Monday, April 14, 2014

Stocks: Short And Medium Term Outlook

Last week was an ugly week for US equities. Though it wasn't that long ago that the SPX made a new all-time high, major averages fell, led by the NASDAQ and small caps. The decline of the SPX violated the 50 day moving average (dma) and ended the week at the bottom of a support zone.
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The carnage was not just isolated in America. European equities, as measured by the STOXX 600, also violated its 50 dma, though its uptrend remains intact.
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What's more, downtrending long Treasury bond yields have decisively broken technical support, which is bond price bullish and stock price bearish.
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Earnings preseason weak
To add fuel to the bear case, Thomson-Reuters reported that the earnings preseason is coming in on the weak side, though results are very preliminary (emphasis added):
Looking at the companies that report before Alcoa, in the earnings preseason, the news isn’t much better. Only 52% of the companies that have reported so far have exceeded analyst earnings estimates, which is well below average. Historically, when fewer companies than average beat estimates, the trend continues throughout the full earnings season, and vice versa. Although the last two quarters have been exceptions, the current 52% beat rate is the lowest since the Q4 2010 preseason, as seen below in Exhibit 1.
Exhibit 1. SP 500: Earnings Estimate Beat Rates—Preseason and Full Season
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They concluded:
First-quarter earnings have gotten off to a slow start. While it is still too early to draw any firm conclusions, history suggests that we may not see the high percentages of companies beating estimates that we have seen over the past several quarters. Although earnings expectations are very low, factors like poor weather throughout the quarter and a promotional retail environment may make it difficult for companies to surprise analysts as they have in the past.
A typical mid-term election year?
My best explanation for the equity market weakness is that this is a typical case of a mid-term election year swoon. Sam Stovall analyzed past market patterns in mid-term election years and found that the May to September period was especially weak. The silver lining is that the end of Q3 and the start of Q4 presents a great buying opportunity if this market follows the historical pattern:
In the second year of a presidential cycle, the average first-quarter gain in the SP 500 has been 1.2%, according to Stovall. This year has been no different; the SP 500 is up about 1.3% for the quarter. The problem is that midterm years during the second year of the presidential cycle tend to have lousy second quarters, with an average drop of 2.5%. The third quarter is somewhat less lousy, averaging a 0.3% decline.

Risk aversion is falling
Market psychology is definitely shifting. In my last post, I had constructed an equity-based risk appetite index and showed that it was rolling over (see Bears 2 Bulls 1):
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Other non-equity based measures of risk appetite are showing a similar pattern of decline. Here is the relative performance of US junk bonds against investment grade corporate bonds:
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Here is the relative performance of stocks (SPY) against long Treasuries (TLT), which shows a similar picture:
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The relative performance of the high-beta small cap Russell 2000 against the SPX has broken relative support:
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Groups that should lead the market up if this was a bull phase, such as the broker-dealers, are also turning down. The relative performance chart of the broker-dealer ETF (IAI) to SPY below shows both the breach of a relative uptrend and a breakdown from a relative consolidation range (shown in grey):
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I could go on, but you get the idea. When I put all of these observations together, it suggests that we have seen the Spring highs in stocks and the next few months will be difficult for equity investors.
Sell everything ASAP?
Does that mean that you should sell everything right at the open on Monday morning? Not quite. Nothing goes up or down in a straight line and the stock market is getting oversold. Bearish sentiment is getting a little overdone in the short term and stock prices are poised for a counter-trend rally at any time.
As an example, Ryan Detrick wrote, "Our proprietary front month gamma weighted p/c ratio is scared to death." For newbies, the put/call ratio is a contrarian sentiment indicator and excessive put protection buying is contrarian bullish.

