CEO Jane Fraser Warns of Massive Shift to Financial Markets

Citigroup CEO Jane Fraser made a rare announcement yesterday.  And it’s one you should take very seriously.

In a blog post entitled: Signals Through the Noise, Fraser noted that we are entering a new phase of globalization.  One less defined by cooperation, and more by strategic self-interest. She posited that long-held assumptions are being challenged, not just by tariff announcements but by a deeper confidence shock. 

If you’re looking to markets for clarity, you might be a tad disappointed. But if you’re looking for signals, they’re everywhere. Treasury yields rose even as equity markets wobbled. The U.S. dollar, typically a safe haven, has weakened at moments when it used to rally. That tells us something deeper is going on — investors aren’t just pricing near-term risks; they’re reevaluating the credibility of long-held certainties.

Fraser’s analysis identifies capital moves that aren’t going unnoticed by the smartest folks in the room. These include ..

• Pensions and asset managers are tilting more towards Japan, India and parts of Europe. 
• Hedge funds are being selective and didn’t chase the April equity bounce. 
• Sovereign wealth funds are diversifying more aggressively 
• Hedging against the dollar is now at levels that haven’t been seen in years

Fraser also made the following observations that shouldn’t go unnoticed …

• Ports in Shanghai, Shenzhen and L.A. are seeing sharp drops in volume
• Companies are pausing decisions, delaying capex and holding off on hiring
• Some are now preparing for second- and third-order effects, from demand shocks to supplier uncertainty
• In Turkey, Morocco and Egypt, companies are evaluating shifting capacity to lower-tariff, scalable markets.  

The latter could be one of those unintended consequences of a trade war that the current administration mistakenly thought could be won with social media rants and a fair amount of bullying.  

But bullying only works when your intended victims have no leverage.  Make no mistake: the world is a big place, and while the U.S. is the most important market in the world, it’s not the only game in town.  And if pushed too hard, these intended bullying targets can and will pivot to alternative markets that collectively can throw a wrench in Trump’s plans to strong-arm the rest of the world into submission.

Jane Fraser: Warnings and Opportunity

Of course, anything can happen.  And it is possible that Trump will be successful in his plans to force the global market to fall in line with his demands.  I don’t think it’s likely, but stranger things have happened.

Either way, much of the damage has already been done.  Particularly in terms of trust and cooperation. 

While Fraser has to be careful with her words, her main point is valid: there’s a very real uncertainty about where the markets are heading this year.  And most of that uncertainty is the result of a trade war that has no reliable end in sight.  So with that in mind, it’s good to consider a few investments you can make today that typically perform well during times of market uncertainty. 

The first, and probably the most obvious is gold.  

If you don’t currently own physical gold, or even want to deal with owning physical gold, consider some of these gold stocks that have done quite well this year …

• Alamos Gold (NYSE: AGI)
• AngloGold Ashanti (NYSE: AU)
• DRDGold (NYSE: DRD)
• Harmony Gold Mining  (NYSE: HMY)
• Kinross Gold Corp. (NYSE: KGC)
• New Gold, Inc. (NYSE: NGD)
• SSR Mining (NASDAQ: SSRM)

I’m also a fan of REITs during times of economic uncertainty and potential recessions. 

I’m not saying we are heading towards a recession, but I wouldn’t dismiss the possibility at all. In fact, it’s worth noting that JPMorgan has now estimated the probability of a recession at 60%. 

REITs have definitely served me well over the years during times of economic uncertainty.  Some of my favorites include …

• Agree Reality Corporation (NYSE: ADC)
• American Healthcare REIT (NYSE: AHR)
• Sila Realty Trust (NYSE: SILA)
• Ventas, Inc. (NYSE: VTR)
• Vornado Realty Trust (NYSE: VNO)
• Welltower, Inc. (NYSE: WELL)
• Innovative Industrial Properties (NYSE: IIPR)

There’s no doubt that the markets would stabilize if this trade war ended tomorrow.  But that’s not going to happen.  And until we get some clarity on whether or not this trade war was worth it, it’s best to tread lightly and consider a few investments that will help provide an effective hedge against the proverbial shrapnel that’s likely to sideline investors who aren’t prepared for what a long, drawn out trade war will bring.  Invest accordingly. 

Jeff

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