FOMC Days = 25% Of S&P500 Performance

May 03, 2016 10:10 AM ETSPY
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Long/short anything, LongTerm plan, ShortTerm focus, Tech, Commodities

Contributor Since 2008

My name is Miles Hoffman. I spent 20 years in research departments on the buy side, primarily as a technology and insurance analyst at 2 large institutional investment firms. Having a computer programming background, I was an early "quant" (that never found the right home) with a "heretical" belief in technical analysis. In between these two firms, I worked as a portfolio manager for the Kuwaiti Institute for Social Security ("KISS"), the social security system of Kuwait (which has REAL money to invest, unlike the pyramid scheme of my home country). Initially I managed a convertible bond portfolio and later managed a conventional bond/stock portfolio. In 1991, I found my "15 minutes of fame" in Kuwait when I unsuccessfully tried to avoid being taken hostage by the invading Iraqi army and was instead shot in the process (but that is a different - and long - story). Being more of a geek than "a marketer", I left the buy side after running into a ceiling: the head man thought marketing was more important than performance in the money mgmt business. Admittedly, when 80%+ of professionals under-perform their index, "marketing" - as in maintaining - clients is very important; however, we doubled our assets under mgmt in 18 mns when the market style swung to our focus and we generated good returns... so "you take Sally and I'll take Sue" (but I'd rather have both!). Now I trade for myself. Besides investing, I enjoy reading, gardening and any activity around water. fwiw: I did not renew my CFA in retirement shortly after a Financial Times article about "the money machine" of the CFA Institute, in which the CEO denied the story angle.... and then promptly raised the retired fee from about $25 to at least $100 (it's currently $100. I thought they went to $125 or $150, so they either backed off or I was so pissed at them that I "behaviorally" remember a worse increase).

The Absolute Return letter is widely read in the investment world and if you are unfamiliar with it, you can find it here (as well as sign up to receive it by e-mail):

http://www.arpinvestments.com/absolute-return-letter

from the just released letter...

"Before 1982 the days on which the Federal Open Market Committee('FOMC') convened were just like any other day in the U.S. equity market, but that changed with the arrival of the great equity bull market. Since 1982 a full one quarter of the total return on U.S. equities has been delivered on those 8 days a year the FOMC meet, regardless of whether interest rates were lowered or not. Even more noteworthy, in the first few years following the GFC, the performance of the S&P 500 on those days the FOMC convened was no less than 29 times stronger than average daily returns (chart 2). In other words, the sheer existence of those meetings have had a much bigger say on equity prices than what the FOMC actually decided to do. That is nothing short of astonishing. (p.3)"

Disclosure: I am/we are short SPY VIA OPTIONS AND VIA LONG TZA (TZA=SECTOR-DRIVEN QUANT MODEL).

Additional disclosure: Short cotton and long cattle.

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