Hedge First, Ask Later

Between the Lines - Vol. 1

I’ve been a bit quiet since my last note.

Not because nothing has been happening, but because this has been one of those stretches where the market has become noisier than the signal. Every few hours another headline hits, oil and rates jump, credit gets dragged into the conversation, software gets used as a pinata again, and yet the market still refuses to give anyone the clean break they’re desperate for.

This kind of environment can easily fool people. If you only look at the S&P, it feels like we are just chopping around in a frustrating range. If you look underneath the surface, there has been plenty going on. Hedge funds have been cutting, ETF shorts have surged, asset managers have largely frozen while systematic exposure has been coming down again. ETF shorts just posted one of the biggest weekly increases on record, yet single stocks were still modestly net bought. I don’t think I would deem the flow and positioning situation panic - more of a hedge first and ask the harder questions later kind of thing.

So the right framing here is not "everything is broken." It is that we are in an ongoing positioning clean-up, and until the war path becomes clearer, the Fed speaks, and the market gets more confidence around the next macro leg, equities probably continue to trade with higher vol and a lower tolerance for bad headlines.

The part I think most people are still getting wrong is what the real fear should be.