You wanted clarity in understanding the current state of play in the global financial markets?
Here?s your #$%&*#!! clarity.
But maybe that is the cabin fever talking, as I have been cooped up in my Tahoe lakefront estate for a week, engaging in deep research and grinding out Trade Alerts, devoid of any human contact whatsoever.
Or, maybe it?s the altitude.
I did have one visitor.
A black bear broke into my trash cans last light and spread garbage all over the back yard. He then left his calling card, a giant poop, in my parking space. Is there a subtle message there?
Judging by the size of the turds, I would say he was at least 600 pounds. This is why you never take out the trash at night in the High Sierras.
Ah, the delights of Mother Nature!
We certainly live in a confusing, topsy-turvy, tear your hair out world this year. Good news is bad news, bad news worse, and no news the worst of all.
The biggest under performing week of the year for stocks is then followed by the best. Net net, we are absolutely at minimal movement, and lots of clients complaining about poor returns on their investment.
I tallied the year-on-year performance of every major assets class and this is what I found.
+18.05% - Gold (GLD)
+16.65% - Japanese Yen (FXY)
+12.68% - Natural Gas (UNG)
+10.71%? - Bonds (TLT)
+10% - My House
+6.59% - Stocks (SPY)
+4.76% - Hedged European Stocks (HEDJ)
+1.44% -? Copper (CU)
0% - Euro (FXE)
0%? - Oil (USO)
-2.69% - US dollar Basket (UUP)
-10.20% - Hedged Japanese Stocks (DXJ)
There are some sobering conclusions to be drawn from these numbers.
Gold (GLD) has been the top performing asset of 2016.
It is followed by the Japanese yen (FXY), the currency with the world?s worst long term fundamentals.
Stocks came in at the middle of the pack, and with dividends, post at 8.60%. Not bad.
Quite honestly, you only needed one trade this year to outperform 99% of active managers net of fees, and that was to buy Amazon (AMZN).
My former Morgan Stanley colleague, Jeff Bezos,? has seen the shares of his creation rise an eye popping 197%. Blame it all on artificial intelligence.
If you missed Amazon for valuation reasons, you also could have run the bell with Facebook (FB) (+25%),? Apple (AAPL) (12.5%), or Alphabet (GOOG) (+6.1%).
Subscribers to the Diary of a Mad Hedge Fund Trader can?t help but know and love these ticker symbols.
They?ll notice that our long plays were found among the assets classes with the best performance, while our short bets populated the losers.
The problem with that is most financial advisors are not permitted to place client funds in the sort of inverse or leveraged ETFs that most benefit from these kinds of moves (like the Yen (YCS), Euro (EUO), and Oil (DUG)).
That left them reading about the success of others in the newspapers, even when they knew these trends were unfolding (through reading this letter).
How frustrating is that?
What was one of my best investments of 2016?
My San Francisco home, which has the additional benefits in that I get to live in it, have a place to stash all my junk, and claim big tax deductions (depreciated home office space, business use of phone, blah, blah, blah).
Of course, I do have the advantage of living in the middle of one of the greatest technology and IPO booms of all time. Every time one of these ?sharing? companies goes public, the value of my home rises by a few hundred grand.
The real problem here is that investing since the end of the Federal Reserve?s quantitative easing program ended a year ago has become a real uphill battle.
While the government was adding $3.9 trillion in funds to the economy, we traders enjoyed one of the greatest free lunches of all time. It made us all look like freakin? geniuses!
Heaven help us if they ever try to actively unwind some of that debt!
Janet has promised me that she isn?t going to engage in such monetary suicide. So far, natural attrition has taken the Feds bond holdings down to only $3.4 trillion.
The Fed is continuing with Ben Bernanke?s plan to run all of their Treasury bond holdings into expiration, even if it takes a decade to achieve this.
And with deflation accelerating, the need for such a desperate action is remote.
Still, one has to ponder the potential implications.
It all kind of makes my own 20% Trade Alert gain in 2016 look pretty good. If added to the list above, it would be the best performing asset class of all.
But I don?t want to boast too much. That tends to invite bad luck and losses which I would much rather avoid.
