โ๐๐๐จ๐ฉ๐ค๐ง๐ฎ ๐๐ค๐๐จ๐ฃ'๐ฉ ๐ง๐๐ฅ๐๐๐ฉ ๐๐ฉ๐จ๐๐ก๐, ๐๐ช๐ฉ ๐๐ฉ ๐ค๐๐ฉ๐๐ฃ ๐ง๐๐ฎ๐ข๐๐จ.โ - Mark Twain
After market volatility has subsided it can certainly feel that the worst is behind us. However, we find that the economic backdrop of 2022-2023 looks quite similar to the inflationary period of 1970.
When we talk about the inflation of 1970, we are referring to a time when the economy of the United States experienced a significant increase in the prices of goods and services. This inflationary period lasted for several years and had a profound impact on the lives of many people.
One of the most notable features of this inflationary period was the way in which it seemed to occur in repeating cycles. In other words, there were periods of high inflation followed by periods of relative calm, only for the cycle to begin again a few years later.
The causes of this inflation were complex and multifaceted. Some economists point to the policies of the Federal Reserve, which kept interest rates low in an attempt to stimulate the economy. Others point to external factors, such as the oil crisis of the early 1970s, which drove up the cost of energy and had a ripple effect throughout the economy.
Whatever the causes, the effects of this inflation were felt by everyone. Prices for basic goods and services rose sharply. Wages, meanwhile, did not keep pace with inflation, which meant that many people saw their purchasing power eroded over time.
Perhaps the most frustrating aspect of this inflation was how it seemed to defy easy solutions. Despite the best efforts of policymakers, the cycle of inflation and recession persisted for many years, creating a sense of uncertainty and instability.
If the same cycle repeats itself, which we believe is still a high probability outcome, the traditional portfolio approach 60/40 could take another hit. The defensives will have a hard time providing a safety net, including non-cyclical equities and bonds. Investors should look into alternative spaces to withstand the turmoil of this period.
Among a few strategies, long-short macro hedge funds perform quite well in this tricky cycle, as they short the most vulnerable sectors and broad equity factors that scramble in a high inflationary environment.
Our portfolio offers a similar alternative strategy using systematic macro overlay and bottom-up long-short approach. The biggest portion of alpha generation happens during prolonged market corrections and substantial risk-off periods. The portfolio has an overall lower level of volatility and lower market beta, which makes it less dependent on the performance of general indices.
In today's dynamic and unpredictable market landscape, traditional investment approaches alone may no longer be sufficient to safeguard and grow your hard-earned wealth. That's where alternative strategies step in, offering a game-changing opportunity to diversify and strengthen your investment portfolio.
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