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Week in Review - January 1, 2012

|Includes:EFA, IWM, SPDR S&P 500 Trust ETF (SPY), TIP, TLT
"Every day is a new beginning. Treat it that way. Stay away from what might have been, and look a what can be." - Marsha Petrie Sue

First of all, on behalf of everyone at Pension Partners, I want to personally wish you a safe, happy and healthy 2012. I have had some time finally to reflect on 2011 and am excited for what the new year brings. Last year was the first full year we've been running our ATAC (Accelerated Time And Capital) strategies for our clients, moving away from the theoretical backtesting to actual live results. Given that we consider our strategies to be a true hedge fund alternative with higher transparency, more liquidity, and smaller fees, we are proud of our strategies which across the board have closed 2011 with highly competitive returns compared to the universe of hedge fund managers.

It turns out to have been one helluva year to launch our ETF only buy and rotate quantitative strategies given that it was one of the most difficult environments for active tactical managers in history. The world appeared close to a repeat of 2008 with prices gyrating wildly, and yet the S&P 500 closed the year flat. Legendary hedge fund managers and traders were not so lucky, as the volatility resulted in a number of whipsaws and false signals causing deep double digits losses In many ways, 2011 was far more difficult an environment to navigate portfolios through than 2008. And yet, the biggest irony is that in many ways 2011 was with hindsight the year of buy and hold despite immense volatility.

 

Having said that, perhaps the most interesting aspect of 2011 was what defined market movement. Markets were ultimately NOT defined by Europe but by the Fed. I know this seems like an unusual statement to make, but the best week for bonds and best week for stocks in terms of biggest percentage gains occurred on monetary intervention (Operation Twist the week of September 19th made bonds soar while equities fell hard, and Global Central Bank Intervention caused stocks to jump the most since March 2009). I specifically wrote about this in an article I published on MarketWatch titled "How the Fed Defined 2011" (http://www.marketwatch.com/story/how-the-fed-defined-2011-2011-12-30?link=MW_TD). I consider the article to actually be one of the most important I've written that really shows why the year was so challenging.

Having said all that, I deeply believe that a Winter Resolution will come and a clear trend will emerge in the first few months of 2012. Given that over $200 billion of Eurozone debt is set to expire in the first three months of the year, it will become very clear that markets will be tested in a serious way. Interestingly, markets seem to be betting that the event risk associated with a possible Lehman-like event has diminished following the ECB's lending given the way the VIX has fallen off. However, Treasury yields are still nearing all-time lows, suggestive of recession risks still remaining very high. Removing the possibility of a Lehman-like event (or at least the fear of one) may be just enough to allow markets to revert to trending. A trend, whether up or down, I would argue is much more important to active managers than a market defined by just a few short weeks.

In closing, thank you for following Pension Partners and my writings. From Marc Faber of the Gloom Boom and Doom Report publishing four writings of mine, to Barry Ritholtz showing some of my analysis on the Big Picture, to the Summer Crash and Fall Melt-Up attention from MarketWatch, Bloomberg, Fox Business, the Wall Street Journal, CNNFN, Minyanville, Seeking Alpha, and ETFTrends, I am humbled by the events of last year in terms of my own credibility, and look forward to a lot more to come.

Sincerely,
Michael A. Gayed, CFA
Chief Investment Strategist
Pension Partners, LLC
www.pensionpartners.com
Twitter: @pensionpartners
YouTube: www.youtube.com/pensionpartners

Summary of Writings Published Last Week:

How the Fed Defined 2011 - http://www.marketwatch.com/story/how-the-fed-defined-2011-2011-12-30

The Lead-Lag Report: Did the ECB Change Everything? - http://www.minyanville.com/businessmarkets/articles/lead-lag-report-ecb-europe-european/12/27/2011/id/38557

Two Stocks that Define 2011 - http://www.minyanville.com/businessmarkets/articles/altria-taser-taster-international-best-stocks/12/29/2011/id/38613

 

ATAC Backtested Model Results:

ATAC - Conservative Model Backtested Results:

http://www.pensionpartners.com/media/Pension%20Partners%20-%20ATAC%20Conservative%20Model%20Backtested%20Results.pdf

ATAC - Moderate Model Backtested Results:

http://www.pensionpartners.com/media/Pension%20Partners%20-%20ATAC%20Moderate%20Model%20Backtested%20Results.pdf

ATAC - Aggressive Model Backtested Results:

http://www.pensionpartners.com/media/Pension%20Partners%20-%20ATAC%20Aggressive%20Model%20Backtested%20Results.pdf

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Stocks: SPY, IWM, TLT, TIP, EFA