Kim Bolton's Top Picks: November 25, 2021
BNN Bloomberg
Top picks from Kim Bolton, president and portfolio manager, Black Swan Dexteritas
MARKET OUTLOOK: Remember back in early October when the major equity indices were in the midst of its first 5+ per cent pullback in over a year and the earnings season was about to start? The general tone in the market was that labour shortages, disrupted supply chains, and inflation were all causing havoc on the operating environment for companies and would provide a dreadful backdrop for the upcoming reporting period.
Early on in earnings season, though, we thought that while the headwinds that companies were facing weren’t immaterial, the fact that they were so front and centre in everyone’s mind, suggested that they were already largely priced in. Fast forward to the closing days of November and the worst fears of earnings season not only failed to materialize, but we’re actually just wrapping up one of the best earnings seasons since 2010.
Although we were early (and wrong) expecting a summer stock market correction, we believe U.S. Fed wariness of asset bubbles, combined with Biden/Yellen concerns about inflation (which threatens Senate BBB support, the timing of a debt ceiling bill, and the midterms), have changed market risk sentiment.
We calculate that a bubble driven by current central bank real yield repression may take the S&P 500 from the current 4,700 to 5,500 mid-2022 and 6,750 by mid-2023, creating a systemic risk when it bursts. The solution is a moderately more hawkish Fed tilt which raises the real 10Y real (TIPS) yield, strengthens the dollar, lowers inflation, tightens financial conditions and reduces valuation for this over-extended market. We’re not sure how deep the current stock market correction will be, but we are sure stock markets are very vulnerable to downside pressures.
In this environment, we have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility; the Fund is 85 per cent invested across a couple dozen tech vendors and tech end-users, with a 75 per cent short equity indices hedge on the invested stock portfolio, that will incrementally grow (with a ‘laddered’ Nasdaq put option position) if the market deteriorates.TOP PICKS:
Micron Technology (MU NASD) Provides memory and storage technologies with DRAM products, which are dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval; NAND products which are non-volatile and rewritable semiconductor storage devices; and NOR memory products, which are non-volatile re-writable semiconductor memory devices that provide fast read speeds under the Micron and Crucial brands.
