2 December 2016: Take some money off the table

money-from-tableInvestors took a breather yesterday and stock prices retreated, except for oil, energy and finance related securities. These Dutch Guys are asked quite often on the occasion of rising stock prices: shouldn’t you take some money off the table and cash in on the gains? It is a well-known psychological effect, that to many, a small loss after a substantial gain feels much worse than a small gain that is smaller than the difference between that substantial gain and the small loss. But our answer is always: yes, we could do that. And, no, we don’t actually do it. Because history has made it abundantly clear, that this is nothing more than a gamble. As humans, we cannot see what is behind that short-term gain we make. Our model, White Chapel, is devoid of feelings of pain caused by losses or feelings of joy caused by gains. It just applies what it has learned from past experience. And These Dutch Guys trust in White Chapel. (Amen.)

white-chapel-logo-smallUS markets showed a split personality yesterday. The Dow gained 68 points (+0.36%), whereas the NASDAQ fell 73 points (-1.36%) and the S&P 500 lost 8 points (-0.35%). Volatility rose substantially: the VIX added more than 5.5%. Our XIV ETNs recorded a loss of 3.7%. Return for the year for our model is now at 303%. Return for the quarter is just above 30%.
White Chapel saw a change of momentum, but it is still not convinced that we should trade in our XIV ETNs. So, it advises us to stick with our XIV ETNs for the time being.

Accumulated capital at close of previous trading day

Return since start

Return this year

Return this quarter

$40,341

+303.41%

+303.41%

+31.7%

Our initial capital was $10,000 at 1 January 2016. Our average Annual Return is 363%.

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René’s Reflections @ Friday: Money for Nothing

Long before money was around, civilizations that we nowadays consider more primitive than ours, had their own inventive ways of paying each other for goods and services. All kinds of valuable (read: scarce) items were used as media of exchange. Like spears, hoes, grain, cattle, beads, shells, just to name a few. This system worked for centuries, until trade started to gradually create a monetary economic system. No longer did people have to pay each other with valuable items. Instead, they used coins made out of precious metals (silver or gold). These coins were easier to handle and transport than goods of similar value.
Then came banknotes. And coins were no longer made out of precious metals, but cheap materials. Which was okay: the gold standard dictated that the value of the currency or paper money was directly linked to gold.
This so-called gold-backed monetary system has worked very well, for a reasonable amount of time. But somewhere along the line, probably fueled by one financial crisis too many, governments and central banks decided that there was not enough money to go around. Exit gold standard, enter ‘fiat money‘: the creation of money by governments by the push of a button. Why bother? Quantitative easing, that will do the trick. If it’s not there, and we need it, let’s just create it.
Though fiat money originates in 11th century China, in our modern western economies, it became excessively popular only after the abandonment of the gold standard. The speed at which central banks all over the world have created money over the last decade, is beyond comprehension. The Bank of Japan has created the largest amount of money of any major economy, in relation to the size of its GDP (gross domestic product). The ECB (European Central Bank) creates more than $1 trillion a year, in euro’s. It took the USA almost one hundred years to create the first 1 trillion dollars, but over the last 10 years, the Federal Reserve created 3 trillion new dollars.
And all that ‘fiat money’ is essentially without value, because on the input side there is nothing of any value. Just the push of a button. It’s gratis, not linked to a scarce commodity, such as gold. Personally, I don’t believe you can create something out of nothing. Ex nihilo nihil fit.
Is there any conceivable scenario in which this ends well? I’m an optimist by nature, but this is a puzzle I haven’t quite figured out yet. Please enlighten me. And enjoy your weekend.

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