My Career on the Line

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.

2017-03-02_0954

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.

This Time is Like No Other

I know I am in the minority when I say that the world finances are on the brink of a major sea change.

Of course the world sees only new high’s on the stock exchange, record highs in the real estate market, commodity prices once again surging.

Me on the other hand as a student of the collective unconscious and the market complex specifically, see something I have never seen in my life time and I believe the unpredictable nature of this complex fighting its way to the surface is likely to unleash an equilibrium balancing shift that will be shocking to say the least.

Symbolism is currently at its richest. We have this archetypal figure in Trump who is trying to portray himself as a saviour of biblical proportions. But for all his bluster in my opinion he is more symbolic of a shadow projection of a major segment of society who is tired of the status quo, who is tired of political correctness. For those who understand the shadow in all its unbridled “darkness” will see how badly this side of our psyche needs to be expressed. It is quite informative how so many of the people who vote and support Trump are scared, embarrassed or shy to say so. The reason is because the complex masked behind these feelings that have not been integrated into our Psyche are gaining so much energy (libido) that it is clear they can no longer be suppressed.

At the open of the market Buy 25 VXX and 75 WDTI for the Sefirot Freestyle fund.

Last Day of the Year

It has been a very quiet year for me on the Sefirot front. I have to admit almost all my energy has been channelled towards growing PsyQuation as a business. However this doesn’t mean I haven’t reached major new heights in my goal towards self discovery. In fact this year has been one of my most difficult years dealing with extreme uncertainty.

What is interesting is the test of uncertainty brings forward ones quest for faith. The effect  of not knowing how the future will turn out forces one to strip back ones ego to feel secure in the knowledge that even if everything one hoped for doesn’t turn out and I am left with nothing, I still left with “ME” and I am learning to accept that isn’t so bad either.

If I can summarise the way things have been for me in 2016 on the business front. We have built an incredible software platform and team. However we have failed to communicate our softwares benefits to the trader community and we haven’t solved our business model solution. I believe that even though it has been a tremendously frustrating year and one filled with anxiety it may have been a necessary “evil” to have such a strong foundation to build a truly meaningful company into 2017 and beyond.

Onto the markets, 2016 has for me been a continuation of the insanity of a zero interest environment. The low interest rate environment has inflated the stock markets as one could expect for some time as the natural inclination if the banks aren’t paying you any interest is to speculate in the stock market in the search for yield and return. I have slowly reduced exposure to the market throughout the year as I simply could not get constructive on this market because I believe the world economies are sick, they are swimming in a sea of debt that the central banks and governments have not addressed, in fact they have added to the already existing debt problem by creating even more debt.

What I continue to learn through each new phase of the market cycles is that nothing behaves in the time frame you anticipate. The economic theories I have subscribed to are still very much in play, it is just understanding the way the mass psychology will react to the information in the short term that will forever evade prognosticators. Please refer to the section below to see how wrong experts got it in build up to the Great Depression. In conclusion I believe the world economies are on the edge of a precipice and in fact the political stability of the world seems to be echoing the economic instability. The future is looking very unpleasant. I think we are due to experience economic and political pain that we have not experienced in many decades. The GFC was just a precursor. The psychic energy of too easy needs to be balanced with too hard, so this phase of easy money will need to swing to a point where people can no longer withdraw “equity” out of their home mortgage. Sorry folks the BEARman is as bearish as ever.

Performance Summary

The stated goal and objective of the Sefirot Freestyle Fund is to outperform the S&P500 on a risk adjusted basis. With one trading day left for the year, I can say that Sefirot has outperformed with a better Sharpe Ratio 0.30 versus the S&P500 0.26

2016-12-30_1020

Clearly we haven’t achieved the same $ & % profits but this has never been the goal of this fund. Despite people thinking I am a risk taker the truth is the complete opposite.

2016-12-30_1019

Here is a post from someone else illustrating my point how experts may know a lot about their field but when it comes to timing the markets there are no experts.

