BlackRock Positioning Itself Against the Next Black Swan
Fortunes are made during bear markets
BlackRock is America, it is the economy, it is EVERYTHING. We cannot talk about the economy without discussing a company that holds assets equivalent to 40% of the US GDP.
It's hard to think of assets that it doesn't have in its portfolio. If we think about Google, Apple, Microsoft... It holds shares of all these companies through its range of iShares index funds (in addition to doing so independently).
If we consider Bitcoin, it owns 8.1% of Microstrategy's shares. I won't delve into the media-covered launch of its ETF, which, as they comment, might see the light in November of this year.
Therefore, when BlackRock talks about macroeconomics, I believe we all should listen.
And that's precisely what it has done. In its latest letter, it has discussed some macro moves it is making in its portfolio, and it really gives a lot to think about.
These moves are very much aligned with many of the comments we have shared with you in recent months. However, let us highlight the main conclusions we have drawn.
New Game in the Markets: The last six months have made it clear that we are in a new landscape of economic and market volatility. All of this is due to supply issues, meaning that economies can no longer produce as much without causing inflation to rise. And it seems this is here to stay.
Powell already mentioned it this week, stating that until it's clear that inflation is contained, interest rates won't start coming down. Our opinion, and this is important, is that when Powell speaks in a reassuring tone, it means something bad is coming. For example, when he talked about "transitory inflation," he really knew what was ahead. Now the message is much more assertive, which makes us think that rate cuts might happen sooner than expected.
Change in Investment Policy: It's impossible to say that BlackRock will stop investing in the US or sell its assets. Obviously, it will continue to hold many of the world's leading stocks and, in fact, will increase its position in them. However, they have sent a message that we should take into account, and that is that focusing on indices like the S&P 500 or directly investing in American companies is not their primary focus.
More money will be allocated to bonds and less to stocks. On our side, you know we have a (large) leveraged position in the S&P 500. This has been giving us very good profits (25% since we opened the position). The good thing about having a system is that the moment we see fundamentals being lost, we will sell this position.
Beware of Volatility: We have experienced several years of very low volatility, which has prevented the greed index from returning to the lows seen during the Covid period. BlackRock warns its participants that this won't always be the case.
We couldn't agree more. If there are two things we are certain about, it's: 1) we will all eventually die. 2) volatility will return to the markets sooner or later. What happens with the second one? As markets experience lower Historical Volatility, the cost of protecting oneself with out-of-the-money PUT and CALL options will also be lower. In fact, we are scanning several opportunities.
India is the Next Powerhouse: Sensationalist media and the general population often claim that China is more likely to become the next global power than India. We've always been against such claims, and our reasoning has always been singular: "India is growing in population, while the rest of the world is shrinking." BlackRock has reaffirmed our conviction, as you can see below.