We haven't had to manage cycle risk, on a sustained basis to the downside, since 2008-2009 and 2000-2002.
The biggest problem in financial markets right now is there's no Event.
This is just Cycle-Risk and we haven't had to manage cycle risk - on a sustained basis to the downside - since '08-'09, and 2000-2000 before then.
The Fed is in QT. Financial conditions are still in accommodative territory, according to the Financial Conditions Index, and we have a long way to go.
We will not see any dovish actions from the Fed until the economy deteriorates significantly.
I'm convinced we're past the peak in terms of inflationary pressures.
Looking at our portfolio, the #1 thing we aren't allocated to is duration.
I think the long bond could rally 20-35% from here. I think when it moves, it's not going to let you back in the trade.
The world is short-duration right now. Tons of cash on the sidelines. The dollar rising has been supporting U.S. equities.
When it deflates, there will be a significant change in style factors. Expect a significant reversal in sector and style factors ahead.
Simple rule on when to enter a long bond trade:
It's compelling, given historical backtest, to go long the long bond when the year-over-year inflation rate peaks. (18-20% annualized)
YoY Inflation data:
fred.stlouisfed.org/graph/?g=JIW...
NFCI:
fred.stlouisfed.org/series/NFCI
The biggest problem in financial markets right now is there's no Event.
This is just Cycle-Risk and we haven't had to manage cycle risk - on a sustained basis to the downside - since '08-'09, and 2000-2000 before then.
The Fed is in QT. Financial conditions are still in accommodative territory, according to the Financial Conditions Index, and we have a long way to go.
We will not see any dovish actions from the Fed until the economy deteriorates significantly.
I'm convinced we're past the peak in terms of inflationary pressures.
Looking at our portfolio, the #1 thing we aren't allocated to is duration.
I think the long bond could rally 20-35% from here. I think when it moves, it's not going to let you back in the trade.
The world is short-duration right now. Tons of cash on the sidelines. The dollar rising has been supporting U.S. equities.
When it deflates, there will be a significant change in style factors. Expect a significant reversal in sector and style factors ahead.
Simple rule on when to enter a long bond trade:
It's compelling, given historical backtest, to go long the long bond when the year-over-year inflation rate peaks. (18-20% annualized)
YoY Inflation data:
fred.stlouisfed.org/graph/?g=JIW...
NFCI:
fred.stlouisfed.org/series/NFCI