U.S. Securities Markets – A Random Walk Through Horse Crap

Hi Joseph, fair and excellent question you raise. So let’s hit a number of considerations. Unlike October of 2019, when I stopped my fly fishing and shouted “risk on” from Utah as the Fed re-ignited QE, this most recent QE “surge” was made in the backdrop of record-breaking unemployment and a Q1 GDP of -5% and a projected Q2 GDP drop of at least -20%. In short, far too much economic risk this time to totally ride the Fed wave. That said, we still rode a good deal of it, though clearly with more risk controls-i.e. cash hedges. If you check our transparent reporting chart on the subscriber portal, you’ll see that throughout the year we have continued to outperform the S&P despite large cash allocations. This means when the markets went straight to the red bottom in March, our portfolio continued to steadily produce positive, absolute green returns, as our approach is about producing steady, absolute returns, not tracking/benchmarking the drunken exchanges. of course, when that same market rocketed up since April, we didn’t rocket up in pace, but just kept steadily producing, though not nearly at the slope of the Fed-driven market. We have no problem with that, as we still, year to date, produce positive returns but with none of the stomach-churning volatility we’ve seen for 2020. Just look at our performance record on the back end–slow and steady up with no tanking -30+% losses along the way, which the markets can not say. Our subscribers sleep soundly in any conditions, and that’s because we think of risk first, and returns second. In the long run, such an approach actually produces better returns with no market sea-sickness (i.e. grotesque standard deviation vol). As for the current markets, there’s no doubt that the Fed is pulling out all its steroids, and thus the market predictably rose on the backs of unlimited QE and massive fiscal stimulus from Congress. We rode this trend, but again, not at 100%, for the simple reason that no one, including us, can know or trust just how long the Fed steroids can outpace historically broken economic fundamentals. A year? a month? Less? More? We can’t say. That’s why all those fundamental and technical flow, trend and yield indicators we track on the subscriber side of the site are so critical, and so transparent to our members, as the facts are openly evident to all. Of course, if your own risk profile is higher, you can always use your own discretion to ride this Fed wave with less cash protection. This is a valid consideration/choice. You are seeing the same things we see, both on the back-end (paid) and in the front-end market reports (free), and if you consider those reports, we are open about why we don’t fight the Fed, yet also why we don’t fully trust it. Indeed, these are unique times, and we’ve never seen “stimulus” like this before, and thus can’t know for certain when it ends. Given this unprecedented uncertainty, we must responsibly accept the risks which come with that. Can the Fed print another 5 or even 10 trillion in the coming years to essentially monetize the entire stock market into one big, Fed-supported national 401K? Possible… Who really knows? It’s likely. We just track the hundreds of signals on the back end and let the market signals determine our course, which is openly conservative. Every system that has tried to pretend that debt and money printing is a valid “solution” has ultimately (and historically) failed, and we think the US is no exception–hence the cautious approach. I think you’ll find today’s report on gold interesting as well, not just with respect to precious metals, but with regards to the undeniable risks facing currency and debt markets. At some point, those risks will overcome the current “high” of artificial stimulus, and until then, we have to ride a clutch of smart risk-on with equally smart risk management. Remember: the key to making money is not losing it, and by avoiding those March nosedives (we were up, not way down like the S&P), we never had to dig out of that market loss/hole. Yes, a strong case can be made for new, record breaking highs for 2020 based on nothing else but headlines and Fed monetary extremism. For those who credibly want to take more risk and deploy more cash to ride that Fed wave, the choice is individual and we get this. But this time is different in terms of massive economic risk. A stock market high in the backdrop of a global recession (Covid-triggered/accellerated but already sick pre-Covid) is simply absurd, and yet the absurd is where we now find ourselves, validating just how rigged the current markets are, and yes, ultimately rigged to fail. In essence, we are now seeing a classic tug-of-war between historically broken economic facts and entirely unprecedented central bank support. In the near term, the Fed is indeed powerful and new highs are indeed possible. In the long term, however, natural market forces get the last, dark laugh, and our aim is not be laughed at (i.e get slaughtered) when those natural forces humble a desperate central bank. Slow and steady is our current aim. Whenever and however the eventual bottom comes, we’ll be less in cash and more aggressive. For now, we bide our time and patiently wait for the inevitable Fed failure. As recessions globally rise from the bottom up, even a doped market will head south again, but we won’t be.

