ETF Model Portfolio doing just fine!

Stagflation to Deflation most probable, both mean risk off!

On days like yesterday, we can see that a stagflation regime (ROC Inflation up, ROC GDP down) is a risk off regime and why we need a long short portfolio, a long only portfolio is not going to cut it in this environment!

Regime:

The fed wants inflation down but there is almost no way that it gets its goldilocks (ROC GDP up, Inflation down) without a hefty, longer dive into deflation (ROC GDP down, Inflation down) first.

+ we now have another (war beeing the first!) external risk event and that is China. Leadership in the east has basically lost it.

Also, if you think we are in a super cycle of commodities (which I do), even that will not help you if the market tanks from here. It will not matter.

So, you need shorts (Higher Beta, Tech, Russel 2000) to offset that risk even if you have (stagflation) longs in your portfolio.

That is why we have defensives in the portfolio + 2 Shorts. Only exposure in the following portfolio that is at higher risk is XLE when we turn to deflation, so we watch it:

(Out of sample since 04.09.2022)!

Same with the stuff I am trading: long value momentum + a nice short on the Russel 2000 (through a long on RWM):

I am now about 1% worse on a Dollar basis than above portfolio, because I put too many longs on.

The thing that is saving me is the Dollar: my whole portfolio is nominated in Dollar but I live in Europe.

My Port is up 10.4% YTD in part because of the dollar effect.

But what counts. The small cap value momentum long port + the RWM Short is down 1.86% while the Russel 2000 is down 11.32% from 02/18/22 - 04/26/22!

Longs in above model portfolio: 404,506.83. Short in above model portfolio: 262,026.02. So it has a 64% short on the longs. + Cash 91,814.12.

The fed wants inflation down but there is almost no way that it gets its goldilocks (ROC GDP up, Inflation down) without a hefty, longer dive into deflation (ROC GDP down, Inflation down) first.

If we think we are in a supercycle of commodities (which I do), even that will not help us if the market tanks from here. It will not matter.

So you need shorts (Higher Beta, Tech, Russel 2000) to offset that risk if you have longs in your portfolio.

Here are some (the most important, because below factors trend the best!) components of the above regime model:

Small Cap value momentum: Strong

High Beta big caps. Note to myself: Do you see the downtrend?

China: very weak!

Can we rally from here? Yes!

But then long the stagflation exposures will rally too. What we know is that we are in a risk off regime, so we need the hedge.

Have a profitable week!

Disclaimer: For educational purpose only. Not investment advice. Seek professional advice from a financial advisor before making any investing decisions.