I am seeing other indications that the most vulnerable groups could be due for a bounce. As an example, the relative performance of QQQ against SPY shows that the relative decline of the pair is now sitting at about the 50% retracement of the relative up move that began about a year ago. As well, it is showing a positive divergence on the 14 day RSI, which indicates the loss of selling momentum. These are are signs that if the panic selling were to pause and a relief rally were to occur, this would be the ideal spot.
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In addition, the poster child for panic selling, the NASDAQ Composite, formed an inverted hammer on Friday just as it tested a major support level at 4000:
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The inverted hammer candlestick is a sign of trend reversal, especially if it appears near critical turning point levels, such as technical support.

The Candlestick Trading Forum explains it this way:
The Inverted Hammer is comprised of one candle. It is easily identified by the small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls are stepping in, but the selling is still going on. The color of the small body is not important but the white body has more bullish indications than a black body. A positive day is required the following day to confirm this signal.
Given the events in eastern Ukraine over the weekend, a rally on Monday to confirm the inverted hammer could be a challenge. However, we do have a blood moon eclipse, which could mark the high tide of bearishness, and Turnaround Tuesday to look forward to.
Should the NASDAQ Composite stage a relief rally, an examination of the COMPQ chart shows that the bear case can remain intact even if the index rises to the pictured downtrend line, which is also roughly the level of the 50 dma. The distance from Friday's close to the aforementioned targets at the 4220-4230 level, this represents potential upside of about 5%, which is beyond the threshold of many short-term traders.
Sell on strength
In summary, it appears that the intermediate term trend for stock prices is down. It would not be unusual at all to see a mid-term election year correction of 10-20% on a peak-to-trough basis. After which, equities typically present a great buying opportunity into 2015.
I would caution, however, the market is short-term oversold so don`t be overly eager to get short the high flyers. You could get your face ripped off by a counter-trend rally.
My inner investor is preparing himself to raise some cash on strength and my inner trader is preparing himself to get short this market should prices rise as anticipated.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui’s blog to ensure it is connected with Mr. Hui’s obligation to deal fairly, honestly and in good faith with the blog’s readers.”

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.

Friday, March 28, 2014

Wheat ETF Surging on Ukraine Issues, Weather Outlook

Wheat ETF Surging on Ukraine Issues, Weather Outlook

 ZacksTrade Now Like many other agricultural commodities, wheat also saw a lackluster 2013 thanks mainly to a supply glut, a rise in the greenback and the appetite to stay invested in a towering stock market.

As a result, the commodity plunged as much as 30% last year. However, the situation took a sharp turn this year mainly on supply concerns raised by the Russia-Ukraine geopolitical crisis, and the reduced U.S. crop outlook (read: 4 Agricultural Commodity ETFs Soaring in 2014).

Ukrainian Crisis Boosted Wheat Prices: While the global economy is presently jeopardized by Russia’s annexation attempt of Crimea (which was part of Ukraine) and the nation’s face-off with the Western world, some commodities received a much-needed boost from this turmoil and wheat is one of them.

Ukraine is one of the largest exporters of wheat selling a large portion of its grain to Egypt and to other Middle Eastern countries and Africa. Traders believed that the Russia-Ukrainian crisis would disrupt Ukraine’s export activity, helping to push wheat prices to multi-month high levels at the start of this month and will likely continue the price surge in the days ahead.

Negative U.S. Production Outlook: Speculation of cold and dry weather in the U.S. pushed the wheat futures to a 10-month high as such weather would curb production in the U.S. southern Great Plains. As per Bloomberg, nearly two-thirds of this staple growing region in the Southern Plains will likely remain dry for the rest of March (see all the Agricultural ETFs here).

Almost the entire western half of Kansas, the largest U.S. wheat producing zone, is under severe to extreme drought conditions, according to the U.S. Drought Monitor. The near-term weather forecast does not give any favorable cues for production. Due to this, wheat prices have also been soaring, much like their counterparts in the corn market.

Market Impact

All these above-said issues led the staple to skyrocket 30% since closing at a 42-month low of $5.515 on January 29, aided by shipping delays in Canada and Argentina and the Ukrainian unrest.

