All Greased Up – Sefirot Freestyle Portfolio

Feeling anxious about my OIL trade. Lots of doubts and rationalisations entering my internal dialogue.

My brief is to outperform the S&P 500 on a risk adjusted basis. On this score I am seriously outperforming but we are early in the game so let’s not get ahead of ourselves. I should also add the goal is to outperform on a go forward basis, in other words I am not going to simply lock in the outperformance and buy the benchmark and then say I beat the index. To claim victory one needs to beat over a bunch of different starting times.

The question I am asking myself is, am I correct to be playing around in other asset classes instead of just timing the SPY? For the purposes of this mandate my answer has to be yes as I am trying to keep this portfolio similar to how I would manage other people’s money and in order for my style to work I need to look for uncorrelated and diverse multiple trading opportunities. Michael you should know trading as a one trick pony will hurt you.

Let’s get back to OIL, now that I am satisfied that it is appropriate be trading this instrument. The plain hard fact is that so far on this trade I have been wrong. I am trading the belief that the market has oversold this asset for a whole lot of reasons, primarily due to the fact that it carries so much geopolitical charge and is therefore so heavily discussed in the media and that its use affects every man in the street. This setup is absolutely typical of a herding feedback loop activated by a market complex. With all this said I am still wrong over the time frame observed. However my time frame for this trade is a lot longer than what has come to pass and the risk associated is well within my parameters so for now I need to let my EGO step aside and let it do its thing.

Message to self: try keep the ego related emotions of being correct in OIL out of the equation. Been correct means more dollars and improved performance in the trade, don’t allow that to make you think you are cleverer, wiser, more deserving or any other emotion than being blessed to have achieved your goal. In the same vein don’t allow the shadow to inflate on the negative aspects associated with been wrong. Being wrong doesn’t invalidate you as a competent skilled professional.

[if I was being truly transparent I would put on the table all the personal issues I am currently going through which might further explain my emotional reaction to the price action. For now I will hold back :).

Are you a Psychopath?

A friend of mine sent this to me, I found it very interesting.

Read this question, come up with an answer.  This is not a trick question. It is as it reads. No one I know has got it right. I will post the answer soon as a reply or email me :).

A woman, while at the funeral of her own mother, met a guy whom she did not know.  She thought this guy was amazing.  She believed him to be her dream guy so much, that she fell in love with him right there, but never asked for his number and could not find him.  A few days later she killed her sister.

Question: What is her motive for killing her sister?

Give this some thought before you answer.

Why are we so scared?

The question I pose in the subject line is not reserved for traders, I believe we are all suffering from a relative form of fear at different times of our day. I do however, feel traders or any other professional whose “worth” is easily calculated by the $’s and %’s they notch on a ledger, encounter the emotion of fear far more acutely than people who are able to “hide” in the pack when their value-add is being evaluated. I would classify professional sportsmen in the same grouping as traders.

There is a Kabbalistic idea that fear comes from being alone. This is why so many of us who expose ourselves by applying our trade in an industry that measures skill in black and white are so perpetually afraid. Don’t you remember when you were a child, going to a party on your own filled you with fear. Think of all the times in your life when you were absolutely petrified, I am sure at the time you felt alone, alienated, misunderstood.

Like all forces in life there are opposites to counterbalance the force of energy. The solution to being afraid is simply not being alone. We can achieve this in many ways and on different levels, sticking with the child going to parties on their own, a practical solution is to go with a friend. Likewise as a trader it may help having a partner to assist with certain decision making. On a deeper more spiritual level there are times when there are simply no physical solutions. Its at these times believing in a higher power and the partnership that comes from a spiritual relationship is the only cure to an existential loneliness.

Portfolio Activity

The Sefirot will add the following two trades to its tactical portfolio:

  1. buy 125 OIL @ the open
  2. buy 30 FXE @ the open (this is an ETF of the Euro / USD)

Both of these asset classes are heavily oversold. While I believe the EURO is destined to fail and disband I think it has moved too far in the build up to the ECB QE announcement. I am therefore simply trading this for a dead cat bounce. I am also trading oil from an oversold point of view but have no firm view on the supply and demand factors affecting price over the medium to long term.

oil27 euro27th



Jordan the Trickster

When I think back to the surprise move by Thomas Jordan the Governor of the Swiss National Bank on the 15th January, where he unpegged the 3yr old peg of the Swiss Franc and the Euro, I am reminded of the mythological symbol of the “Trickster”.

trickster-21  or a more contemporary example joker

Before I describe the Trickster in more detail, let us first look at the reason for drawing this comparison. Over the last decade or so Central Bankers have become masters at telegraphing their next move. The idea being that markets today are so finely tuned with 24hr connectivity 6 days a week that unexpected moves often result in large shocks to capital markets. In order to avoid these “shocks” policy makers hold multiple press conferences where they drop subtle hints as to what is likely to be the policy in the future.

