March was as tough as January and February was easy. It was a volatile month, and I put a number of trades on intra month. My best guess of performance is we gave up half of what we had made this year. This is disappointing - although still well up for the year.
Months like this tend to really tempt you to move away from your core strategy. Or in other words, what you thought was important has now been superseded by something else more important in the market. While I would like to say that suddenly changing strategies is foolish and that you should always keep to the plan, there have definitely been times when listening to market volatility and changing plans has be the right thing to do. For me, late 2007, as the GFC started to take hold, a long EM strategy (predicated on a weak dollar) was winning but did not make sense anymore. At the time Fed rates cuts were seen to supercharge emerging markets, did it really make sense to be buying cyclical assets as the US went to a deep recession? Of course not.
Then again, in early 2009, Chinese fiscal stimulus of over 10% of GDP meant a deflationary strategy which worked so well in 2008 no longer made sense. And again in 2016, the First Trump Presidency was a time to flip from a deflationary strategy to an inflationary strategy. Early on in my career, I used movements in bond markets and currencies as signals to when to flip - and this worked well. But since Trump in 2016, this has been a failed strategy. What has worked much better is reading the politics. And so I now put politics above all things.
So the question to ask is whether the War in Iran is another key moment? A moment when we should move from an essentially inflationary position to a deflationary position? The key question here will be whether policy makers in the West try to shield consumers from the effects of the War in Iran, or are willing to allow market forces to do their work. In other words, will governments respond with a fiscal push, or austerity? With populists still holding the whip hand in most countries, I see governments spending until they are forced to stop by bond markets. That is , I see no real change in the idea that long dated yields are going higher. I still think US yields go to 10%. Fed fund rate was nearly 10% in the late 1980s, which does not feel that long ago to me - but I suspect feels like another planet for most people.