2 thoughts on “U.S. Securities Markets – A Random Walk Through Horse Crap”

Joseph Whelan

June 2, 2020 at 10:35 pm

It looks like we missed an excellent opportunity to deploy cash in the downturn of March when the fed basically announced that it would totally support the market at all cost. Their call then seemed similar to their call last fall when they said they would back stop the repo market and we did not fight the fed at that time. Can you tell me why this time was different and we did not deploy cash. I almost did but I thought you might be seeing something that I did not.
- Matthew Piepenburg
  
  June 3, 2020 at 4:36 am
  
  Hi Joseph, fair and excellent question you raise. So let’s hit a number of considerations. Unlike October of 2019, when I stopped my fly fishing and shouted “risk on” from Utah as the Fed re-ignited QE, this most recent QE “surge” was made in the backdrop of record-breaking unemployment and a Q1 GDP of -5% and a projected Q2 GDP drop of at least -20%. In short, far too much economic risk this time to totally ride the Fed wave. That said, we still rode a good deal of it, though clearly with more risk controls-i.e. cash hedges. If you check our transparent reporting chart on the subscriber portal, you’ll see that throughout the year we have continued to outperform the S&P despite large cash allocations. This means when the markets went straight to the red bottom in March, our portfolio continued to steadily produce positive, absolute green returns, as our approach is about producing steady, absolute returns, not tracking/benchmarking the drunken exchanges. of course, when that same market rocketed up since April, we didn’t rocket up in pace, but just kept steadily producing, though not nearly at the slope of the Fed-driven market. We have no problem with that, as we still, year to date, produce positive returns but with none of the stomach-churning volatility we’ve seen for 2020. Just look at our performance record on the back end–slow and steady up with no tanking -30+% losses along the way, which the markets can not say. Our subscribers sleep soundly in any conditions, and that’s because we think of risk first, and returns second. In the long run, such an approach actually produces better returns with no market sea-sickness (i.e. grotesque standard deviation vol). As for the current markets, there’s no doubt that the Fed is pulling out all its steroids, and thus the market predictably rose on the backs of unlimited QE and massive fiscal stimulus from Congress. We rode this trend, but again, not at 100%, for the simple reason that no one, including us, can know or trust just how long the Fed steroids can outpace historically broken economic fundamentals. A year? a month? Less? More? We can’t say. That’s why all those fundamental and technical flow, trend and yield indicators we track on the subscriber side of the site are so critical, and so transparent to our members, as the facts are openly evident to all. Of course, if your own risk profile is higher, you can always use your own discretion to ride this Fed wave with less cash protection. This is a valid consideration/choice. You are seeing the same things we see, both on the back-end (paid) and in the front-end market reports (free), and if you consider those reports, we are open about why we don’t fight the Fed, yet also why we don’t fully trust it. Indeed, these are unique times, and we’ve never seen “stimulus” like this before, and thus can’t know for certain when it ends. Given this unprecedented uncertainty, we must responsibly accept the risks which come with that. Can the Fed print another 5 or even 10 trillion in the coming years to essentially monetize the entire stock market into one big, Fed-supported national 401K? Possible… Who really knows? It’s likely. We just track the hundreds of signals on the back end and let the market signals determine our course, which is openly conservative. Every system that has tried to pretend that debt and money printing is a valid “solution” has ultimately (and historically) failed, and we think the US is no exception–hence the cautious approach. I think you’ll find today’s report on gold interesting as well, not just with respect to precious metals, but with regards to the undeniable risks facing currency and debt markets. At some point, those risks will overcome the current “high” of artificial stimulus, and until then, we have to ride a clutch of smart risk-on with equally smart risk management. Remember: the key to making money is not losing it, and by avoiding those March nosedives (we were up, not way down like the S&P), we never had to dig out of that market loss/hole. Yes, a strong case can be made for new, record breaking highs for 2020 based on nothing else but headlines and Fed monetary extremism. For those who credibly want to take more risk and deploy more cash to ride that Fed wave, the choice is individual and we get this. But this time is different in terms of massive economic risk. A stock market high in the backdrop of a global recession (Covid-triggered/accellerated but already sick pre-Covid) is simply absurd, and yet the absurd is where we now find ourselves, validating just how rigged the current markets are, and yes, ultimately rigged to fail. In essence, we are now seeing a classic tug-of-war between historically broken economic facts and entirely unprecedented central bank support. In the near term, the Fed is indeed powerful and new highs are indeed possible. In the long term, however, natural market forces get the last, dark laugh, and our aim is not be laughed at (i.e get slaughtered) when those natural forces humble a desperate central bank. Slow and steady is our current aim. Whenever and however the eventual bottom comes, we’ll be less in cash and more aggressive. For now, we bide our time and patiently wait for the inevitable Fed failure. As recessions globally rise from the bottom up, even a doped market will head south again, but we won’t be.

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