The winter slaughter of Microcaps and the inflation ghost

This will be a quite different post than what we usually provide to you as a subscriber. We have noticed alot of downward movements for no obvious reason in many of our ESG positions and also other companies on our watch list . There may be several reasons for this trend occuring which we want to clarify.

First of all the same phenomenon often occurs globally this time of year in the form of tax season selling which means investors sell off positions with a loss in order to deduct it on their tax audit. Secondly the markets have been spooked by rising COVID cases around the globe. Last but not least it should not be underestimated what the current (hopefully) high inflation rates are doing to the markets. When there is a spike in inflation central banks may feel urged to start increasing their interest rates at a higher pace than they otherwise would have.

What is a dangerous balancing act right now for the Central banks is that the debt ratio for households in Canada , USA and Sweden to name a few are at historical highs. There is a big risk that any sudden massive raise in interest rates could cause a flash crash in housing prices which almost certainly also would affect the stock market.

What is being debated right now is if the current spike in inflation is temporary ( due to bottle necks in production caused by COVID) or if higher inflation is here to stay. Both sides of the debate have valid points and there is no crystal ball.

Our thoughts

ESG and cleantech is a global macro trend that will need to have a continuted growth most likely for the next 30 years if humanity is going to have a world that is sustainable for human life as we know it. Therefore we are not worried long term what any short term turbulence may cause although one should be aware of evaluation bubbles in the ESG sector such as the case with Rivian. What should be kept in mind as an investor is as always to keep your portfolio diversified (meaning minimum 10-15 positions) and never to invest money you cannot afford to lose. Remember Time in the market usually beats timing the market.

P.s This cannot be stressed enough, do NOT use leverage unless you are absolutely sure about what you are doing!

Legal Disclaimer

Investing in stocks is combined with certain risks and it is possible to lose your entire investment. Our posts are made for Educational purposes only and are not to be interpreted as tips , financial advise or recommendations of any kind to either buy or sell any stocks.

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