Stagflation, with Deflation looming

Stay protected!

1. The strategic macro picture has not changed

2. Still Stagflation (Risk off!!! A long only portfolio will not cut it! Be in tons of cash or be long / short!).

Watch that video, it’s a great source to see what is happening right now!

I still see stagflation in full play, illiquid small cap value momentum still very strong and long-term bonds have not yet printed an uptrend, so we stay the course:

Illiquid small cap value momentum strong:

(Strong: Clear uptrend with higher highs, higher lows)

Rank Momentum Stocks still strong:

Shorting systems are monster strong:

High Beta is weak (lower lows, lower highs!):

High Beta Equal Cap Weighted 20 Years.

As I stated, high beta is one of the best trending factors (see above). If you have only one factor you follow it should be high beta. If high beta is strong, there is a strong market in the making (Risk on). If it is weak, you can be sure that you are in a risk off regime.

China still weak:

So all in all we are still in stagflation.

Stagflation is a risk off regime. First volatility is very high. Second there is always the danger that we transmission to deflation in a stagflation. Why? Because the Fed wants inflation down, so they hike interest rates until demand falls in a way that inflation comes down. When they hike rates, liquidity comes down too and when liquidity comes down bad things happen. Remember the whole economy is adapted to a high liquidity environment since basically 2009. Whole business models have been built based on high liquidity. Also, when interest rates go up, grwothy stocks tank because their earnings in the future get discounted with a higher rate. A double hit for growth stocks that need capital! That is the reason why hyper growth (earnings way into the future!) high beta stocks tank up to 95% in a regime we are in!

QuantStrike ETF Model:

Doing o.k.

Holdings:

All in all, stagflation goes on.

Energy is still very strong:

$UNG:

$XLE

Stay the course. It might take longer than we expect until energy sells off, long term Bonds rally (which would be the signal that we transform to deflation).

Have a look at oil: Strategic Oil Reserve release, Russia still exporting Oil and Gas (for lower prices!), China in lockdown, People still working in home offices and not driving to work, and the price of energy still is in an uptrend. Bad news + relative strength means something. Wait until the driving season hits and China opens up again. People will not cut on food on energy first, they cut somewhere else (discretionary spending gets cut!). But in the end the Fed will have a victory, so we have to watch $XLE!

Have a great week!

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