Thread by @CorleoneBVD

1- For the record, I’m most convinced that the 2 primary drivers of this sector rotation will be i) fund flows and ii) the shift to fiscal stimulus.

https://twitter.com/profplum99/status/1314294646189641728

2- On fund flows, as @profplum99 noted earlier today:

“One of the problems with Value investing currently is that the funds themselves are being redeemed, ie the holders become forced sellers.”

This needs to change for a full rotation to truly materialize.

3- Perhaps the catalyst for the change in fund flows will relate to the second driver of the rotation: the shift to fiscal stimulus...

4- As @jam_croissant noted, the shift from monetary stimulus (which doesn’t contribute to velocity) to fiscal stimulus (which gets money moving) will be more successful at stoking price inflation.

5- Price inflation, in turn, will lift long term rates. This in turn will affect Growth more than it will Value, since a larger bulk of Growth’s PV comes from expected increases in future cash flows, so Growth overall is more sensitive to a rise in rates.

https://twitter.com/BvddyCorleone/status/1307350622182744064

6- Even if this last week’s performance of Value relative to Growth fades or reverses into the weekend, it still counts as a significant “tremor”, as @hkuppy puts it, in the Growth/Value spread. These tremors should not be ignored...

7- It is my belief that these “tremors”, i.e. the immense factor volatility between Growth and Value, are signalling that a massive break in the spread is looming and a violent sector rotation awaits us.

Let’s keep monitoring it and see what happens.

HT @hkuppy @profplum99 @jam_croissant @Convertbond. Feedback, thoughts, criticisms are always welcome and appreciated.