Why’s that?
Because:
I think inflation is going to fall,
meaning the Fed can lower rates,
and that’s good for growth funds and stocks
So, I’m holding onto the growth funds that have lost my clients bucket loads of money this year, in the hope of recouping the losses next year
Well billionaire, Ed Seykota, will tell you, “If you can’t take a small loss, sooner or later you will take the mother of all losses.”
So if your clients are more than 50% exposed to the best performing growth funds of yesteryear that are down >25% in USD this year (like the Index), you need to be 100% right or you’ll find out what, “the mother of all losses” could mean to your business when all your clients leave you
But let’s explore your strategy a little deeper
You’ve linked 3 outcomes and if you have a 70% chance of getting each right (a hit rate most macro strategists can only dream of)
You only have a 34% chance of things playing out exactly as you expect (0.7x 0.7x 0.7)
And who wants to invest with odds like that?
Especially when your entire business/fund of funds is on the line?
Not me
But I’m 100% CERTAIN inflation will be less than expected and we know that’ll mean lower rates
Ok, but didn’t US CPI come in lower than expected this month?
Yes, it was a very positive surprise – only up 0.4% month on month vs expectations of 0.6%
And what have 2yr rates done over the month?
flat at 4.45%
And how has Growth done v Value?
MTD Growth is up 5.5% and Value is up 6.9%
Oh
So if your simple strategy didn’t work out this month with a very positive CPI surprise, why on earth do you think it’s going to work next year?
Especially when all the large growth companies…
how do I put this gently?
are no longer growing…
Now I’m no Macro Maven – I prefer 70% odds to 34%
but I’ve looked back to 1954 and the Fed Funds rate was higher than inflation at the beginning of EVERY SINGLE rate easing cycle – makes sense – real rates encourage savings
So maybe that means inflation has to fall below 4% or rates have to rise further, before being lowered..
Anyway, the Fed isn’t talking about easing and you know the rule – “don’t fight the fed”
Or are you only fighting the Fed because ….
you can’t take losses?
And maybe the rampant speculation from having such low rates which led to the rise of crypto and meme stocks and NFTs will make the Fed even MORE cautious than usual about taking them back down…
Markets are always changing so we HAVE TO think beyond simply, “what worked last time?”
But don’t take my word for it, take it from the Oracle of Omaha
“If past history was all there was to the game, the richest people would be librarians.”
In summary:
Be diversified
to stay in the game, and
please don’t rely too much on macro calls…
they really don’t offer great odds