“Davidson” submits:
Q1 2023 hedge fund letters, conferences and more
The weekly SP500 Net Non-Commercial Futures Positions established a new record last week for the length of time of below -200(RED COLUMNS) for this sentiment indicator. This correlated with a rise in the SP500 from $3.861.59 ending 3/10/2023 to $4,171.50 on Friday’s close and a new high in T-Bill rates of 5.10% exceeding the recent high of 5.01%. The correlation remains unusual vs the historical record of T-Bill rates declining during periods of pessimism and shows that institutional traders are actively selling T-Bills to hedge against buying 5yr-10yr maturities. This is a speculative bet that recession will force longer rates to decline and result in substantial returns. This has not happened in prior periods of extreme pessimism. High pessimism has in the past been correlated with sharp declines in T-Bill rates as investors sought safety. The recent rise in the SP500 has ratcheted this hedging strategy higher by my analysis.
The current level of pessimism does not square with the quintessential fundamental economic indicator, rising employment. It will break the portfolios of the investors involved and could result at a sudden rise in equity prices. Reversals in market psychology can occur remarkably quickly especially when aided by computerized trading. Recognizing the potential of a sudden reversal is not a prediction as it is market psychology after all which has never proven predictable. The best strategy is to own equities that are well-managed and priced at significant discounts to management’s financial record.
Then, be patient!
