Wouldn’t you like to know what the original text for Yellen’s June 6th “major policy” speech was going to report? Given all the “nudge, nudge, wink, winks” Fed talkers had provided during the past few weeks, there’s little question the “data dependent” FOMC was planning to hike rates in either June or (more likely) July. However, post that US jobs shocker last Friday, June 3rd, there’s now no question her text will be rewritten and most prognosticators will be forced to ponder how much their universe may need to change. I had been in the camp that the US economy was going to remain okay, but given the S&P 500’s stretched valuation of 18X reported EPS (P:E ratio) amidst anemic organic top line growth (1.6% CAGR this cycle vs. 6.8% historically) and falling profit margins, the SPX would remain inside the 1850-2125 trading range it’s been in since November 2014. My view remains that it will generally stay within this range unless oil is markedly lower or higher than $48.50 in 6-8 months...
The saying goes, “actions speak louder than words”, and despite the denials at the time, it now appears obvious that G20 Finance Ministers and Central Bank Governors did in fact strike a deal during their late February 2016 meetings in Shanghai to weaken the USD. The funny thing is that the only action the FOMC took to cause the USD to recently hit 18 month lows was to state its expectation that 2016 would feature only two rate hikes versus the previously telegraphed four. In addition, the Bank of Japan and Europe’s ECB proceeded to push deposit rates into negative territory, but counterintuitively, speculators played along, taking their late 2015 ~$45B net long position in the USD to a net short position by mid-April. Take two hikes in minimum margin requirements by the Commodity Mercantile Exchange (CME), return to heightened speculative commodity trading in China, and initiate a tsunami of trend-following capital into “value-type” assets and you had the recipe for an acceleration of the reflation trade during April. Fortunately our funds were not short these reflation assets but neither were they long. Regardless, both of our funds made money during April...
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Rising oil prices and a steady hand at the People’s Bank of China (“PBoC”) combined to knock fear from the top rung on the asset allocation factor ladder during the first half of March. Mid-month, Yellen’s FOMC turned shockingly dovish. This action accelerated the decline in the US dollar, indirectly assisting the PBoC by weakening its trade-weighted RmB currency, and caused investors to chase stocks, enabling the “bull” to celebrate its 7th anniversary while the VIX closed March at 13.95, down from its year-end close of 18.21...
January’s market volatility continued through the first half of February as fears surrounding oil, China and US economic growth dominated the psyche of investors. However, improving economic data from America plus provocative and suggestive talk from oil producing countries combined to cause stocks to “V-rip” higher during the second half, creating a sense of calm to the casual monthly observer. Amidst this storm, each of the two funds at Forge First generated respectable profits during February 2016.