My last Thursday's post outlining my fears of contagion effects from GameStop on the US financial system was likely wrong. However the conclusion and best course of action remains the same: decrease risk. Last week global markets continued to act very poorly despite continuing promises of easy liquidity by the Fed. Their movement seems to be finally following the news flow which is bad: virus developments, economic activity, China liquidity & global relations, etc. Meanwhile these massive asset bubbles are appearing everywhere (Dogecoin anyone?). I'm highly skeptical of the reason given for the Wednesday sell-off as "forced liquidations by hedge funds due to GME" and the big global market declines on Friday makes this reason even less likely (muted GME activity).
More importantly still, its become harder and harder to find attractive investments. The hype momentum stocks where valuation is secondary to the dream simply aren't for me. Therefore I continue to cut equity exposure and increase hedging (accelerated last Friday). I can live with missing out on a few more % points of gains into a bubble market vs the massive draw-down from a market crash. That is the asymmetric risk/reward proposition I see. I don't know the timing and trigger for the next next crash but it could very well be a loss of public confidence once the GME bubble bursts.
Comments