How Are You Investing In This Recession?

It has officially been 2 quarters of decelerating GDP growth, in rate of change terms (YoY). Many people will now declare that we have entered a recession or are entering one. Many asset classes have fallen in price over the past couple of months. It’s been a slow bleed for many assets, and if you have been following the market closely and, more importantly, been following the best sources, like Hedgeye, you are probably sitting on the side line of this market. Or, if you are looking for major alpha, then there have been plenty of short opportunities. Anyway, here is some data from Hedgeye that will give you a broad framework for where we currently are in the markets.

The SPX is currently down over this year 18%

The Nasdaq is down over 25%

The Russel is down over 23%

CRB Index is down approx 13% from its cycle peak.

And how can we forget bitcoin, which is down over 68%

Commodities like natural gas are down over 34% in the last month alone. At least it will be cheaper to warm up your home…when you don’t need it.

Although Oil has held up the index for the past 6 months, we have seen a meaningful decline over the last 2 weeks. The price of oil is currently sitting at 104, a 25% drop, so some disinflation has definitely occurred.

The best place to allocate your cash is in the US Dollar Index, which is up just over 10% year to date. If you want a bit more alpha than only buying actual US dollars, you can get exposure through the UUP fund. And if you don’t want to do that, then you are best sitting on your cash, and waiting, patiently. Of course, buying UUP on any given day is not the way to do it. You are going to want to subscribe to Hedgeye to get real time signals on the best time to buy and sell.

For those of you who don’t follow the markets regularly and have not experienced a downturn like this (you may have gotten used to the covid bullrun, where anyone with 2 eyes and half a brain cell could make money) I want to pass on a couple important notes I have learned from Hedgeye on how to handle these large down turns.

1. First off, if you are sitting on cash and looking to buy these dips in an aggressive way, I would hold off and not do that. You really need to proceed with caution. Something that “looks” cheap, isn’t a signal to buy.
2. Don’t get caught up in aggressively shorting this market, because if you aren’t following it closely to begin with, you may be right in “what” you are shorting but not “when” you are shorting and you may not be able to bare sitting on a temporary loss which could take some time to turn into a gain. You are better off starting on a play account first, with play money, or starting off with little money you don’t care to lose.
3. Don’t think that sitting on cash is not doing anything. Not making a move is a move and we need to be reminded of that.

Many people, including myself, have not experienced a downturn in the market like this, so don’t get brave and act on what others tell you, especially those that live on the other side of the screen of reddit and finwit forums. Subscribe to legitimate sources and always do as much research of your own as you can.

Best of luck out there,

Wassim