10 July 2017: The key question

More than 96 months after the Great Recession of 2008-2009, we are currently living in the third longest period of uninterrupted economic expansion in American history. Now entering its ninth year, signs of fatigue are conspicuous by their absence. Some say a recession is nearby, others say this time it’s different.
In an article at MarketWatch published yesterday, economics reporter Jeffry Bartash mentions several reasons why the current expansion still ‘acts quite young’. The unemployment rate is near a 16-year low, auto and housing sales are healthy, and home building, manufacturing and energy production keep growing. Last but foremost, the growth of the economy has been slow and steady this time, where ‘[..] other expansions that have experienced more hare-like growth have usually suffered bigger letdowns at an earlier stage.’
In hindsight, everything seems obvious. But all these periods of economic expansions were followed by economic downturns, set in motion by events that nobody saw coming. What really matters is not to know how we reached the point where we are now, but which potential market breaker is hiding from our view at the time, while being completely overlooked by everyone. That is the key question. And this question has never been more pressing than now. A recession, should it come any time soon, would be nothing short of cataclysmic, dwarfing the subprime crash of 2008. With virtually no wiggle room left in interest rates and quantitative easing to steer the economy in any specific direction, we are edging eerily close to the abyss. Only in case world banks and governments will show the guts to take the necessary stringent measures before the next Black Swan shows up, we will find ourselves back in safer waters.

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On Friday, stocks finished higher for the session and week on the back of a rebound in tech stocks. The Dow gained 0.44% , the S&P 500 added 0.64% and the NASDAQ closed 1.04% higher. Volatility eased: the VIX closed more than 10% lower. Naturally, XIV ETNs profited, rising more than 3%. UVXY ETFs lost more than 6%. Solid Suzy and Lazy Larry profited fully from the rebound of XIV. Their RSS rose above 20%. Danny Daredevil switched from XIV ETNs to UVXY ETFs at the beginning of the session. He made a small gain because of this switch, but made a greater loss during the trading session. His RSS dropped to 304%. His YTD is almost back to 0%. Adventurous Anny made a small gain at the beginning of the session: her RSS rose to 33%.
None of our models gave a trading signal at the end of Friday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

303.55%

0.11%

-7.29%

151%

Adventurous Anny Cash 6 March 2017

32.57%

32.57%

-4.39%

129%

Solid Suzy XIV 6 March 2017

21.34%

21.34%

-3.06%

77%

Lazy Larry
XIV 6 March 2017

21.34%

21.34%

-3.06%

77%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

 

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“Life begins at the end of your comfort zone.”
― Neale Donald Walsch

There are several ways to step out of your comfort zone. One of them is to spend a weekend on an island with people you don’t know. Last weekend, René stayed in a holiday house on the island of Texel, together with a group of seven Asian people he didn’t even know until then. It is nothing like anything he did before, but willingly seeking the company of Asian people has never been a disappointing experience for him. Needless to say that he had a gorgeous weekend.

Fishing boat in the port of Oudeschild on the island of Texel