[TSP_Strategy] Re: Final 2016 Advisory Services Performance Update

 

Does TSP Smart post returns?

Normally I would have my returns posted much sooner, but I lost the spreadsheets I use for calculating results in a data migration this summer.  I am in the process of rebuilding the spreadsheets, so I sat down and did the math on paper today.

I had a flat year attempting to avoid a bear market that was thwarted by those pesky central bankers. While I avoided the roller coaster, I missed most of the rally too.  Based off my recommendations (not my seasonal models) my 2016 C fund was up 1.82% and my S fund model was up 2.64%.

I calculate the C fund returned about 12.0% in 2016 and the S fund hit 16.35%.  Much of those gains were post-election with the C fund gaining 7.8% and the S fund gaining 13% post-election.

Michael Bond would probably tell us that "sell in May and go away" is an
oversimplification. The exact dates to exit and reenter the equities market
can make a difference in returns.

JM Bud is correct and this year if I just went with our objective seasonal model signals, we would have been up 7.7% for the C fund and 3.9% for the S fund… so I guess I was Not-So-Smart this year.  We found that a monetary driven rally (post Britex) can happen in the summer.  Think about it... Britian's vote to exist the EU was supposed to be devastating to the EU and the global economy...so the SP500 surges to a new high??

Sy Harding who invented the seasonal strategy let his strategy run and did separate subjective timing based on technical analysis.  He was good at it, but in the long run his seasonal strategy beat him too and most professional timers.  Therefore, I adopted it and applied it to the C-fund and S-fund. 

Now why would I go and mess with it, if I think it so great?  Because the one area I saw it could do even better would be to sit out the bear markets.  So, that is what I focus on in my analysis.  Not the weekly ups and downs of the market, but the pre-conditions and indicators of bear markets and large corrections.  We hit those in 2015.

I saw the August 2015 and the early 2016 market drops coming and warned about them.  I recommended sitting out the 2015/2016 favorable season based on the larger data and missed the early-2016 drop.  I was not surprised by the "bounce" in February 2016.  I was surprised by the continuation of the rally all the way to the end of the year. 

My weakness in my bull/bear analysis was *not* in over-riding the seasonal strategy.  In hindsight, my weakness was not having developed a non-emotional "objective" signal for the flip to a "RISK-ON" speculative rally created by the central banks.  It is estimated globally they injected around 4 trillion dollars in 2016 into the financial markets that launched the stock market into speculative outer space.   And they started this because of the same financial stress I was monitoring and warning about.

It might help to know I view the economic sphere and financial sphere separately.  They used to be somewhat attached when the business cycle ruled.  Now that monetary policy rules, they are very loosely attached at best. The global central bankers are trying to sustain bubble level financial asset prices (stocks, bonds, housing, commercial real estate).  They are in a tug-of-war with the markets and are currently winning.

The economy does not matter, corporate profits do not matter, inflation does not matter.  All that matters to the speculators are how many trillions are the central banks going to create out-of-thin air and continue pumping into the financial system every time it tries to revert to normal valuation levels.  Once the markets revert to normal valuation levels and they will one day, then value investors will care about the economy, profits and inflation.

Yes JM Bud, "... knowing when to jump back in is the key".  I am willing to give up a few percent of gains to avoid riding bear markets down, but missing this rally was painful. So, I am working on creating an "objective" RISK-ON/RISK-OFF signal this year for unemotional re-entries signals.  My disdain for the current situation in the financial markets kept me out too long.  I did provide market commentary for members discussing improving market internals and not seeing RISK OFF returning, but I did not move my models over the summer.

Cheers,

Michael

PS.  Market valuations still point to very low long term returns regardless of the economy.  The next reversal to RISK-OFF may be more painful to buy & hold types than my missing the recent melt-up.  

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Posted by: Michael Bond <michaelhbond@yahoo.com>

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