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The Risk Trade is On!

Large investors are reducing risk exposure across all assets classes. That’s clear now, although some had already been unwinding their positions in technology stocks as early as September. This is definitely impacting market sentiment and it’s amplifying volatility. Buying dips is no longer a viable strategy, but some people are still under the impression that the Fed will flinch and come to the rescue. Those expectations are wrong and reality is beginning to set in. The new game is capital preservation and this means choosing value stocks over growth stocks. Tight monetary policy is also exposing the weak and overleveraged, so going forward solid balance sheets and wide moats are going to matter more.

This was (if indeed it is over) one of the greatest bull markets in history (see chart below for perspective), but the idea that stocks were going to keep going up year after year was a big delusion. A world without QE will require a different mindset and those with the skills to pick the right stocks will fare better than those who leave it all to chance. We were very lucky that the Fed kept this shit going for as long as it did, but we’re on our own now.


The S&P 500 going back to January 2009.

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