The past several weeks have been an exercise in taking scissors to the portfolio, trimming excess fat from around the meat of our exposure. In mid-July, our long exposure stood at 185%. As of the close Friday, we were at a little over 100% long, with a big shift into conservative beta from what was aggressive beta in mid-July. Conservative beta names like REITs, gold and financials have become the theme here recently.
That's changing over the very short-term due to the sense of panic that is taking place in the markets today.
Following Friday's close below 2940, which was described on Twitter as being a "Tyson level uppercut to the market," paired with China's revised strategy of manipulating their currency in order to keep up in the trade war, investors are suddenly coming to the realization that things are going to get really bad from here.
These types of snap consensus realizations that are reflected by near crash like conditions in the financial markets aren't typically allowed to persist without the prerequisite manipulative dance. Especially in a political environment where mouth pieces emerge randomly to talk up the markets in moments of severe distress, with compensatory policy decisions once they realize the financial markets are getting a bit out of hand.
The move down in yields again reeks of distress.
The move down in the most speculative sectors of the market (think: SOX) screams of investors fully embracing trade war induced economic panic.
The move into gold and silver as safe haven plays is rushed in nature, again having a "snap decision" feel to it.
All the meanwhile, this type of crash in yields creates a value cushion that should be able to mitigate the threat of precipitous declines, such as what we experienced in Q4 of 2018.
In all likelihood, when looking back at this moment in time at the close of trading Friday of this week, investors will wish they were buying instead of selling. And that's all we are playing this for. A short-term surge in exposure acknowledging that markets enjoy toying with investors more than they enjoy accurately reflecting the value of the companies listed.
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