Investors can easily play this trend via Teucrium Wheat ETF (WEAT), a commodity product from the issuer Teucrium. This fund invests in wheat futures that are traded on the CBOT but does it in a way that looks to lower contango issues (see more in the Zacks ETF Center).

WEAT looks to reflect the daily changes of a weighted average of the closing prices for 3 futures contracts for wheat that are traded on the CBOT, specifically: (1) the second-to-expire contract, weighted 35%, (2) the third-to-expire contract, weighted 30%, and (3) the contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%.

However, the fund is a bit pricey as evidenced by its 2.23% expense ratio. The fund has been on a run over the last three months though, as it has added more than 12% in the time frame.

Also, WEAT is currently trading in the middle of its 52-week range. Its short-term moving average is higher than the long-term average. WEAT is also trading higher than the parabolic SAR indicator. This suggests continued bullishness for this ETF. The relative strength index for WEAT is presently below 65, indicating that the fund has still time to move higher before it reaches overbought territory.

Bottom Line

While the situation is highly volatile on the Ukraine front, and can prove a boon or bane at any moment for wheat, the weather report back home will surely act as a price driver in the months ahead. There is just one glitch, with the Fed steadily withdrawing its monetary support, the dollar will likely gain strength in the course of 2014 marring the appeal for commodity investing (also see 3 Commodity ETFs to Watch in 2014).

With that being said, we would like to notify that all the technical indicators are in favor of the fund at present. After a choppy 2013, the fund started this year with an undervalued status. So, it is a fifty-fifty situation for the fund. In any case, WEAT has a Zacks ETF Rank of #3 (Hold) suggesting that it may be a rocky road ahead for this commodity fund.

Biotech funds: Only for those immune to fear

Biotech funds: Only for those immune to fear

As everyone knows from disinfectant commercials, germs lurking on the kitchen counter can give you infections so virulent that you'll be sent home from the hospital in a soup tureen. Fortunately, there are also cures for those diseases, although the side effects may include drowsiness, catatonia, dyspepsia, Cotard's Syndrome and uncontrollable shrieking.

Our constant fear of diseases – stoked by ads for drugs to combat illness – may be one reason behind the boom in biotechnology stocks. More likely, however, is our fondness for a good story and a red-hot stock. Biotech has been so hot the past two years that the sector is starting to raise red flags. And, while it may have longer to run, it's an area that the weak of heart and the short of cash should avoid.

Despite a recent backup – more on that in a moment – biotech funds are standouts in an otherwise mediocre quarter for mutual fund investors. The average health and biotech fund has gained 5.4% this year vs. 0.2% for the average stock fund. The difference is more striking if you look at the funds' three-year records: They're up 100% vs. 46% for the average stock fund.

Those big gains have raised the question of whether biotech is in a bubble, which is in itself a loaded question. By definition, bubbles are extraordinarily difficult to detect before they pop. And high returns are not, by themselves, the only hallmark of a bubble. CBS is up 1,902% since the stock market bottom in 2009, but no one is claiming that media stocks are in a bubble.

What makes bubbles so hard to spot? For one thing, there's always a plausible story behind them. In the 1830s, canal stocks boomed because it is indeed much easier to push something over water than over rutted dirt roads. And in the 1990s, people invested in the dot-com bubble because they believed that the Internet would be an enormous gateway for commerce – which, in fact, it has evolved to be.
With biotechnology, the plausible story is that medicine is making some spectacular breakthroughs, and doing so after a fairly long dry spell. The most notable is Gilead Sciences' hepatitis C drug Sovaldi, which actually cures the disease rather than controls it. The disease makes life a misery for 150 million to 200 million people around the world and ultimately kills many of them.

"Biotechnology is a real, great American story," says Rajiv Kaul, portfolio manager of Fidelity's Select Biotechnology Portfolio (FBIOX). "It's very difficult to make medicine. It takes hard work and the failure rates are high. But it's a really exciting time."