History Shows Why Prognosticators Should Be Discounted

(click here if chart is not observable)

1927-1933 Chart of Pompous Prognosticators

1.  “We will not have any more crashes in our time.”
– John Maynard Keynes in 1927

2.  “I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”
– E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

“There will be no interruption of our permanent prosperity.”
– Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

3.  “No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment…and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding.”  – Calvin Coolidge December 4, 1928

4.  “There may be a recession in stock prices, but not anything in the nature of a crash.”
– Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929

5.  “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
– Irving Fisher, Ph.D. in economics, Oct. 17, 1929

“This crash is not going to have much effect on business.”
– Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

“There will be no repetition of the break of yesterday… I have no fear of another comparable decline.”
– Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929

“We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.”
– Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929

6.  “This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
– R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929

“Buying of sound, seasoned issues now will not be regretted”
– E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929

“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.”
– R. W. McNeal, financial analyst in October 1929

7.  “The decline is in paper values, not in tangible goods and services…America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin.”
– Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929

“Hysteria has now disappeared from Wall Street.”
– The Times of London, November 2, 1929

“The Wall Street crash doesn’t mean that there will be any general or serious business depression… For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game… Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before.”
– Business Week, November 2, 1929

“…despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation…”  – Harvard Economic Society (HES), November 2, 1929

8.  “… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.” – HES, November 10, 1929

“The end of the decline of the Stock Market will probably not be long, only a few more days at most.”
– Irving Fisher, Professor of Economics at Yale University, November 14, 1929

“In most of the cities and towns of this country, this Wall Street panic will have no effect.”
– Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

“Financial storm definitely passed.”
– Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

9.  “I see nothing in the present situation that is either menacing or warrants pessimism… I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.”
– Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

“I am convinced that through these measures we have reestablished confidence.”
– Herbert Hoover, December 1929

“[1930 will be] a splendid employment year.”
– U.S. Dept. of Labor, New Year’s Forecast, December 1929

10. “For the immediate future, at least, the outlook (stocks) is bright.”
– Irving Fisher, Ph.D. in Economics, in early 1930

11.  “…there are indications that the severest phase of the recession is over…”
– Harvard Economic Society (HES) Jan 18, 1930

12.  “There is nothing in the situation to be disturbed about.”
– Secretary of the Treasury Andrew Mellon, Feb 1930

13.  “The spring of 1930 marks the end of a period of grave concern…American business is steadily coming back to a normal level of prosperity.”
– Julius Barnes, head of Hoover’s National Business Survey Conference, Mar 16, 1930

“… the outlook continues favorable…”  – HES Mar 29, 1930

14.  “… the outlook is favorable…”  – HES Apr 19, 1930

15.  “While the crash only took place six months ago, I am convinced we have now passed through the worst — and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.”
– Herbert Hoover, President of the United States, May 1, 1930

“…by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent…”  – HES May 17, 1930

“Gentleman, you have come sixty days too late. The depression is over.”
– Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

16.  “… irregular and conflicting movements of business should soon give way to a sustained recovery…”  – HES June 28, 1930

17.  “… the present depression has about spent its force…” – HES, Aug 30, 1930

18. “We are now near the end of the declining phase of the depression.”- HES Nov 15, 1930

19.  “Stabilization at [present] levels is clearly possible.” – HES Oct 31, 1931

20.  “All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.” – President F.D. Roosevelt, 1933

Colin J. Seymour, June 2001
http://www.users.dircon.co.uk/~netking
20 June 2001

New Year New Trade

It has been some time since we have done anything to the portfolio. We will buy 75 SPY @ the market open on 21 Jan.

The portfolio is doing really well having side-stepped the latest bout of volatility. We have no plan on getting too constructive on the portfolio. However, given the recent selloff there is some scope for a bounce of some nature to develop.

Reminder: the funds goal is to outperform the S&P500 on a risk adjusted basis.

2016-01-21_1047

 

Sefirot Freestyle Final Performance Report for 2015

For me today is the last day of the year as I write this note at my hotel in Los Angeles before boarding a flight tonight that will cross the dateline and see me miss New Years Eve, i.e. we leave on the 30th and arrive in Sydney on the 1st.

Here is a summary of the Sefirot Freestyle Funds performance since inception on 23 December 2014. The fund has essentially side stepped the volatility of the broader S&P500 and more or less delivered the same nominal performance. For me 2015 was frustrating but I still maintain we are due further dislocations in the market and I intend to be on the sidelines during this time.

2015-12-30_1039

 

 

 

Sefirot Freestyle Fund – Update

It has been way too long since I posted here, however I am currently involved in a love affair with Twitter. I have decided to simply go with the flow and not fight too hard as I know my infatuation will fade and I will find the will and time to spend a reasonable amount of time putting some thoughts down in a more coherent fashion.

To the point of this post, I am super proud of the way the portfolio is performing. I have managed to sidestep most of the current volatility. I was hoping to get a little long the market following a further washout. I don’t think it is over yet, but this bounce may continue some. I remain wary of the markets from both a valuation and Minsky instability moment.

Here is a picture of my handiwork.

2015-10-02_1036 2015-10-02_1037