Last 2 months the trend in Big Technology is loud and clear:
expensive stocks have sold off while Value Tech (like IBM, Hewlett Packard) has produced 10%+ returns
And, why not?
Historically, returns were mostly the function of the price paid.
See the proprietary chart of stock moves on the vertical scale vs. the EV/Sales on the horizontal axis.

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I am befuddled when the supporters of the dovish Fed say:
that normalizing Rates and QE would do nothing to fix the supply chains issues.
Yes, in the short term, supply chains are rather rigid…
They are!
But in the long run, they have profoundly suffered from capital misallocation.
But with its emergency-like zero rates and needless & endless QE, the Fed has unquestionably contributed to the supply chain problems by overstimulating the overinvestment into the high-growth new economy vs. the old economy.
What does this economy need more now: new Metaverse “real estate” or better real transportation infrastructure?

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The Facebook disaster today is a painful reminder that the key risk in Technology is not overvaluation, but technological obsolescence.
As the usage of Facebook drops, people migrate elsewhere – direct or indirect competitors.
Maybe more time on watching the finally reopened sports games or just traveling?!
Or, maybe, Facebook is over…
The only constant is change.

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Remember when about 110 years ago: when John Pierpont Morgan famously concluded that the market was in a bubble, and, was destined to go down when his shoeshine was talking to him about stocks? In 2021 Bitcoin and other cryptos had the exact same signs of exuberant excess throughout 2021:So many folks talked to me about starting “investing” in crypto as a side hustle. Check this chart when Bitcoin and the IPOs index peaked together in November of 2021.

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Look at these made-up theories:
First, ppl say that Bitcoin is the best addition to the portfolio because of the low correlation to Equities.
Wrong!
Bitcoin has a much higher correlation to Equities than Commodities
Or, ppl talk that Bitcoin is an inflation hedge (i.e. it should go up really fast when Inflation is rising)
Wrong again!
Bitcoin price hates spiking CPI – see the chart below.
Nothing against any of the cryptocurrencies, but let’s be objective and honest with ourselves:
Cryptos were great investments only because they were growing really, really fast.
And nothing else…

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As US-focused investors start to lick their wounds,
let’s make it clear:
the current sell-off in the US is not only driven by the fear of Fed Tightening.
It also reflects the inevitable global reopening as epidemiologists see the end of Covid.
One of the manifestations of that is that long-forgotten Emerging Markets are benefitting from the return of money back to their neglected shores.
To that effect: Turkey(who would have thought?!), Brazil, and India are the best markets YTD – even in the USD terms, leaving the US equities in the dust.

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Yesterday, there were a few things pointing to the upcoming reversal:
1) Bitcoin was up by 1 pm;
2) 30YUS yields widened by 3 pm;
3) Sectors reversed.
4) S&P500 had this gap down that statistically needed to be closed
Does this beg the question do gaps always close in stocks?
When a stock price gap is observed, by a chance of 91.4% it will get filled in the future.
In layman’s word, 9 in 10 gaps get filled; not always, but pretty close.
And that is exactly what happened on Monday, January 24th.
See this 5-day chart illustrating how the S&P500 gap got closed in the late afternoon.

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Many fundamental investors frustrated with the Energy stocks running are finally giving up and start pondering:
What is the best Energy company to buy?
No, no, no! You don’t buy the best company going into the massive earnings revision driven from oil going from the negative -$20 in May of 2020 to almost $90.
You buy a handful of companies with the biggest leverage to the Earnings Revision.
That leads us to small-to-mid-size Oil Services, E&P, companies.
Many small-cap Energy ETFs still price in $30-40 dollar crude oil…

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At the market regime changes abruptly, Risk Managers should be ready for a rude awakening. Risk management is inherently backward-looking. When regimes change all risk inputs (betas, gamma, correlations) flip dramatically. For example, a stock beta is an inherently lagging indicator: – when a stock is underperforming its beta could be 1.2-1.8 easily, and when it starts bottoming out, its beta starts quickly declining. Check out the Betas of obscure Energy stocks last 1-2 years as they have regained market leadership.

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Netflix is down 20% on the aftermarket on missing subscriber growth.
That puzzles ppl, saying: “last time NFLX was down 20+% was a decade ago…”
Well, that is exactly the point, we are experiencing a regime transition: from the go-go momentum of 2010-2021 towards the value cycle of 2001-2009 when most Technology stocks were brought down to earth.

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