Taking a +110% Profit (And Adding a New Position)
We're taking a 110% and 52% profit and plugging those profits into a new position...
Someone turned the music down.
We’ve ridden this bull market perfectly over the last year, nailing the rally in AI, crypto, and "quality" stocks. That outperformance extended into 2024, as the Patreon Portfolio’s +22% return in the first quarter would rank #5 in hedge fund returns.
Our strategy going into the year included what I call "reflexive risk control" whereby we kept adding to high-risk, high reward positions until the broader trend broke. That included adding risk aggressively as long as the fundamentals behind the rally persisted, or what I referred to as "dancing until the music stops."
And while I don't think the music is stopped for good, someone definitely turned the music down.
That's OK, but it means we need to adjust our strategy.
Is the Inflation Narrative Back?
Last week's hot inflation report threw some cold water on our dance party.
The report showed inflation was +3.8% year-over-year, which was 0.1% above expectations:
The market did not like this as higher inflation means the Federal Reserve will have less leeway to lower interest rates. The market priced this in accordingly, going from expectations of seven 2024 rate cuts at the start of the year to now only two cuts:
The report smacked both stocks and crypto, sending the S&P 500 and Bitcoin down -2% and -9% over the next five days:
I am not happy to see inflation picking up again as it means "higher for longer" for interest rates and will weigh on consumer spending (although retail sales remain strong):
I want to make one thing clear: I do not view rising inflation as a death blow for markets. And judging by the market's relatively muted reaction after an incredible run over the last six months, it seems investors are not too worried either.
But that wasn't the only piece of market moving news over the last week.
Will a Middle East War Crash the Market?
While I was on vacation last week, I can't help but keep up with the market news.