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The Maneos Compounding Machine - August 2019 Update -

|About: ProShares UltraPro QQQ ETF (TQQQ), Includes: C, CICHY, CIHKY, IDCBY, LEMB, OGZPY, SHI, TLT, TMF, TYD, UGLD, YCL
Summary

There will be good years and there will be bad years, but the compounding will continue on unabated.

Extreme volatility is often times the result of excessive greed or fear.

Take the opposite action of the masses.

August was a highly volatile month in the markets, and within The Maneos Compounding Machine, as two of the biggest drops in market history by raw numbers occurred as well as a third drop that was quite significant.  On Monday August 5th the Dow declined 767 points (-2.9%), on Wednesday August 14th the Dow declined 800 points (-3.05%), and then on Friday August 23rd the Dow declined by 623 points (-2.37%).  What was most fascinating to me on those days was that my two flagship funds - All Weather Alpha 3x Leverage and Balanced Alpha 3x Leverage - were both slightly up, flat or just slightly down.  The interesting point about this is that just a few weeks prior to these massive drops I explained to a friend that I wouldn't mind a marked drop in equities in order to see how these funds performed under extreme duress.  It is akin to the government's stress test upon the banks or the Pentagon conducting war games against Russia-China with say 5 of our 10 carriers sunk.  

Now, it begs the question, why were these two funds up on those days?  Well, both of them hold (TMF) which is 3x leveraged (TLT).  I have noticed that on massive market declines, long term treasuries spike tremendously.  In fact, their correlation to equities is -0.50, so the negative correlation is quite comforting in massive stock sell-offs.  Now, in addition to (TMF), the All Weather fund holds (TYD), 3x leveraged mid-term treasuries, as well as (UGLD), 3x leveraged gold.  Mid-term treasuries are negatively correlated -0.47, while (UGLD) is .01. 

When investors sell their stock, where does the money go?  They either keep it in cash as a form of preservation, or they buy government bonds/gold.  Will this trend ALWAYS hold true?  No one knows, but it does seem to be a time-tested trend during massive stock declines.  And to this point the All Weather Alpha 3x Leverage is up 55.7% this year, while the Balanced Alpha 3x Leverage is up 51.5%.  All Weather is up 13.40% for the month placing it at  number 54 out of 11,251 other funds within the Community Motifs.  Were I a hedge fund manager like say Bill Ackman I would be on the cover of a glossy magazine for returns like this, but I prefer the privacy and autonomy of just running my own money.  

On Monday August 12th, I did a bit of bond harvesting so as to purchase (SHI) Sinopec Shanghai Petrochemical, a company that was trading at .80 of its book value when I purchased it.  On Thursday, August 15th I did a bit more bond harvesting, so as to purchase (C) Citigroup which was trading at .81 of its book value.  You can see that I am swimming in the hallowed and holy streams of Graham and Doddsville by attempting to find companies that are trading at low P/Es and under their book value.  I am utilizing the profits from the sudden spike in some of the bond funds, so as to purchase cheap equities, as over the long-term I do believe that equities will outperform bonds. 

On August 16th, my option expired, and I was put the shares.  I immediately sold the covered call expiring on September 20th.  I took the premium, or what I like to call the 'wet snow' and added it into the snowball steadily rolling down the hill by purchasing iShares Emerging Market Local Currency Bonds (LEMB).  I used Seeking Alpha's ETF Screener to search for high yield ETFs and this fund caught my eye with a 39.83% yield.  The only thing that I could think of for its sudden appearance on this list is the decline in the value of Argentinian bonds, which would thereby increase the yield of the fund.  Perhaps someone on Seeking Alpha can investigate the root cause for this spike in yield.  

One should also notice another strong month of dividend income.  This is due to receiving a hefty dividend of $430.38 from Industrial and Commercial Bank of China (OTCPK:IDCBY) on August 8th, while on August 14th China Construction Bank (OTCPK:CICHY) issued its dividend of $474.32.  On August 23rd, Gazprom (OTCPK:OGZPY) issued its dividend of $791.74, and just before the month ended China Merchant's Bank (OTCPK:CIHKY) paid out $355.05.  So, between the three Chinese Banks and Gazprom, I received a combined $2051.49.  If one subtracts this total from the monthly dividend income ($3220.69) it would place it at $1169.20, which is more in line with the $1200 to $1500 amount that it has previously been.  

One last note before displaying the monthly results is the creation of another MOTIF in MOTIF Investing.  I have called it the All Weather Alpha 3x Leverage - Yen Included - motif.  It is quite similar to the original All Weather Alpha 3x Leverage fund except for the inclusion of leveraged Yen (YCL), which is negatively correlated to US equities.  I am curious to see how these two funds diverge with regard to total return over the long-term.  The breakdown of this fund is as follows.

ALL WEATHER ALPHA 3X LEVERAGE - YEN INCLUDED -

TMF - 30%

TQQQ - 15%

TYD - 15%

URTY - 5%

UDOW - 5%

DRN - 5%

YCL - 5%

UPRO - 10%

DBC - 5%

UGLD - 5%

But without further ado, here are the results for this month.  

August 31st Update

Money Inputted into 'The Maneos Compounding Machine' = $517,315.00

Present Value of 'The Maneos Compounding Machine' = $563,398.11

Total Return = 8.90%

CAGR = 8.90%

Monthly Income = $3016.14

Year-To-Date Income = $8595.59

UPRO Returns

Present Value of UPRO = 2474.64

Cost Basis of UPRO = 2504.31

Motif's Calculation of The Return =-1.18%

Maneos' Calculation of The Return = Infinite

Return To Date Of The Funds Created In Motif

All Weather Alpha 3x Leverage = 55.7%

Balanced Alpha 3x Leverage = 51.5%

Balanced China Alpha 3x Leverage = 4.2%

Super Alpha 3x Leverage - 4 indexes = 18.0%

3 ETF Portfolio = 10.4%

The Monthly Dividend Fund = 3.7%

Tax Free Municipal Bond ETFs = 2.6%

Super Alpha 3x Leverage = 7.7%

Wealth Inequality = 2.3%

Super High Yield Fund = -16.3%

Disclosure: I am/we are long TQQQ.

Additional disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.