Swiss National Bank Chairman Thomas Jordan had assured us just the week before that the Swiss would continue to “hold the peg” whereby the SNB kept the value of the Swiss franc from rising higher than €1.22. “The cap is absolutely central,” he said. And SNB Vice Chairman Jean-Pierre Danthine said publicly only last Monday that the peg would remain a cornerstone of Swiss banking policy. Do you see how these G-d like characters were able to take the faith bestowed upon them and trick the world in order to achieve their objective.

Just so you know that the move was not impulsive but rather carefully thought out, this is what Jordan says. “It was not a panic reaction, it was a well-considered decision….. You can only end a policy like this surprisingly. It is not something you can debate for weeks … We wanted to win back some flexibility. In these few words one can start to see the trickster at work.

Ok it is time to learn a little bit more about the mythology of the trickster as studied in folklore, religion and importantly from our perspective psychology. Lets look at how Wikipedia describes it, “a trickster is a god, goddess, spirit, man, woman, or anthropomorphic animal who exhibits a great degree of intellect or secret knowledge and uses it to play tricks or otherwise disobey normal rules and conventional behaviour”. This definition will not explain enough if you have not spent time delving into mythology, therefore to see what I am seeing with the trickster connection to the Swiss Central Banker, I need to share some of C.G. Jungs insights.

Jung writes about our subject in “On the Psychology of the TricksterFigure,” in Collective Works 9i, par. 472 from which I hope to tease out some interesting ideas to bring this analogy home.

There is something of the trickster in the character of the shaman and medicine-man, for he, too, often plays malicious jokes on people, only to fall victim in his turn to the vengeance of those whom he has injured…………His “approximation to the saviour” is an obvious consequence of this, in confirmation of the mythological truth that the wounded wounder is the agent of healing, and that the sufferer takes away suffering.

We see that the trickster figure is often seen to have great healing powers. If you give this just a moment of thought, and think about how we confer so much healing powers on the Central Banker almost like the old Alchemist who were able to turn lead into gold. However just like the trickster in mythology is seen as part deity we through our collective unconscious see the Central Banker with Omnipotent powers. Like the medicine man, Central Bankers are often forced to dispense unpleasant medicine, such as raising interest rates when it seems like the party is getting too wild. However, sometimes the medicine can be too severe and it can cause the patient (economy) to become sick and recessionary or deflationary.

Now if the myth were nothing but an historical remnant, one would have to ask why it has not long since vanished into the great rubbish-heap of the past, and why it continues to make its influence felt on the highest levels of civilization, even where, on account of his stupidity and grotesque scurrility, the trickster no longer plays the role of a “delight-maker.” In many cultures his figure seems like an old river-bed in which the water still flows. One can see this best of all from the fact that the trickster motif does not crop up only in its mythical form but appears just as naively and authentically in the unsuspecting modern man—whenever, in fact, he feels himself at the mercy of annoying “accidents” which thwart his will and his actions with apparently malicious intent. He then speaks of “hoodoos” and “jinxes” or of the “mischievousness of the object.” Here the trickster is represented by counter-tendencies in the unconscious, and in certain cases by a sort of second personality, of a puerile and inferior character….I have, I think, found a suitable designation for this character-component when I called it the shadow. On the civilized level, it is regarded as a personal “gaffe,” “slip,” “faux pas,” etc., which are then chalked up as defects of the conscious personality. We are no longer aware that in carnival customs and the like there are remnants of a collective shadow figure which prove that the personal shadow is in part descended from a numinous collective figure. This collective figure gradually breaks up under the impact of civilization, leaving traces in folklore which are difficult to recognize. But the main part of him gets personalized and is made an object of personal responsibility…………

Anyone who belongs to a sphere of culture that seeks the perfect state somewhere in the past must feel very queerly indeed when confronted by the figure of the trickster. He is a forerunner of the saviour, and, like him, God, man, and animal at once. He is both subhuman and superhuman, a bestial and divine being, whose chief and most alarming characteristic is his unconsciousness. Because of it he is deserted by his (evidently human) companions, which seems to indicate that he has fallen below their level of consciousness. He is so unconscious of himself that his body is not a unity, and his two hands fight each other.

