First Eagle: Generational Buying Opportunities Ahead

Johnny HopkinsFirst Eagle InvestmentsLeave a Comment

In their latest Q3 2022 Market Commentary, First Eagle Investments explain why generational buying opportunities are ahead. Here’s an excerpt from the commentary:

The good news is that this mathematical phase of adjustment may be complete, and asset prices once again appear to offer reasonable risk premia for investors. Lest we get too excited, however, it’s important to acknowledge that an emotional—and potentially more challenging—phase may still lie ahead and could be sparked by the emergence of any number of unwelcomed events.

In some ways, a Fed tightening cycle is not unlike dynamite fishing. In this much-maligned and widely illegal practice, fishermen toss explosives into the water targeting schools of fish—but also concussing any other marine life in the vicinity of the blast.

Accompanying the hundreds of now-stunned or -dead grouper and dorado that rise to the surface via this operation is the occasional whale. As the Fed continues to wring liquidity from the system, we are watching closely for a metaphorical whale to emerge.

A number of idiosyncratic threats have materialized in recent months—the Bank of England’s intervention in the gilt market and all-time highs in the cost of credit-default swaps on Swiss banking giant Credit Suisse are just two examples—but none have served as the detonator for a fear-driven selloff. Looking ahead, we must be cognizant of potential outsized market reactions to a range of more commonplace occurrences.

How will markets react if US payrolls begin to decline and the unemployment rate climbs? If corporate profits peak and head lower? If the Fed pivots prematurely and loses its credibility in the process?

We believe that current market valuations support the judicious planting of seeds to hold for the next decade, but we’d resist deploying our last dollar of ballast given the heightened uncertainty.

The potential for an unintended consequence of central bank policy to emerge somewhere in the financial system is meaningful, in our view, and such an accident likely would prompt markets to exhibit more emotional, nonlinear behaviors—and potentially present generational buying opportunities in what we view as resilient, high-quality companies. We want to be prepared for this possibility.

The Global Value team takes a note from French playwright Molière: “The trees that are slow to grow bear the best fruit.” We are focused on maintaining a level temperament in the face of a particularly uncertain future. We are playing offense selectively, adding to assets we view as undervalued at a measured pace while maintaining defensive optionality in an asset like gold, which—unlike the dollar—is not at a generational high.

Moreover, we are avoiding the rear-view mirror; regardless of relative performance trends in recent years, we maintain that diversification is a foundational long-term strategy

You can read the entire commentary here:

First Eagle Investments – Q3 2022 Commentary

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