Quarterly Report (January-March) 2017
Popular Investor, FundManagerZech Q1 Report
In the last 3 months, I have been trading a diverse range of instruments: major currencies, SPX and Gold. Since the Trump rally began in late November of last year we experienced a regime change in the US. This caused parts of my older strategy to struggle.
However, I managed to revert to more robust parts of my trading system, moving to longer timeframes. As a result, we recovered to a positive quarter on the back of AUD/USD and Gold trades in March. Although profit only stands at 1.23% up for the year, I am satisfied with this, as a result of challenging market conditions. I hope to improve on this in the coming quarter.
I wanted to address an existing trade that has been in my portfolio for a long period of time. This is a short on the SPX500. History does not repeat but it rhymes. Every two-term incumbent president in the last 100 years experienced a recession during their leadership. Donald Trump follows after a two-term president who managed to ride out a major recession.
Every Republican president since Teddy Roosevelt in the early 1900s endured a recession in their first term. Donald Trump is of course a Republican. There were 2 non-political candidates to be elected President. President Hoover was one and he saw the great depression. Donald Trump is the second. There are even trading systems that revolve around presidential cycles. But these stats represent an underlying business/credit cycle. The populist movement can be a part of this as well.
I have written more on this on my blog at zechz.com.
My SPX500 open position acts as a put option, allowing us to make a profit should a recession happen. Should it not, I expect losses to not go beyond 5% of the account. It stands at 2% loss now. ETFs, huge derivative books and liquidity due to QE (quantitative easing) likely mean the market is fragile. If a self-reinforcing cycle were to unwind, a crash will be fast, unexpected and fall very far.
The term ‘shorting’ the market was derived because a market crash happens in a short timeframe. A ‘long’ was because a bull market takes a long time.
A few potential catalysts could allow this potential black swan. But as with historical crashes these usually come to fruition with no warning. Hence the reason why the position has been on.
Looking forward to an exciting 2Q and beyond