Getting Ready For 2019 / The Pursuit Of Happiness (And Fortune)

Dec. 27, 2018 8:00 AM ETCitigroup Inc. (C), DIA, FXI, MCHI, QQQ, SPY, VXX8 Comments
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Macro and Micro, Value and Growth, Long/Short Equity, Income (DGI, Bonds, Pref.'s)

Contributor Since 2014

On a strictly formal note...

The Fortune Teller ("TFT") is a well-known contributor on Seeking Alpha ("SA"), and a top blogger according to TipRanks, with over 30 years of deep and direct market experience.

TFT is the leading moderator of two services on SA: Wheel of Fortune and Macro Trading Factory (led by TFT's "mirage identity" called The Macro Teller, or "TMT")

TFT is an account that represents a business which is mostly focuses on portfolio- and asset- management. The business is run by two principles that (among the two of them) hold BAs in Accounting & Economics, and Compute Sciences, as well as MBAs. One of the two is also a licensed CPA (although many years have gone by since he was practicing), and has/had been a licensed investment adviser in various countries, including the US (Series 7 & 66).

On a combined basis, the two principles lived and worked for at least three years in three other-different countries/continents, holding senior-managerial positions across various industries/activities:

On one hand/principal, IT, R&D, Cloud, AI/ML, Security/Fraud, Scalability, Enterprise Software, Agile Methodologies, and Mobile Applications.

On the other hand/principal, Accounting, Banking, Wealth Management, Portfolio Management and Fund Management.

Currently, they run a business which is mainly focusing on active portfolio/fund/asset management as well as providing consulting/advisory services. The business, co-founded in 2011, is also occasionally getting involved in real estate and early-stage (start-up) investments.

The people who work in and for this business are an integral and essential part of the services that we offer on SA Marketplace platform: Wheel of Fortune, and Market Trading Factory. While TFT (or TMT for that matter) is the single "face" behind these services, it's important for readers/subscribers to know that what they get is not a "one-man-show" rather the end-result of an ongoing, relentless, team effort.

We strongly believe that successful investors must have/perform Discipline, Patience, and Consistency (or "DCP"). We adhere to those rigorously.

The contributor RoseNose is both a contributing and promoting author for Macro Trading Factory. 

On a more personal note...

We're advising and consulting to private individuals, mostly (U)HNWI that we had been serving through many years of working within the private banking, wealth management and asset management arenas. This activity focuses on the long run and it's mostly based on a Buy & Hold strategy.

Risk management is part of our DNA and while we normally take LONG-naked positions, we play defense too, by occasionally hedging our positions, in order to protect the downside.

We cover all asset-classes by mostly focusing on cash cows and high dividend paying "machines" that may generate high (total) returns: Interest-sensitive, income-generating, instruments, e.g. Bonds, REITs, BDCs, Preferred Shares, MLPs, etc. combined with a variety of high-risk, growth and value stocks.

We believe in, and invest for, the long run but we're very minded of the short run too. While it's possible to make a massive-quick "kill", here and there, good things usually come in small packages (and over time); so do returns. Therefore, we (hope but) don't expect our investments to double in value over a short period of time. We do, however, aim at outperforming the S&P 500, on a risk adjusted basis, and to deliver positive returns on an absolute basis, i.e. regardless of markets' returns and directions.

Note: "Aim" doesn't equate guarantee!!! We can't, and never will, promise a positive return!!! Everything that we do is on a "best effort" basis, without any assurance that the actual results would meet our good intentions.

Timing is Everything! While investors can't time the market, we believe that this applies only to the long term. In the short-term (a couple of months) one can and should pick the right moment and the right entry point, based on his subjective-personal preferences, risk aversion and goals. Long-term, strategy/macro, investment decisions can't be timed while short-term, implementation/micro, investment decision, can!

When it comes to investments and trading we believe that the most important virtues are healthy common sense, general wisdom, sufficient research, vast experience, strive for excellence, ongoing willingness to learn, minimum ego, maximum patience, ability to withstand (enormous) pressure/s, strict discipline and a lot of luck!...


  • Until and including December 24th, the market broke many negative records.
  • Then came December 26th and the market broke many positive records.
  • 2019 is approaching fast and we will do our very best to assist you in crossing the Rubicon as safely and successfully as possible.
  • We mainly search for money. If Happiness comes along the way too - great. If not - it's still better to be (unhappy and) rich than poor.

(*) Most of this piece was written and got published yesterday, December 26th, on the Wheel of FORTUNE service. The original title of this article is: "Getting Ready For 2019 - Prologue". The rest of the series will only be available for the WoF subscribers.

>>> CLICK HERE TO START YOUR FREE TRIAL TODAY, benefiting from a 5% discount, two-week free trial and, most of all, access to our comprehensive "getting ready to 2019" series!!! >>>

Data thru December 24th 2018 (inclusive)

The S&P 500 (SPY) entered December 26th trading day at one of its most extreme oversold levels in history.

With Trump preaching Buy the Dip, stocks look cheapest in years. S&P 500 at cheapest relative to forward earnings since 2013. American stocks are also looking less of an outlier versus other advanced markets than earlier this year.

If the quarter were to end on Christmas, it would have been ...

  • 5th worst Q4 ever.

  • 10th worst quarter (not only Q4) in S&P history (since the inception of the index in 1923).

  • 9th Christmas since electronic trading began in 1983 that the S&P 500 is in bear market territory (-20% from the previous all-time high)

  • 1st time since the 2008 financial crisis that all 19 industry groups in the Stoxx Europe 600 Index have lost value.

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Then Came December 26th...

Oil prices and US stocks surged on Wednesday, with major equity benchmarks logging their best day in almost 10 years, helping to recover some of the losses from a turbulent run-up to Christmas.

