Bear with me and please inflationistas out there do not throw tomatoes at this blog.
Rates are too god damned high. And it’s because of the higher rates, the specter of Fed action, that is causing tech and biotech to correct so severely. Just over the past month SAAS stocks and biotech too are down in the magnitude of 35%. This is plainly insane, but not without precedent.
What is the market pricing in?
In layman’s terms, slower growth. But we’ve been down this road before and at the first sight of slow growth the Fed changes a word in their statement and the whole market go bananas to the upside. The point being, there is a Fed put and that put demands LOWER interest rates. That’s just the way it has been.
Let’s offer a few scenarios for you to gameplan.
Markets careen lower on fears of stagflation. Do you really think oil is going to buck the trend up? That’s very rare and oil is sensitive to the economic winds, so to say. Admittedly, we are enduring a rather unique spate of inflation, which has been caused by the COVID lockdowns and stimulus. Nevertheless, it would be extremely rare for markets to tank and bonds not become an avenue of safety.
The other scenario s straight up. But how will SAAS and biotech bottom with rates pressuring higher? Moreover, how can the market do two things at once? Impossible.
The answer is simple: BOARD THE ARK, via TLT or TMF for leverage. I am 10% weighted in TMF now and to be honest I am liable to sell at any time. That still doesn’t mean the thesis isn’t true or should be followed.
On the other hand, out algorithms inside Stocklabs just tagged the biotech ETF XBI with a 30yr oversold tag. Lo and behold, we are at very historical levels of carnage in the biotech space and there will be a mean reversion trade to the upside with severity, rate or not.If you enjoy the content at iBankCoin, please follow us on Twitter