December Net result [2.89%]Net performance of the Fund since inception [4.14%]review"The only thing that really matters in asset allocation is to avoid some losses in the rare big bubble that bursts." -- Jeremy GranthamWeighed down by rising interest rate expectations and reduced bond buying, global stock indexes took a beating in January, with the S&P 500 dropping 5.3 percent and the tech-heavy Nasdaq dropping 8.5 percent. As I write these comments today, these indices have weakened further in February.For the first time in history, the United States experienced three macro extremes at the same time:▪️ huge debt▪️ Rising inflation▪️ Overvalued financial assetsThe combination of these factors is likely to have a serious impact on future US stock market indices. This is good news for long-short investors like us, but bad news for traditional buy-and-hold investors.It is worth noting that the US national debt breached the $30 trillion ceiling in JanuaryTotal US debt as a share of GDP has now surpassed its peak at the end of World War II.Inflation continues to rise, which means the Fed funds target rate will have to rise sharply.Where is the "Fed action"?Regular readers of the briefing will know that we've been talking about this rising inflation problem for months, with stimulative monetary policy, child tax credits, PPP loans, and waves of money printing all pointing to higher inflation. However, while the outbreak of inflation was obvious to all who took the time to research it, the Fed did not act until inflation became a political issue. It wasn't until inflation got so high, and all the polls showed voters worried about inflation, that they decided to act. So when the market goes down, the Fed doesn't act unless people start complaining. This means that the index could continue to make new lows in the coming months.Safe haven gameFor a long time now, the crypto space has been bashing gold with the claim that Bitcoin is the new digital gold. Amid the risk aversion over the past few months, the cryptocurrency market has fallen sharply, with the price of bitcoin down nearly 30% year-over-year. As the chart below shows, gold prices have been rising. Recently, we have seen the price of gold rise with the sell-off of Bitcoin due to the risk of Russian invasion of Ukraine, so, when looking for a safe haven, Bitcoin is not digital gold, only gold is gold.The coming oil super surgeThe price of oil has been rising and is almost back to $100 a barrel. Normally, higher prices would encourage more drilling. However, the number of oil RIGS is still lagging due to environmental, social and governance (ESG), Washington's new green agenda, and a possible labor shortage due to COVID-19. If we add in the extra demand from everyone who wants to travel after all the coronavirus restrictions of the past few years, we risk a situation where demand far exceeds supply in the near future.Economics 101 states that when demand exceeds supply, prices go up. The problem for central banks is that higher oil prices could further fuel the already high inflation we are experiencing.As a result, we think inflation is likely to remain elevated in the coming months. That will weigh on the Fed's decision to raise interest rates to slow economic growth. With the market already down sharply from its highs, there could be more pain ahead for these indexes. In the past, the Fed was able to pare back rate hikes and add stimulus whenever there was market volatility, but those good days are over because that only added fuel to the inflation fire that is now raging.But it's not all bad news. The bond market has already priced in about nine Fed rate hikes over the next two years. As interest rates rise and market volatility continues, some rate hike expectations may be trimmed. Investment in green and renewable energy will continue, and commodity prices are likely to continue to strengthen.Our goal is to increase your wealth while managing risk. Investing is a marathon, not a sprint, and there are always new opportunities in the market. Our goal is to find deals where the upside outweighs the downside and then carefully execute our trading plan; Profitable trades are often a byproduct of this process.If you have any questions or comments, please drop us a line at info@arbidyne.comFor new customers:Since we use independently managed accounts, new clients do not always have the same position as the main account when they first join and may not see the same monthly performance. This is because we may not be able to buy the same positions held by the fund before joining the new account. We consider this on a case-by-case basis and assess whether it is in the best interests of individual clients to enter existing positions. New clients should start tracking our performance benchmarks approximately 3 months after joining.