Furthermore, the industry's rise has come after a fairly long dry spell, when relatively few blockbuster drugs hit the market, says Evan McCulloch, portfolio manager of Franklin Biotechnology Discovery Fund. "Big pharma and biotech together had a significant period of underperformance," McCulloch says. During that period, biotech became extremely cheap relative to earnings.

Another problem in the middle part of the last decade: The Food and Drug Administration became more conservative after the failure of Vioxx, an anti-inflammatory drug sold by Merck, was shown to increase the risk of stroke and heart failure in patients. Currently, however, the FDA has been more accommodative toward getting new drugs on the market, says Kaul. "The FDA is doing the right things, and government has done good things in terms of working with industry to get innovative therapies to be priorities," he says.

The question then is whether investors are getting too giddy about the prospects for biotech stocks. Gilead (GILD), for example, sells for about 12.4 times its estimated 12 months' earnings, which is fairly reasonable. On the other end of the spectrum is Intercept Pharmaceuticals (ICPT), up 748% the past 12 months with no earnings.

But the market for small-company biotech stocks has always been giddy. One way to look at frothiness is the number of initial public offerings in the biotech industry – 25 in the industry this year alone vs. 45 last year. In a biotech bubble, you start seeing IPOs of companies composed of two guys, a microscope, and a dream. "It's not that bad yet," McCulloch says. "Companies raise money when they can, not necessarily when they need it." And right now is an excellent time for most companies to raise IPO money.

Nevertheless, biotech is a sector that has had a good run, which means that investors are likely to become skittish quickly. In the past few weeks, biotech stocks have sold off, in part because of Rep. Henry Waxman's recent letter to Gilead questioning the company's $84,000 price tag for Sovaldi. "It was a shot across the bow," says McCulloch. "And what it means is that there could be some revision to drug pricing in the long term."

Any laws restricting drug pricing are highly unlikely in the Republican-held House, however, and Gilead's champions note that the drug's price tag is far less than for a liver transplant or for the years of care needed by hepatitis C sufferers. But the letter may make companies wary of their pricing – not necessarily a bad thing. "Companies want their prices as high as they can make them without landing on front page of newspaper," McCulloch says.

Right now, it's hard to recommend biotech investing for anyone but those who don't mind risk. While the best years of biotech may be before us – and they probably are – you don't want to pay too much for the future. For the brave, the top-performing health and biotech companies are in the chart. Otherwise, consider a general diversified fund. Health care is about 13% of the Standard and Poor's 500 stock index. You don't want your portfolio to come down with unwanted side effects, such as itching, sneezing or hives.

Wednesday, March 26, 2014



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“我还是希望多扶持华人项目,华人的企业在硅谷很难做大,杨致远算做的最好的一批人了。华人要多出几个billion dollar(十亿美元)的明星项目,才会真的提高在硅谷的地位”。- Zion Shen,硅谷幼发拉底 Ufrate孵化器

近12个月,各路中国资本涌入硅谷,风险投资基金、上市公司、资本大亨、甚至各地的政府和科技园,都想在这一波抢滩 Bay Area的浪潮中占据一片有利地位。为什么中国孵化器会突然在硅谷四处开花?硅谷的华人孵化器怎样运作?和Y Combinator等孵化器有什么区别?我们走进硅谷中心 Sunnyvale小镇,有幸约 Ufrate这家有6年历史的华人孵化器的创始人沈博士。作为最早在硅谷做创业孵化的华人企业家,沈博士是怎样看硅谷的中国孵化器呢?

