Pro Perspectives 1/27/22

We entered the year with an outlook for the Fed to become “inflation fighters” for the first time in a long time.  It didn’t take long, with the turn of the calendar for the regime shift (from easy money to tighter money) to become evident in markets. 

This has translated into a deflation of the “companies of the future” bubble. 

And for those spots, particularly the no earnings companies, the air continues to come out.  The portfolio managers with long-term 30-year visions for these companies, are finding out that the term of their vision doesn’t match the term of the capital they are managing (i.e. redemptions). 

With that, we see constant selling pressure in the small cap indices, since the start of the year, that looks consistent with forced liquidations.  In these cases of forced liquidation, investors tend to sell what they can, not what they want to.  And that can carry over to other segments and asset classes in markets. 

In these environments, there will be the “baby thrown out with the bath water” situations.  It presents an opportunity to buy quality, cash flowing companies at a discount.