In a volatile session, the benchmark S&P 500 index climbed 5 per cent, it’s best one-day rally since March 2009. The Dow Jones Industrial Average also gained 5 per cent, while the Nasdaq Composite jumped 5.9 per cent. Oil markets also staged a rally on Wednesday, with Brent Crude rising 9.1 per cent to $55.07 and West Texes Intermediete moving 9.9 per cent higher to $46.74.

As a matter of fact, today's 116.60 points gain in the S&P 500 was the largest in history!

The 4.96% gain for the S&P 500 today, is the 2nd 4% move of the year (1st was a 4% loss back on February 5th). Now get this: Between 2012 to 2017 there were no daily gains/losses of over 4%. Welcome back, volatility!

Dow Jones (DIA) closes up over 1,000 points (1,086.25 to be precise, but who's counting?...), its largest single-day point advance in history.

In percentage terms, 4.99% gain was largest since March 23rd, 2009.

What about the Nasdaq, you ask?

The largest 1-day gain for the Nasdaq 100 (QQQ) Index (both point and %) occurred on Jan 3, 2001 after a surprise Fed rate cut of 50 bps (to 6%). The Nasdaq 100 gained 399 points that day, or 18.8%. The bounce did not last - by late February, it traded to new lows

Here are the 20 largest point gains in the Nasdaq 100:

"Even" Citigroup (C) closed higher today, for the first time since December 3rd, ending (and setting) the longest down streak in its history at 14 days.

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A 23% Reason to Remain Optimistic

Lesson learned from similar extremes since 2001: Stocks were higher 100% of the time, 1 year later with an average return of 23%.

We can't promise you that one year from now, when we celebrate Christmas 2019, the S&P 500 will be up 23% from its December 24th closing level of 2,351.10.

Nonetheless, with a magnificent 4.96% rise today (December 26th 2018)...:

  • ...there are only ~17.2% left to make it a 23% rise
  • ...~21.6% of the +23% task is already behind us
  • ...was the largest percentage gain since March 23rd, 2009

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A 5% Move is Hardly Ever Welcome, Especially When There's a One-Off Push Behind it Apparently

Problem is, that a sharp move up, while the market is down, is hardly ever a long-term positive outcome. It's like an injection of steroids that helps you stand on your feet for a day (or two). but it doesn't (necessarily) cure the (chronic) illness.

Indeed, there's no sign of relief today, neither from the US futures (down 1.5% as I write) nor from China (MCHI, FXI). Industrial profits for November fell Y/Y for the first time since December 2015.

Shanghai Composite Index down after massive rally in the US yesterday.

Volatility (VXX) remains high, even after yesterday's jump.

The VIX index neatly reflects the regime shift in equity markets we have seen this year. In 2017, the average VIX level was ~11 with zero spikes. In 2018, the average VIX level is ~16 with four spikes to or over 25.

The main reason for the market jumping yesterday is probably the massive, $64B rebalancing that pension funds have to do before 2018 ends.

Wells Fargo calculated US defined-benefit pensions fund would need to implement a "giant rebalancing out of bonds and into stocks" - in fact the biggest in history - with the bank estimating roughly $64 billion in equity purchases in the last trading days of the quarter and year, prompting the banks to ask if traders are about to make pension rebalancing "great" again.

Judging by yesterday's market action, the answer is a resounding yes, even though as Wells warned investors and traders looking for a desperately needed respite from market gyrations "may have to deal with yet one more seismic bout of volatility before Dec 31 finally pops up on their calendar dials."

Wells explained where this massive rebalancing comes from the huge, end-of-quarter buy order, precipitated by the jarring divergence between equity and bond performances both in Q4 and the month of December. The stocks in the bank's pro forma pension asset blend had suffered a 14% loss this quarter, including about an 8.5% drop in December. Contrast this with a roughly +1.6% quarterly total return for the domestic aggregate bond index. The gap between equity and bond performance in pension portfolios would have been even larger had IG credit OAS not widened nearly 40 bps in Q4.

As a result of this need for massive quarter-end rebalancing, corporate pensions would need to boost their equity portfolios by as much as $64 billion into year-end. Getting a bit more granular, Wells analyst Boris Rjavinski wrote that domestic stocks – both large cap and small cap – may need disproportionately large boosts of $35 billion and $21 billion, respectively, compared to “only” $9 billion for global developed equities (see table below). This is driven by large performance gaps within equity markets: US stocks have trailed global and EM equities in Q4 and December after outperforming the ROW for quarters on end.

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Getting Ready for 2019 / The Pursuit of Happiness

Over the next few days, we will present our top picks (single names) for 2019. That is mostly, but not entirely, coming from our pool of open suggestions. This will hopefully be a good set of picks from a micro level, regardless of how these specific names fit into the global (macro) picture/portfolio.

Once we finish with this, we will publish our "set portfolio", comprised of ETFs that we will run and update along the year, in order to provide you with something that i) tells you where we see the best value on a macro level, and ii) assists you in measuring our returns.

Some say that money doesn't buy happiness. Others are visualizing the relationship between money and happiness like this:

visualizing the relationship between money and happiness

We aren't (and can't be) in charge of your happiness, but we certainly will do our best to take good care of your money.

If it leads to happiness - great. Even if it's not, we know that the Pursuit of Happiness is certainly easier when you have more money in the bank...

I've been rich and I've been poor. It's better to be rich!

Maybe happiness is something that we can only pursue. And maybe we can actually never have it no matter what.

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TWoF is a "supermarket of ideas" with emphasis on risk management and risk-adjusted returns. We stock the “store”’s shelves, but you decide what products meet your taste.

Take advantage of this rare offer, before fees rise on (and along the way to) 1/2/2019.

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