深度孵化 vs 组合游戏

沈博士中文名沈赐恩,英文名 Zion,出身于浙江慈溪的基督教家庭。我们第一次在他的办公室见面,这是一个类似仓库的大办公空间,和硅谷很多创新企业一样,低调但充满活力。Zion 正在指导新加入孵化器的一个斯坦福的影视明星社交渠道项目组建团队。年轻人神似马云,看的出他初创业的紧张和兴奋。大多时候,Zion 会挑选年轻的创业者,他们常常没有经验,Zion 和他的团队会深度的指导这些创业项目的每个方面,有时甚至出任这些初创公司的董事长参与公司业务。

“我们现在有15个孵化中的项目,2014年最多会达到25个”,Zion强调了“最多”这个词,“我们和Y Combinator不一样,我们不会一次孵化太多的项目,而是深度孵化少数高质量的项目,我们要求我们的项目至少可以活到 A轮,这种模式在硅谷叫 Super Angel,不过即使在硅谷,这样的孵化器也很少”。

确实,对单个项目的风险投资成功率是很低的,硅谷的明星创业者们也只有不到10%的成功率。这种情况下,很多早期项目的投资人采取 Portfolio Game的策略,即在看好的领域投资多家公司,全面下注,通过增加投资项目数量分散风险。这种模式下,一只基金即使多数投资失败,有一两个明星项目上市后带来的巨额回报也足以人投资经理和背后的 LP们得到理想回报。红杉等硅谷老牌基金玩的就是这样的组合游戏。像Y Combinator这样的早期孵化器,一年近一千个项目,管理团队对每个项目的关注自然会少很多。

很难讲那种模式更优,但明显的是,付出和权益是成正比的,Y Combinator 一般只占孵化企业6%的股份,其他孵化器一般也小于10%,而 Ufrate在他们的孵化企业中则占相当大的股份,甚至在大多企业有董事长的席位。Zion 本人就是6家孵化企业的董事长,也积极帮助其他孵化企业找和创始团队互补且经验丰富的董事长。



Zion 小学时数学很好,四年级就参加初中组的华罗庚数学竞赛,跳级上初中。初中以全校第一考入慈溪中学,1995年又以浙江省慈溪市理科状元的省份进入清华大学电机系。Zion 本科毕业后来到美国,曾求学 Iowa State,转 Computer Science 专业并两年半完成硕士和博士学业。2003年年底来硅谷在 Cadence Design System 做高级工程师。2007年在拿到绿卡后开始创业,在2008年融到了100万美金的天使投资后创建 Ufrate孵化器。现在他已创办(包括合创)过7家公司。

“做深度孵化必须提供创业者缺乏的资源,特别是对年轻创业者的经验指导。所以我们自己应该有创业成功的经验,才能给他们带来价值。” Zion 的合伙人及顾问团队就不乏这样经验丰富的创业导师,比如Richard Li,曾运营12家公司,投资几十家硅谷和台湾的创业。

当问到近期硅谷中国孵化器的快速增长,Zion 相信是时机成熟了。早年华人在硅谷做工程师,后来有人创业,一些人创业成功开始做投资,早期投资常需要配合管理和资源服务,因此开始有一批华人做孵化器。Zion 提到,近期进入硅谷的中国资本,很多是财团和上市公司,他们进入硅谷第一想到的即是买楼,租办公空间,孵化的意味淡了,更像一种租金模式。下一步中国孵化器想在硅谷扎下跟来,需要的是自己做过企业的有 Execution 经验的投资人。

孵化器是一个很新的概念,即使最著名的 Y Combinator 也是2008年才开始运营。孵化器应该怎么干,赢利模式如何,很多人还在探索。综合来看,现在硅谷的中国孵化器主要有几种:


第二类是有官方(一些地方政府)参与其中,如河北省固安县政府和美国硅谷湾区委员会、华夏幸福基业成立的孵化器(2014年3月),这类孵化器常常肩负为 国内科技园招商引资和引进人才等任务。提到第一类孵化器,大量硅谷的创业者和投资人有清华背景,密集的校友资源让清华拥有名副其实的大哥地位,另外北大和 科大也有非常强大的校友网络。简单的说,这里是清华和北大,科大人的天下。


