Strategy Note: March 18, 2024
WOTE 60/40, Long/Short, Special Ops. Know thyself.
Discussion
I opened last week’s strategy note with: “I’m fully aware that capitulating on a tactical pullback thesis tends to occur at a peak.”
That is precisely what happened. I tend to be very quick to change my mind (though it’s a delicate balance being patient and cutting losses), so changing positioning at precisely the wrong time comes with the territory. Getting wedded to the change when the market immediately moves against you is the problem. So…today I adjusted back upon receipt of new information:
The Fed told us this weekend it is debating “whether” to cut rates. That’s a change. We all know the Fed is going to take the dots down to 2 cuts. That’s not news. What is news is the possibility of no cuts in 2024. That message is likely to come through in Powell’s press conference.
Against the backdrop of IG CDX starting to finally show signs of upside life, the long-end of the UST curve breaking higher, the TIPS break-evens curve materially north of October 2021 levels, and the OIS curve quickly taking out cuts, “whether” is to be taken dead seriously.
As discussed via private Xwitter yesterday, I wanted to see a rally into Powell precisely as we are seeing today. It’s time to move.
Portfolio Action
WOTE 60/40: Back down to the low-end of the allowable equity exposure circa 40%.
WOTE Long/Short: 100% short QQQ via the PSQ ETF.
WOTE Special Ops: Almost-full allocation to 5/17 SPY $515p with room to add. -1.7% break-even and returns 3.96x on a move down to $480 by expiry.