Stocks fell 6% last week, leaving them down 22% ($SWDA.L) for the year to date.
www.ft.com/content/80d79903-415b-4c8e-8715-2eeb86e09300
Our portfolio has lost 7% this year, as 15 percentage points of outperformance have not been enough to turn a profit. This is rare but it can happen in the worst years.
We have turned very bearish on the economy and, hence, the market.
1. It was reported last week that a New York Fed economic model predicts that US GDP will contract 0.6% in 2022 and 0.5% in 2023, and grow only 0.4% in 2024.
libertystreeteconomics.newyorkfed.org/2022/06/the-new-york-fed-dsge-model-forecast-june-2022/
2. Investment bank Nomura predicts that a recession will start in the fourth quarter this year due to tighter financial conditions, weak consumer sentiment, energy and food price pressures, and geopolitical instability.
www.business-standard.com/article/international/us-likely-to-fall-into-recession-as-fed-reserve-raised-rate-hike-nomura-122062000324_1.html
3. If there is indeed a recession, analystsโ estimates about future company profits are too optimistic.
twitter.com/MikaelSarwe/status/1537421284262481920
4. There has been no capitulation. Most investors are still holding onto stocks.
www.aaii.com/assetallocationsurvey
5. The market rarely bottoms durably before the economy. We expect the economy to bottom in mid-2023.
twitter.com/MichaelKantro/status/1536360232422625285
Given this backdrop, the plan is to run an extremely defensive portfolio for the next 9-12 months, with lots of cash and a sprinkling of Healthcare, Telecom and other non-cyclical positions.
Currently, the market is short-term oversold and it would not be surprising if there was a bounce similar to the one we saw in May. In the 2008 and 2001 bear markets, there were 5 and 6 bear market rallies, but they were all ultimately followed by lower lows.
twitter.com/KobeissiLetter/status/1530229426356596736
In general, we like risk-taking and run a risk-on portfolio most of the time, but there are exceptions. In particular, we do not like to take on risk when we believe a recession is approaching, yet investors have not yet capitulated. This approach served us in well in 2008 (portfolio return -16% for the year) and in March 2020. Although no one can know for sure if 2022-3 is going to be similar, we believe better opportunities to buy beaten-down stocks will come down the line.
๐ฎ๐ฌ๐ฎ๐ฎ ๐ฝ๐ฒ๐ฟ๐ณ๐ผ๐ฟ๐บ๐ฎ๐ป๐ฐ๐ฒ ๐ฌ๐ง๐
@triangulacapital -6.6%
$SWDA.L -22.3%
๐ฃ๐ผ๐ฟ๐๐ณ๐ผ๐น๐ถ๐ผ ๐ฐ๐ต๐ฎ๐ป๐ด๐ฒ๐
Further de-risking saw us close all our remaining Financials positions except for $IBKR (Interactive Brokers Group) . $META (Meta Platforms Inc) was added, though this position is being re-evaluated at the moment.
