What We Have Learned


We are still very early into 2022, but there have been some trends already established:

1. Rates matter. 

On New Year’s Eve the 10-year note yielded 1.52%, after five trading days in 2022 it now yields 1.80%.  Tech stocks were particularly offended by this move and dropped a quick 5% this week, including the worst day drop since March of 2021.  This rate move was accelerated by the Fed minutes that were released on the 5th. The minutes usually provide few fireworks, but this one snippet sent traders into a selling frenzy:

Many participants judged that the appropriate pace of balance sheet runoff would likely be faster than it was during the previous normalization episode

The easy money days are over.  Bonds are off to their worst start ever for a new year. There are over $8 trillion on the Fed’s balance sheet that needs to be unwound.  That is not new news, they have been signaling this for months.  But we’ve never seen the Fed both reduce their balance sheet and raise rates at the same time. Stocks, bonds, commodities, currencies, and cryptocurrencies are all nervous regarding this experiment – and it showed in the first five days. 


2. The meme theme is on life support. 

At least for now.  A year ago, last January we saw Gamestop, AMC, and a host of other highly shorted stocks soar to levels that even got the mainstream media interested.  Today, Gamestop is down 61% from highs and AMC is down 63%.  A host of other once-hot names are even further off their highs and have flatlined for months now.  Sure, the “memers” could resurface anytime (and we would love to see it), but their waning firepower and months of futility have jettisoned them to the sidelines for now.

 3. Cryptocurrency isn’t a hedge against inflation or a port in any storm. 

That was quite evident the first week of 2022 as Bitcoin fell 10.7%, Ethereum 18.6%, and a host of altcoins also fell by double digit % so far in this very young year.

This doesn’t mean that crypto isn’t worth getting involved in.  It certainly is.  But treat it as just another asset class.  There are still more and more institutions figuring out how to get exposure and we have several conferences coming in the next few weeks which may put a floor on the selling.  We are in the camp that higher prices are in the cards (Goldman slapped a $100k price target in early Jan) – but it’s going to be a very bumpy ride.

4.The commodity super cycle is real and will be a theme for 2022 and beyond.

Don’t discount this.  Oil is hovering near $80, copper, and other industrial metals remain well-bid while the grains and some softs are near multi-year highs.  Inflation, as we all know, will be a huge theme in 2022 and there is no better reflection than commodities.

“The best place to be right now, particularly given the Fed pivot, are commodities. We think you’re going to see another year of out-performance of commodities and real assets more broadly.” – Jeff Currie, Goldman Sachs head commodity research

 5. It was recently reported that there is now $4.2 trillion under management with hedge funds. 

That may seem counterintuitive considering the underperformance they have demonstrated in recent years.  Or is it intuitive in the respect that active management, especially with changing Fed policy, is set to outperform passive management in what is surely to be a more volatile environment?  This is even more prudent if one believes that we do, that the safety net/balancing effect of bonds won’t be there in 2022. 


Few other bullet point observations thus far in 2022:

  • Gold, silver, and the miners continue to disappoint, gold is once again below $1800, despite all the perceived tailwinds it has, inflation being the biggest.
  • Stocks like Tesla, Shopify, and PayPal are going to have a tough time justifying their nosebleed valuations in an environment that is withdrawing liquidity and hiking rates.
  • The adverse price action in Moderna, Pfizer, Novavax, and BioNTech has us thinking Covid is morphing into an endemic rather than a pandemic. 

We talked about how 2022 and beyond was going to set up differently from past years and thus far, all of 5 days, it is proving true.  We want to reiterate that the changing Fed policy is by far the #1 catalyst for this.  Not Omicron, politics, or even earnings. 

Position yourself for the changing guard upon us; or drastically lower your expectations if you choose to ignore what is happening.


What we have learned (in 5 days)

-China is shit

-bonds/rates matter for igv etc

-value and industrials are in DE CAT GE BRKB