After adding GOOGL this morning to go along with other items I consider somewhat negatively correlated to long-term yields (DVAX, TWST, ZM, META w/ MSFT on priority watch) and thus, inflation, I thought I’d put up an update about this rebalancing from an ‘inflation trade’ allocation (although commodity related NOG, MOS & NTR have also been added back recently) to more of a contrarian ‘Goldilocks/disinflation’ allocation (including a still very high cash level).
This screenshot shows positions in order of position size and this morning’s price action.
Let’s take a look at a couple of comp charts, Growth vs. Value and Tech vs. Broad (SPY).
While I don’t want to get too excited about a 2 month move, like many other divergences we have noted against the inflation and ‘inflation trades’ manias that have been in place well into 2022, Growth has been out-performing Value as long-term yields have topped out per our contrary plan. It could all be temporary, with a new inflation problem in the future after the Fed settles down and hangs up its hawk costume for a while, realizing it is looking backward and reacting to lagging data. *
That could be the fuel for a future inflation problem, but let’s cross that bridge when we come to it. Right now we have a situation where Growth is outperforming Value for 2 months and the ratio has turned its daily chart RSI and MACD positive. It is however, still technically counter-trend, as the 50 and 200 day moving averages slope down.
From the vantage point of big Tech vs. broad large caps, the situation is not surprisingly the same. I just wanted to get a visual update in place to illustrate some of what I’ve been talking about with respect to a contrarian ‘Goldilocks’ phase and to illustrate that along with cash, I am shooting for a certain balance among holdings in line with the current macro view (which is subject to and will change at some point).
* We do after all have a plan for a tradable pullback in long-term Treasury yields but also a support target at around 2.5% on 30yr Treasury yield (monthly ‘Continuum’ chart).
