The Logical-Invest newsletter for December 2019

Did you notice a bear passing?

There should be a widely available service to search past wall street media headlines, align them with a chart and see how well (or not) they predicted market moves. A few months ago, while the SP500 sat some 8% lower from today all headlines were reading about the yield curve inversion, tariffs and the coming recession. This ‘pessimism’ seems to be over. This month’s favourite headliner comes from Fidelity and is called Is The Bear Market Already Over?“. It poses the question whether the recession has already passed and whether we may be moving on the next leg up. Of course one can argue that if you see a baby bear passing you should refrain from petting while feeling all cute-and-cozy as one mama-bear (or even daddy-bear) is bound to be near.

So, with a little help from our friends at the FED, optimism is creeping back up as the SP 500 managed to overcome the 3,000 mark and move well into the 3100’s (3148): A 3.6% advance for the month. Let’s not forget this was one of the two market-darling months. And markets did what they usually do in November, which is to go up. December is the other. It remains to be seen if this bull run will continue during the holiday season.

On the contrary Gold cannot reach it’s September high and lost another -3.2%. Treasuries lost a bit at -0.4% while the U.S. dollar index rose 1.2%.

Our strategies have been doing fine, although they cannot compete for this month with a pure SP500 hold as they are (and should be) hedged. One of our best performers for this month was our GLD-USD(+ 1.34%) despite gold’s decline.

This is a good opportunity to look ‘inside’ the strategy and see how it works. The motivation for developing the strategy was a simple observation: Gold may stay flat or decline for a U.S. based investor but it may provide great profits for a European, Japanese or Australian one. The strategy can ‘pretend’ to be that foreign investor by shorting the currency, being Euro or Yen. So looking closer at last month’s allocations, the strategy was 25% long gold but also 50% short the Euro and 25% short the Yen, both of which helped the strategy outperform it’s benchmark. For accounts that cannot short leveraged ETFs the GLD-UUP strategy may be a better choice.

We look forward to a vivid discussion. Visit our site for daily updated dashboard.

Leave a Comment