Treasury interest expense as % of GDP MUST remain LOW and why I feel better about loading up on more STOCKs

Last two weeks of January were probably the most exciting weeks in my investing / finance career – there was so much action in so many ways:

There has been broad market sell-off that was caused by many hedge funds grossing down – grossing down means they sold off many positions both long and short to reduce their $ exposure to the market.

Luckily, I was well-positioned with 5-10% exposure in consensus hedge fund short names: $GME and $BBBY that have literally skyrocketed.

This is why portfolio construction is so important: my consensus HF short names gave me the P&L that allowed me to double-down on my losing trades that sold off because of the current temporary and arbitrary sell-off.

During this sell-off, I initiated or expanded positions in $PINS, $GOOGL, $DIS, $HZNP, $QS, and $TSLA – the stocks that I have been looking to expand long exposure, but has been holding off because I have been concerned about market correction.

However, I read an article from WSJ that actually made me bullish again on equity market and I think I may continue to buy the dip from hedge fund oriented sell-off. Knowing how hedge funds invest, I think the buying back of quality names could be fierce as there would be fast and strong demand for the stocks as hedge funds gross back up once things settle.

It was an article written by Greg Ip and the title is as follows:

What’s Driving Everything From a Market Frenzy to an Embrace of U.S. Deficits? Magical Thinking.

Link: https://www.wsj.com/articles/whats-driving-everything-from-a-market-frenzy-to-an-embrace-of-u-s-deficits-magical-thinking-11611982830?mod=markets_lead_pos10

There was one paragraphs that caught my attention that provides some window into the thoughts of key policy makers and what investors focus on going forward given that we are in permanent land of low interest.

“In advocating for this package, Mr. Biden and Treasury Secretary Janet Yellen note that interest rates are historically low. Despite this added debt, interest expense won’t be much higher as a share of GDP than a few years ago. The Federal Reserve says it will keep short-term rates near zero for several years to get unemployment down and inflation up. If it succeeds, that’s great news for stock bulls and debt doves.”

My thought process from the article and the paragraph is essentially as follows:

• While the debt load is very high as % of GDP, the interest expense as % of GDP is not much higher because interest rate is SO LOW.
• Biden Administration is embarking on massive stimulus, which will further increase US debt load.
• With focus shifting to interest expense as % of GDP, that metric will be more publicized growing forward vs. debt as % of GDP.
• Only way to maintain interest expense as % of GDP while increasing debt is to lower interest rate.
• Only way to lower interest rate is to print more money.
• Asset inflation (particularly stocks) continues.

The Dollar Trinity of Federal Reserve, White House/US Treasury, and Congress is fully aligned to provide massive tailwind for the economy and particularly equities market.

However, I do not plan to take a spray-and-pray approach – I plan to focus on industries / companies with

One: regulatory tailwind where there will be massive debt-fueled subsidies – renewable energy and electric vehicles come to my mind: like $TSLA

Two: very strong competitive moat in winner-take-all, secular growth market: advertising boom from e-commerce ($PINS, $MGNI), streaming / content companies ($DIS) among others.

That is my latest thoughts on macro – what other industries / companies are you looking to buy on the dip? Please let me know in the comment section!

*not investment advice?