Wall Street Wins Again As GameStop Becomes Game Over

As noted, such would not be welcome for the equity markets due to the non-correlation between the dollar and equities. Most importantly, a surging dollar, with rising interest rates, could put a severe dent in the “reflation trade.”

While the markets have not seemed to care about the dollar at the moment, this is one of those things that can sneak up on you when you least expect it.

Portfolio Positioning Update

Two weeks ago, we discussed selling our index holdings and raising cash to position for a correction. Last weekend, we stated that we expected a rally following the selloff at the end of January. As such, we did put some of our cash holdings to work this past week, increasing exposure to inflationary trades (energy and financials) and reducing our duration risk in our bonds.

While I have read many comments about “how we missed the rally,” the truth is we didn’t. Yes, we did reduce exposure previously after overweighting our portfolios in December, but we still maintained a healthy weight. We also increased the weighting somewhat this week.

With our “risk-off indicators turning, such suggests the bull market is still well intact. What concerns us is the overwhelming amount of data suggesting more extreme conditions in the market that are usually only present during “mania” phases.

Yes, this time could indeed be different. However, we suspect that while the “mania” will undoubtedly last longer than we would imagine, it will most likely end the same way it did for those chasing GameStop.

It is just the way markets work.

These words from Howard Marks sum up our views:

It’s the swings of psychology that get people into the biggest trouble, especially since investors’ emotions invariably swing in the wrong direction at the wrong time. When things are going well people become greedy and enthusiastic, and when times are troubled, people become fearful and reticent. That’s just the wrong thing to do. It’s important to control fear and greed.

Too little skepticism and too much eagerness in an up-market – just like too much resistance and pessimism in a down-market – can be very bad for investment results.”

Currently, there is very little skepticism.

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Model performance is a two-asset model of stocks and bonds relative to the weighting changes made each week in the newsletter. Such is strictly for informational and educational purposes only, and one should not rely on it for any reason. Past performance is not a guarantee of future results. Use at your own risk and peril.  

 

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Alexandra Gray 2 months ago Member's comment

The problem is the trapped bears feel a need to post negative comments to protect themselves from losing millions.