Throughout my hedge fund career I have been willing to make bold moves. More than 2yrs ago I setup the Sefirot Freestyle strategy to outperform the S&P500 on a risk adjusted basis.
We are basically 8yrs in on a smoking hot bull market that has to my mind reached dangerous levels of exuberance. I am not sure exactly the size of the rally since The Donald was elected in November but it is probably up 15% plus maybe 20% since then. The markets simply loving the promises that are being made to grow the economy.
My intention when setting up this strategy was not to short the market. Rather to step aside and let the market do what it must. This mandate served me well over the past year as I probably would have been my typical early self and been short way too early. I got lucky and missed the bulk of the rally but never got really badly hurt and it turns out I have still outperformed the S&P500 on a risk adjusted basis.
The problem is I have never been the type of guy who gets overly excited with strong relative performance at the end of the day the objective is to make money in absolute terms. When I look at the financial / economic landscape and see the euphoria in the market place, coming from reckless monetary policy and soon to be reckless fiscal stimulus all the while ignoring the shadow material (i.e. the indebtedness) then I feel it is incumbent to be bold and test my theory of the market complex with all its might.
Buying 200 SDOW an inverse Dow30 x3 ETF at the market open on the 2nd and getting on the opposite side of this runaway train heading for a crash.
Its time to say goodbye to this crazy rally in junk with people completely ignoring risk in favour of yield. It will comeback to bite.
Buying 650 SJB a reverse ETF of Junk bonds at the market open for sefirot freestyle fund.
I think it is highly probable we will get one more rally before the markets take a serious breather. I am flat the market with you can argue some negative beta slant via my long VIX.
I want to add to this position if we get another rally.
On the other hand I am reading an amazing book on Why Minsky Matters by Prof Randall. I will be writing more about this in coming weeks as I find the time to finish reading it and completing the TV series Sons of Anarchy which I have loved but want to finish already. The story line is too drawn out but I love it nonetheless.
I have quietly sat by while the markets have continued to climb to incredible heights.
Selling my remaining 50 SPY at the market open, which will leave me with a short bias to the market. I hope to write a summary of my year from a cruise ship next week in the south pacific islands.
I have a Jungian based book in my library called The Cultural Complex compiled by Thomas Singer and Sam Kimbles. I was delighted to hear that Tom Singer was visiting and speaking to the Jungian Society in Sydney, so last night I went along to his talk. Tom is a psychiatrist and a Jungian analyst, his area of interest is how cultural complexes manifest in different countries. It is always a kick for me to meet the author of a book that has had a profound effect on my life (2 other come immediately to mind – see below*)
This is a subject that has tremendous meaning for me, as a few years ago I coined the term The Market Complex to describe my world view on how the cultural complex plays out in our trading world.
Before we go further lets understand what the great man, Jung, had to say on the complex:
The complex has a sort of body, a certain amount of its own physiology. It can upset the stomach. It upsets the breathing, it disturbs the heart – in short, it behaves like a partial personality. For instance, when you want to say or do something and unfortunately a complex interferes with this intention, then you say or do something different from what you intended. You are simply interrupted, and your best intention gets upset by the complex, exactly as if you had been interfered with by a human being or by circumstances from outside. (Jung 1936/1976)
The idea behind the cultural complex is that there is another level of complex that exists within the psyche of the group. From here you can see where I am going with my thesis of The Market Complex. Have you ever felt overwhelmed by an irrational force that drives your trading in an unexpected direction? These impulses are often attributed to neuro-chemical reactions operating at a primal level of brain function. However, they can also be attributed to the emotional charge of ideas that tend to cluster around an archetypal core shared by individuals belonging to a group.
These are big philosophical ideas rooted in a more esoteric branch of psychology so we don’t need to get bogged down in the jargon. The key point to walk away with is that the market as a collective can often behave in a way that makes no sense to ones own rational understanding, and even more alarming we can sometimes do things that almost feel like we are acting under the influence of an unknown force.
* Prof Burton Malkiel – A Random Walk Down Wall Street
* Prof Sanford Drob – Kabbalistic Visions: C.G. Jung and Jewish Mysticism & Reading the Red Book: An Interpretive Guide to C.G. Jung’s Liber Novus.
First to get the trades out of the way selling 100 SPY at the open to lighten up my broad market exposure. I still hate this market and think it is expensive.
The bulk of my time and energy is now focused on the launch of psyquation.com on the 20th May. I will write more when my schedule allows it.
Herewith Sefirot Freestyle Fund performance to date, in terms of the stated goal we are winning with a Sharpe Ratio of 0.42 vs 0.11:
I am feeling terrible that I am not posting on this site, like I would like. I am however tweeting a lot these days and can be followed on @mickson
As we have just finished Feb I wanted to post our returns. On the positive side of things the fund is profitable; however the strength of this bounce/new high coming has surprised me. I continue to opt for a very most index exposure. I have been toying with buying some non-correlated instruments of an exotic nature, but I have decided to stay away from it and stick to my main objective of beating the S&P500 on a risk adjusted basis.
Lastly, I am currently reading Market Mind Games by Denise Shull who I had the pleasure of meeting in New York in December. I will reserve comments until I have completed the book, but I will say I am impressed with her mindfulness approach. I am just wondering if I can accept her overriding philosophy within a Jungian context. Until later…..
Psyquation.com launch scheduled for May and occupying almost all my attention.