We Do Not Get Paid to Talk About the Fed
Welcome to this week's update on the small cap momentum portfolio. Readers will notice something missing from these smaller cap letters lately: the usual macroeconomic throat clearing.
That is deliberate. Macro gets its due in the real estate and fixed income letters, where it actually moves the needle.
In this portfolio, it is close to irrelevant. Numbers and company conditions drive every decision here, nothing else. There is no reason to spend your time on things that will not put money in your pocket.
Peter Lynch put it best. He said that if you spend 13 minutes a year thinking about macroeconomics, you have wasted ten minutes as a stock picker. That view holds up well.
None of this means the stories are not entertaining.
The buildup to the Jackson Hole meeting had its share of intrigue, particularly the guessing game over how Kevin Warsh might reshape things.
The honest answer is that he was never going to. Warsh is an old credit hand out of the Soros shop, the same lineage as Druckenmiller, and interestingly enough, Scott Bessent fits that mold too.
Traders love to parse where the commas land and where the sentences end, and the papers coming out of a Fed conference can be genuinely fascinating (yes, calling a Fed paper fascinating is a certified sign of being a geek).
Fascinating does not pay the bills, though, so the focus here stays fixed on what actually matters: credit.
Credit Still Lives in Nirvana
High yield credit spreads, despite all the noise and headlines last week, actually contracted a bit further into nirvana territory.
Investment grade spreads remain pinned at extremely tight levels. The smaller cap segment of the credit market has crept up the scale just a touch and now sits above 1,000 basis points.
That is the first hairline crack worth noting, and it earns a yellow flag. It does not yet earn a change in how this portfolio is run.
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The broader market trend remains higher. Stocks were down slightly on the day the oil war pushed prices up again, and that pattern looks like it will continue.
Nobody would be happier to be proven wrong about where oil prices are headed, but the expectation is that this pressure persists and eventually shows up in the portfolio, most likely through the nature of the companies held in this small cap momentum sleeve.
Anyone trading off the daily chart has been getting whipped around lately. Daily charts do not matter much here.
The bigger picture is what counts, and on that bigger picture the trend for microcap stocks is still solidly up. Widen the lens to the S&P 500 and the story repeats: credit is good, the trend is up, and that combination is the only scorecard that matters.
A Free Roll and Four New Names
This week brings a real shake up in the portfolio. Four stocks are all up more than 100%. Anyone still holding full positions should sell half at the market.
This is the part that matters.
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