Dear Prudence – June 2nd 2023

A shortened holiday week into May month end brought forth aggressive moves in US fixed income markets with yields swinging between 20-40bps intra week on the curve. The culprits were predominantly FED speak commentary heading into their blackout period with a “June Pause” consensus starting to form by some members. Although a hawkish tone remains in the air, both Powell and his vice chair expressed prudence on raising rates for this June 14th meeting.

It’s possible that the known lack of liquidity during the upcoming summer months and the added complexity of putting out fires remotely from the golf course would hurt their A game, then again, it’s fair to assume that 500+ bps hikes may actually be carrying some tailwinds for the economy. Regardless of the reason, Mr. Market liked the thought of pausing and June opened up with a banger bounce in every left for dead (read Non AI Tech) risk asset out there.

As expected, signs of resolve emerged out of political leadership in regard to a debt ceiling agreement which has now been passed to the Senate with a low likelihood of encountering any further hurdles. Their 60 vote threshold should easily be cleared by members ahead of schedule.

** Thoughts on RCG Portfolio Positioning
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** Dynamic Macro Strategy
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This strategy relies on historical data and quantitative techniques to detect statistical disparities and make predictions in global markets using liquid ETF’s.

“Volatility and erratic prices moves have continued to introduce idiosyncrasies in several data sets weakening short term predictive strength within linear models. In response, we’ve been reducing exposures to these tactical areas awaiting further stability and liquidity to return to the market. We maintain longs to historically dislocated sectors that have further de-coupled from the broader indices recently. ” – Nick Diaz

** Inflection Strategy
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The strategy takes positions in highly out of favor US equities which we believe are inflecting due to changing fundamentals/events.

“We continue seeing significant bifurcation between large cap and small cap performance. The holdings in this strategy are primarily small to mid cap securities with a median market capitalization of 1.5b. The stronger inflection candidates remain to be within the Energy sector, hence, our overweight position in this space.” – Stefan Lingmerth

** Safe Haven Strategy
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This strategy protects capital during inflationary environments and seeks to maximize yield using fixed income instruments and defensive assets. PM – Nick Diaz

“With the imminent threat of a US default nearly out of the way and rates markets finding their footing, we’ve continued to layer bids around the 4.5% levels in 2yr notes and have kept rolling shorter duration instruments into the end of August as we await May CPI today.“- Nick Diaz