Strategy Note /
Global

When The Levee Breaks

  • As Led Zeppelin sang back in the day: "when the levee breaks, mama, you got to move".

  • The inflation levee has broken and investors need to move as macro volatility falls, the USD rolls over and 2023 beckons

  • A more stable 2023 approaches with potential supports from Ukraine, EU energy and China adjusting Zero Covid.

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

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TPW Advisory
11 November 2022
Published byTPW Advisory

Ok, I admit it – when I am at the gym I like to listen to classic rock - The Who, Zeppelin, Pearl Jam, Neil Young. So as I was on the bench press yesterday and When The Levee Breaks by Led Zeppelin came on I was pumped – up went the weight and even better than that I came away with the title and thrust of today’s Musings.

 

The lyrics that really resonated were: “Cryin wont help you, prayin wont do you no good, when the levee breaks, mama, you got to move”.  Well, the inflation levee finally broke yesterday and investors need to move.

 

The crying & praying part we have already suffered through as inflation surprised to the upside 7 of the past 10 months leading the Fed to front load rate hikes and rates/USD to follow going higher and higher while stocks just kept on sliding. It left folks like us dazed & confused to throw another Zeppelin song into the mix.

 

Investors moved out of stocks to the point where cash allocations are at ATHs, equity allocations close to ATLs, risk appetites at record lows, put volumes at record highs (helps explain those 10% up moves in some of our model positions yesterday) all reflecting rock bottom sentiment and the worst year for 60-40 portfolios in history.

 

Well now that the inflation levee has broken and inflation has begun its long descent to lower levels (October’s core rate of 0.3% annualized =3.3%) it is worth considering how other relationships will change.