Happy weekend to all, and to those in the states I hope you enjoy the three day weekend.
I've been making some readjustments the past two weeks, more to the defensive end. I am by no means a macro expert but I wholly enjoy reading the tea leaves trying to figure out where we're going. For me I'm seeing cracks in the foundation and I want to position myself ahead of where the ball is going.
A few days ago I retweeted below:
Recession risk for corporate debt markets 📉— The Notetaker (@FinTwitNotes) April 9, 2022
Summary of @PensionCraft's (Ramin Nakisa) video titled:
"Global Credit Crisis - The Next Big Financial Crash?"
Does a recession spell more trouble for the corporate debt market? 🧵👇
This was an excellent summary of credit risk which is something we don't see making the news everyday. If you look at the St. Louis Fed graph below, you can see the high-yield spread rising over the last few months.
While the Fed raises interest rates, I don't think we'll see inflation vanish immediately, but we will see slowdown in some businesses. We're already seeing some '22 outlooks being revised, most notably Target, due to inflationary pressure and uncertainty. As rates rise and pricing starts to lose it's stickiness, corporations would rather slow down hiring than surrender margin.
All in all I think we're in for a challenging back half of '22, so with that I've reallocated a good chunk of the portfolio even more defensively.
For the first half of '22, Treasuries were not the flight to safety I expected. Along with the overall stock market they've declined substantially. With more challenging times ahead, I do believe there will be a flight to safety and I'm positioning myself ahead of that and keeping some powder dry for longer term opportunities as they present themselves.
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