4 October 2016: Is the cure worse than the disease?

zigzag-pathSpot the difference: “Gear up for the longest-lasting recovery ever” and “The stock market enters Q4 in a precarious position“. These are examples of the signals that investors are getting. To add more ambiguity: some believe that the Fed will not raise interest rates before the dust of the US Presidential’s election has settled, while others say that an interest rate hike is very likely as early as the Fed’s meeting of the beginning of November, so well before the Presidential’s election. And more: workers around the world are being told that the world economy is going through a recovery, but they are not feeling it in their pockets.
It all explains the zigzag course that has been characteristic for markets since mid-July. Stock prices are hardly moving. If there is some more movement one day, an opposite movement will take place the next day or the day after that.
Monetary policies are more than ever determining the mood of investors. We get the feeling that the Fed and other central banks around the world think they have it all under control. That they are under the impression that they have the power to keep the world economy from getting hurt. But the flip side to this is that real economic growth appears to disappear from sight. Might it be the case that the cure is worse than the disease?
white-chapel-logo-smallAlthough all major US indices declined and the VIX made a small gain, our UVXY ETFs made a false start of Q4. Obviously short-term futures traders are less pessimistic than the rest of the market. UVXY was in the green for most of the day, but spent the last hour of trading below Friday’s close. These are all very marginal differences in what is traditionally a turbulent month. Presidential elections come with a lot of uncertainty. Return for the year slightly dropped to 203%. Return for the quarter, which is only one day old, is just below zero: -1.1%.
Our model White Chapel is sticking with the volatile securities that we currently own. No signal at the end of yesterday’s trading session.

Accumulated capital at close of previous trading day

Return since start

Return this year

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Our initial capital was $10,000 at 1 January 2016. Our average Annual Return is 340%.

ta_v05-small-invToday’s local newspaper carries an article on house prices. In popular parts of the Netherlands, these prices are going through the roof. The asking price is no longer that, but a from price. Potential home buyers need to mention their bid price before they have the chance to view a residence. The mad days of 2008 are back again…
It reminds Tim of when he wanted to sell his previous house. Because of the craziness that had gripped the housing market in those days, he decided to sell his house without the aid of a realtor. He planted a self-made sales sign in the front yard and before he could walk back into the house, his phone rang. Somebody begged Tim not to sell the house before the caller had the chance to submit an offer. Tim agreed and a few hours later the house was sold. (It was one of the last houses that was sold this way in that period. Only a few days after the sale was formalized at a notary, Lehman Brothers collapsed.)