumer.

Next quarter we will focus on global equity ideas that will either benefit / not benefit from an increase in prices of specific commodities mentioned above, based on ideal investment trifecta criteria consisting of: capital appreciation, dividend yield, and currency appreciation.

We will also begin to work on portfolio ideas that will benefit from China’s One Belt Road (OBOR) and CPEC (China -Pakistan Economic Corridor) initiatives.

Lastly, I am pleased to announce my upcoming visit to Singapore at the end of April-mid May. After a two-year absence, I plan to touch base with current and potential clients, and am happy to have a meeting over Kopi-O. Please get in touch (details below) if interested. Thank you.

Kind regards,

Himali Kothari