16 September 2016: A needle stuck in the groove

Economic figures that are down and stock prices that go up. What’s new?

needle-record-playerWe risk sounding like a needle that is stuck in its groove. Economic figures that were published yesterday were down, so stock prices went… up. Retail sales numbers for August were disappointing. More so, because an improvement in the second half of the year had been forecasted by many economists. The US economy is close to stalling. To many investors that is actually good news. It means that it is becoming more unlikely that the Fed will raise interest rates in September. Lower interest rates will keep stock prices at an artificially high level. But is there anybody out there who takes a look behind the curtain? The pile of bad economic news that is not supporting current stock price levels is growing. It is a bubble new style. Of course, it is not the responsibility of the Fed that this bubble is inflating. But it would soften the bang if the Fed would raise interest rates sooner than later. Further delay is only a stay of execution.

Yesterday, markets were white-chapel-logo-smallgetting more and more convinced that an interest rate hike will not happen this September. Worse-than-expected sales figures are yet another sign of a slowing US economy. There was a broad rally: all major US indices added 1 to 1.5%. Volatility eased: the VIX retreated 10% and our UVXY ETFs lost just over 7.5%. Return for the year was down to 324%. And return for the quarter landed at exactly 25%. White Chapel did not give a trading signal at the end of the session. Our model turned somewhat more in favor of volatility in reaction to yesterday’s rally.

Accumulated capital at close of previous trading day

Return since start

Return this year

Return this quarter

$42,444

+324.44%

+324.44%

+25.0%

Our initial capital was $10,000 at 1 January 2016. Our average Annual Return is 692%.

René’s Reflections @ Friday: Zoom out!

RS_v05-smallIn crisis management, one of the methods used to reduce the impact of crises is the mere fact of the passage of time. In product-harm crises for example, research showed that consumers tend to ‘forget’ about the crisis and its effects over time, and that the effects are minimal a few months after it has occurred. This principle is well understood by corporate executives, restructuring officers, as well as politicians, for example. They know that they will get away with pushing through any unpopular, yet lawful decision, simply by waiting until the storm of resistance blows over. They are keenly aware of the fact that their subjects have unknowingly got bogged down in today’s thinking, and that tomorrow will be ‘another day’.
This principle is much wider applicable than often thought. Much of our short term zoom-27955_120stresses can be ironed out by simply changing one’s perspective: to ‘zoom out’ in time and to look at things in a broad view, instead of being blinded by everyday woes and worries.
I’m under the impression that among the group of people I mentioned above, the corporate executives, restructuring officers and the like, many seem to totally forget about this principle when placed in a different role, like that of investor. During market corrections they often don’t keep their cool, and join the long line of panic sellers as if there is no tomorrow. Stock market volatility spikes and jumps by grace of the fact that most investors do not act at all according to this principle. In case they would do so, the days of market bubbles and crashes would most likely be numbered.

Literature:
The Impact of Time on Product-Harm Crises in the Food Industry: The Case of IKEA’s Meatballs
Aikaterini Vassilikopoulou · Peter J Stavroulakis
Product-Harm Crisis Management: Time Heals All Wounds?
Aikaterini Vassilikopoulou · George Siomkos · Kalliopi Chatzipanagiotou · Angelos Pantouvakis