Welcome to the free State of the Market report for the Art of the Bubble! Our subscriber plans make use of the same base algorithm that our crypto hedge fund, 1.2 Capital, does. It’s modified in timeframe and weighting so you don’t have to stare at your screen all day long. In 2022, for cryptos, the Dynamic Algorithm outperformed its benchmark by better than 70%. In 2022, for stocks, the Bubble Portfolio outperformed its benchmark by better than 40%. For those of you who are accredited investors, 1.2 Capital has re-opened new investor onboarding. If you are interested in learning more please reach out to us here.
How To Read The Report
Sentiment Scores use ChatGPT as part of the AI tech stack to rate stocks or sectors.
- Scores range from 1 (worst) to 7 (best).
- These are short-term scores (ideally updated daily)
- A 3.5 is a minimum score for a long strategy.
The Macro Situation
“[T]here are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know.” — Donald Rumsfeld
The “known known” was as close to certainty as one can come: the Fed was destined to raise rates by 25bps this past Wednesday.
With US prices and wages slowing, the answers to the remaining “known unknowns” are getting clearer.
- Further tightening affecting business borrowing and investment.
Answer: likely soft landing. - Markets building in the rate increase adequately.
Answer: stocks rallied this week. - One more rate increase for the year.
Answer: slightly less likely (20% - 30%). - Yield curve inversion between the 10- and 2-year bonds.
Answer: Soft landing-ish as it moves back towards 0.
The dying gasps of the interest rate cycle seem inevitable. Enter the Bull or just some Bullishness?
Crude oil (80.67) broke a minor resistance band, as gas in the US climbed to a 3-month high. GLD (181.86) weathered the Wednesday news and rallied in anticipation of a slowing economy and as a hedge against banking worries.
Mid- and long-term treasuries are expected to do more than bounce. According to Bloomberg, historically speaking:
Treasuries maturing in 10 or more years have gained 10% in the six months after a Fed policy-rate peak, compared with 6.5% for bonds maturing between five and seven years and 3.7% for those due within three years.
Is fixed income back on the table? Yes, if we’ve reached the end of the hike cycle. A great known unknown . . . always better in hindsight!
- Todd Mei, PhD and Sebastian Purcell, PhD
Sector Sentiment
The following sentiment scores use ChatGPT as part of the AI tech stack to sectors through leading indicators. (Lesson 4 of The Art of The Bubble covers the selection of lead indicators for bubble trades). The scores are most indicative for the next day of trading (a Monday), but they appear to set the general tone for the next week.
The methodology employed is based on this peer-reviewed academic article, which produced 550%+ results in backtests over a 2-year time frame. We consider 4 and 5 scores to be positive, but please bear in mind that the AI model is still in its validation phase.
-The Research Team:
Dom Viera, Samantha Russell, Nicole Zinuhova, Aiza Malik
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This newsletter was created by The Art of the Bubble/1.2 Labs and is provided for educational and entertainment purposes only. You should expect no financial returns one way or another based on the statements contained herein. Robin Technologies and Analytics LLC is the firm that distributes The Art of The Bubble products. The firm does not provide individually tailored investment advice and does not take a subscriber’s or anyone’s personal circumstances into consideration when discussing investments; nor is Robin Technologies and Analytics LLC registered as an investment adviser or broker-dealer in any jurisdiction.
