1. Time for Quality?
The last 2 months have seen a significant short squeeze – the GS most short basket has outperformed the GS HF VIP basket by ~10% over this period.
“Quality” has gone out of fashion. The lower quality most short names relative to higher quality VIP names have been reliant on a continuation of lower equity & bond vol, tighter credit spreads and lower inflation.
The GS high growth high margin vs. growth low margin (i.e. growth “neutral” quality) perhaps indicates just how far the speculative fervour has become. The fair value gap to Qi model value stands at -1.8 sigma which is close to multi-year range lows.
The recent high correlation between spot price and the FVG indicates we should be prepared for a mean-reversion buying opportunity at current extreme levels.
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