I realize now as I suspected before starting this letter, I will need to deal with this subject and similar ones in more detail in the book I am currently writing, “The Market Complex“, as it is very difficult to condense these ancient concepts without working through examples through different civilizations to bring them to life. For those of you not versed in reading Jung in the original you might find it extremely confusing to say the least to comprehend these quotes. What I love about Jung’s writings is his intrepid way of confronting the metaphysical while remaining grounded as a positivist, always treating his work as a scientist despite the spiritual content.

As we have seen in countless articles in the media since the SNB unpegged; businesses and investors who have lost a fortune are blaming this on “the impossible”, as if they were chosen by the G-d’s to be victim to this inhumane behaviour. These people are behaving as Jung is suggesting in an unconscious manner. The fact that these “victims” cannot see that they have built a structure without a foundation is lost on their consciousness. It is so hard to comprehend that it is us, our current cultural environment that has created the tricksters we so despise. But the positive that can be taken from experiencing the trickery is that it is usually the precursor to the Saviour Archetype.

I would suggest that we as a society have projected a Saviour Archetype onto the worlds Central Bankers but what we are encountering is the Saviours Shadow in the form of the Trickster.

When to Crap your Pants

I apologise for the crude subject line but hey that is exactly the instruction my mother gave me as I was providing her advice on her investment portfolio. What I am about to describe is not unique to my family this is a problem the retired world is facing and some countries have it worse than others on a relative basis; the theme remains consistent.

My mother needs $=X each month to cover her living expenses, don’t worry mom I won’t say how much 🙂 . Something else to consider is my mother is incredibly risk averse, that is despite her roulette addiction so capital preservation is a major theme in her portfolio.

My brother in law and myself are her trusted advisors and we decided to have a small equity allocation based on her needs for income and capital protection so we went 40% equities, 60% fixed income and cash. Yes of course we could have done better had we more exposure to equities and yes with new highs in the Dow yes we left some on the table but you can also see that the Aussie market has not yet reached new highs so we did ok. Moving along……dowaord

So we have a heavy weighting in fixed income / bonds 58.5% with just 1.5% in cash. With all this QE talk in Europe it suddenly dawned on me perhaps my mothers portfolio is not as safe as we perhaps thought. Take a look at the Aussie 10yr bonds the yield is at an all time historic low, which means the price inversely (that’s how bonds work) is at all time highs.


We have just witnessed the impossible a major world currency moved 16% in one day actually a little more during the day that is pretty damn scary. The point I made to my mom is that perhaps its time to sacrifice a little on the monthly income and move more of her funds from fixed income into cash. Sometimes one just has to bite the bullet and be extra careful.

The crazy thing is in some countries keeping your money in cash means you are paying the bank to store your money. Many people like to say that bonds and equities are not correlated but that is simply not true. There are periods that they are like now and others that they aren’t.

So while trying to avoid what we thought/think may be an equity bubble we have climbed right onto what is probably the biggest bubble of them all the Bond Bubble. Heaven helps us when this bubble bursts as we are likely do more than crap our pants.

Momentum Traders

We all hear that many institutions look at the momentum strategy where you go long when the 50 day moving average is above the 200 day average. As you will see below from 1993 this has been a pretty effective strategy using daily data applied to the S&P 500. For your information the strategy is still long despite the recent volatility.

Here is a chart showing the moving averages, the yellow is the 50 day and the red is the 200 day.



Here are the backtest results:

2015-01-23_1313 Rplot043

For those wanting to see the R code generating these charts and stats here it is:

#get the data and fill out the MA
getSymbols('SPY', from='1950-01-01')
SPY$ma200 <- SMA(Cl(SPY), 200)
SPY$ma50 <- SMA(Cl(SPY), 50)
#lets look at it from 1990 to 2015
spy <- SPY['1990/2015']
#our baseline, unfiltered results
ret <- ROC(Cl(spy)) 
#our comparision, filtered result
ma_sig <- Lag(ifelse(SPY$ma50 > SPY$ma200, 1, 0))
ma_ret <- ROC(Cl(spy)) * ma_sig
golden<- cbind(ma_ret,ret)
colnames(golden) = c('GoldCross','Buy&Hold')
#Plot to visually see the actual moving averages
            type = "line",
            name = "Moving Average : Golden Cross",
            TA= c(addSMA(50, col = 'yellow'), addSMA(200)))
# lets see what the latest signals are 1 being a buy signal
table.AnnualizedReturns(golden, Rf= 0.02/252)
charts.PerformanceSummary(golden, Rf = 0.02, main="Golden Cross",geometric=FALSE)

Created by Pretty R at