Seven horses pull the hearse – May 19th 2023

The combined effects of debt ceiling concerns and the Federal Reserve’s hawkish commentary by some members this week contributed to selling pressures across the entire Treasury curve cheapening rates by roughly 25bps. [UST’s currently at 4.26%, 3.70%, 3.65% and 3.90% for 2,5,10 and 30yr terms, respectively]. While front end rates remain reluctant to reevaluate, insisting there will be interest rate cuts into year end, the high quality Mega cap names continue carrying major US indexes to the green. If for no other reason, the tech rally this week has been in part thanks to the relentless use of the term “AI” percolating through the media which has further extended the dislocation of the QQQs from all other benchmarks. While the rest of the market fights to tread water, signs of fatigue and near-sightedness are setting in and becoming evident.

** 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.

“Political leaders are gathered in Hiroshima for the G7 summit this week promoting peace talks, energy programs and new sanctions on Russia. Coincidently, we’ve continued reducing exposure in vulnerable EU areas and in defensive US ETF’s, increasing our cash position. With short term (60-90d) correlations continuing to break down from historical 2y averages in both G7 and US Sectors, we look to remain nimble and gather firepower for the next wave.” – 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.

“Equity trading volumes have dragged again this week into the summer months. We see a large bifurcation between large and small cap stocks, given the inherent risk profile in the market and looming debt ceiling negotiations. We continue to believe we will be rewarded by owning low valued stocks and high cash flowing companies.” – 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

“Rates markets are slowing re-pricing to the downside as the thought of sticky higher rates could actually co-exist with a resilient US consumer. We’ve been patient with our T-bill rolls anticipating higher rates to come. We will be looking to extend duration as 2yr treasuries approach 4.5% (closer to a more realistic long run CPI). In the meantime, our partner and platform of choice (IB) offers one of the highest overnight interest rates in the marketplace.“- Nick Diaz