Three Bears
I recently wrote that I believed the true concern in markets was no longer inflation, but recession. (https://mindthetape.substack.com/p/you-cant-drive-by-rear-view-mirror)
However, since publishing that piece, I've noticed a growing number of people I follow making the same prediction, making me question myself. While the consensus trade can work for a while, and you can make money on it, you don’t achieve outsized returns by betting on consensus.
Battle of the narrative
On one hand, there's a compelling argument that the Fed is late to recognize the slowing economy (as they often are) and are focusing on inflation when they should be prioritizing growth.
On the other hand, when every pundit I follow is saying the same thing, it gives me pause.
Consequently, I'm increasingly inclined to expect a Goldilocks scenario as the outcome. The challenge, however, is that with VIX at 13 you have to figure everyone else is betting on the same thing.
But, try as I might, when I look around the world I think we are Goldilocks until another exogenous event shakes the markets or breaks the upward trend. Unfortunately, there is plenty of potential on that front from Taiwan to Ukraine to Israel and to all the flashpoints we don’t see.
Market Check In
Oil is up off the recent lows, but not by much. Here the story is really that oil has come down noticeably.
Treasuries with a meaningful bounce.
QQQ is back near it’s highs on the year.
These three charts tell you that the three main fears of markets have alleviated substantially:
Fed hiking/or staying “higher for longer”
Inflation rebound
War
The market has discounted all three. As have I.
So Then… What?
Exactly. I’m thinking stay allocated long, buy Vol when it gets this cheap, and stay frosty.
Please also always remember... none of this is financial advice. I’m not a professional. I quite literally don’t know what I’m doing.