By Richard Morey
October 2022
<— While STOCKS FELL another 4.92% this quarter
(S&P 500)–
Our standard TAP account is UP ANOTHER 2.34%.
This comes to a TOTAL GAIN OF 8.46% over the last year, versus a loss of 15.32% for the US stock market and the same 15% loss for the standard 60/40 retirement portfolio (60% stock/40% bonds). The Tactical Allocation Portfolio (TAP) performance is as follows:
Analysis
The TAP portfolio is roughly on track for our minimum expected return during the first leg down in a bear market. Surprises are inevitable when market direction turns, and time is required during the inevitable turmoil to evaluate conditions, decipher trends, and get properly positioned.
As we know, unprecedented events have become common these days. For example, while it became obvious inflation was a looming problem in the last half or so of 2021, only one asset class has been able to deliver large and sustained gains once inflation gained traction. This is of course Managed Futures.
In fact, other than managed futures (and a few of their underlying assets such as commodities and the US dollar), inflation has led to substantial losses in almost every single asset class in the world this year. Even traditional inflation hedges such as gold (-9.53% YTD through 9/30) and Treasury Inflation-Protected Securities (-13.61% YTD through 9/30) have fallen.
The only profitable exception to managed futures I know of are something called “long-short” equity funds with a value bias. This is what John Hussman does in our Hussman Strategic Growth mutual fund.
In other words, the only investment approaches profiting this year are those based on quantitative trading of one form or another. However, only managed futures systems have been consistently, highly profitable in 2022. For example, while Hussman made 15.41% in long-short equity in the first nine months, the average such fund lost 12.30%. This illustrates that all quantitative programs – including many that advertise the ability to profit in down markets – are not created equal and must be monitored diligently during volatile times.
Our investment thesis is simple. We no longer even attempt to guess at the outcome of today’s macroeconomic and market conundrums. The only thing we can predict with conviction is that volatility will continue, probably at an increasing rate.
Managed futures funds are mathematically based programs created and run by some of the best minds in the country, designed specifically to profit from volatility. This is the reason they tend to shine in chaotic times like these. You can see this in their year-to-date returns below. (Learn about Managed Futures on our home page.)
The other half of our investment thesis is that this bear market will continue, like all bear markets, to go up and down in stairstep fashion until it hits bottom. As many unfortunate investors are painfully aware, stocks fell 22.79% in the first three quarters, while the bond market may have had its worst three quarters since the Civil War.
Current Allocations & YTD Returns
The numbers you see in bold below show large profits for the year in every fund we own now except the gold/silver fund and one fund we recently purchased. As you can see, IF we had held everything we now own from January 1 on, we would already have eye-popping, jaw-dropping profits, rather than the merely pleasant ones we have gained so far. What this shows is that, if we do turn out to be correct, and this is just the beginning of market turbulence, TAP owners will be very pleased with the results.
- The Credit Suisse Managed Futures Strategy Fund is an index of managed futures strategies.
- The Altegris Futures Evolution Strategy Fund includes a transfer of 5% from Altegris to AQR on 10/5.
- The Catalyst/Lyons Fund was purchased recently – on 7/25/22. It was down 1.52% in TAP on 9/30/22, so the large losses it sustained in stocks before the fund exited the stock market in July didn’t affect our accounts.
- We have kept the Sprott Physical Gold & Silver Trust fund as “crisis insurance.” In addition, gold & silver are unpredictable markets short-term. History suggests prices could spike over the next two years, they protect against the worst global risks, and there is no way to tell when prices will turn up sharply. So we keep a modest amount.
- Right now you may be thinking, hey, I haven't smiled yet. But scroll to the bottom of the page!
Important Disclosure
Tactical Allocation Portfolio ( TAP) has been in existence for many years. Allocation amounts and the funds used are subject to changes on an ongoing basis ( by design). The portfolio objective is to move away from market risk while seeking to find opportunities that will preserve capital and achieve a reasonable rate of return .
Client investment portfolios are designed to follow the current allocations set forth by the portfolio manager. Individual portfolios will in some cases have a modified allocation based on their personal financial goals. The performance of TAP mentioned in the report is based on being fully allocated to the current parameters .
Please direct any questions regarding your individual returns and/or allocations to Secure Retirement advisors.
SMILE ZONE
1. On a backpacking trip, Sherlock Holmes and Watson are settling down to sleep. Watson is awakened by Sherlock, who exclaims, “I say, look at the stars, Watson– do you know what they mean?”
Watson thinks for a moment, then replies “Well, from a philosophical view, one could say that they bespeak of our impermanence, since even stars must eventually perish. From a scientific perspective, quantum theory postulates that time and space are far less Euclidian than we used to think. What do the stars mean to you, Sherlock?
Sherlock replies, “You idiot, they mean that someone stole our tent!”2. Two hunters are out in the
woods when one of them collapses. He’s not breathing and his eyes are glazed. The other guy whips out his cell phone and calls 911.
“I think my friend is dead!” he yells. “What can I do?”
The operator says, “Calm down. First, let’s make sure he’s dead.”
There’s a silence, then a shot. Back on the phone, the guy says, “Okay, now what?”3. Elon Musk, the Pope and an aging hippie are in a small airplane , when the plane’s engine sputters out. However, there are only two parachutes.
Elan Musk says, “Someone must make sure humans get to Mars. As the smartest and most important man alive, I’ll take the first parachute.” –and hejumps out of the plane.
The Pope says to the hippie, “Son, I have lived a long life, go ahead and take the other parachute.”
The hippie replies, “Hey man, it’s all good. The smartest man alive just took my backpack!”