不同于有些早期投资人会在新的几轮融资中变现一部分股份,Ufrate 并不急于快速退出,而是希望陪伴企业一直到上市或更远。在我担心 Ufrate的退出和回报压力时,Zion很轻松的告诉我,Ufrate在2011年已实现赢利,现在 15家孵化企业所占股份估值 1亿美元,而2014年底或可达到5亿美元。其中的一个移动健康设备的企业从 20万的估值已经孵化到 2000万估值,而另一个智能电商的项目,刚融到 250万美元的 A轮。

虽然财务上已经开始看到回报,Zion 最希望的,还是能够成功孵化一到两个十亿美元级别的项目。最令 Zion有信心的,则是一个治疗糖尿病的项目,此项目已经治愈40多个糖尿病人。下一步将征集 100个成功临床案例并开始推广到中国。考虑到中国糖尿病人的比列,Zion的乐观不难理解。


由于近期大量的成功案例,Ufrate经常接到各类创业项目和创业者的来信。什么样的项目能够吸引 Zion的兴趣呢?

我们投资四个方向:移动互联网、移动健康、油气大数据应用和医疗健康。” Zion对投资的产品领域描述非常确切,而且孵化器的每一个项目确实也都是沿着这个投资策略聚合的。

提到创业者,Zion 喜欢有很强技术背景和执行力的团队,特别是 CEO,要有很强的驱动力。当问到怎样辨别好的 CEO,他笑着说:我是一个浙江人,用我们那里的话,就是”灵不灵光“,灵光的人我一眼就可以感觉到。有时,如果一个人驱动力很强也很“灵光”,即使没有任何经验Zion 也愿意投资。比如他孵化的一家做留学生租房平台的项目,创始人就是一个很有魄力的女生,找到 Zion 时她破釜沉舟的勇气和闯劲打动了 Zion。当然,大多数时候,他还是偏好技术型创业团队,比如他投资的一个类似菜鸟物流系统,做全球极速物流,就是中科大和清华团队。这个项目现在已经实现一阶段目标:美国国内任意两点在2 4小时内送达,而第二阶段目标,则是通过物流系统优化实现全球任意两点的 24小时送达。

“我还是希望多扶持华人项目,华人的企业在硅谷很难做大,杨致远算做的最好的一批了。华人要多出几个billion dollar(十亿美元)的明星项目,才会真的提高在硅谷的地位”。Zion的这句话,让我想到最早来到硅谷创业的开拓者当年的勇气和无奈,以及他们中佼佼者创立投资基金和孵化器扶持年轻人的愿望。


作者简介:本文作者程小雨是 36氪驻纽约的特约作者,她有中国、法国、英国、美国四国的学习、工作经历,曾在时装公司和投行工作,喜欢发现和分享时尚、金融和科技圈的新兴商业模式。

Part V: Hedged Convexity Capture Continues To Be The World's Best Performing ETF Strategy

  • Long-biased Hedged Convexity Capture continues to destroy the S&P 500.
  • Investors are wasting their time with tired, archaic, complex strategies.
  • Brilliant quantitative insights will continue to dominate.
"Good ideas are not adopted automatically. They must be driven into practice with courageous impatience."
--Admiral Hyman Rickover
Previously, we explored long-biased Hedged Convexity Captures, a strategy which seeks to capture the negative convexity associated with leveraged ETPs. The idea behind Hedged Convexity Capture, as I outline in my book, is to capture the potential returns from shorting leveraged inverse equity ETPs with lower drawdowns and far higher Sharpe ratios than by just shorting them outright. The strategy seeks to accomplish this by shorting leveraged inverse equity ETPs like TZA (TZA) and pairing that short with a short position in TMV (TMV), an inverse leveraged long bond ETP.
Not only does shorting TMV often provide a hedge for the equity portion of the strategy, but TMV itself suffers from negative convexity, further increasing the effectiveness of the long bond hedge.
As before, we will use some simple rules, but this time, will focus on long-biased Hedged Convexity Capture using the 3X inverse small cap ETP, which suffers from excellent negative convexity. We shall efficiently capture this negative convexity in a hedged manner with the following rules:
I. Short TZA with 50% of the dollar value of the portfolio
II. Short TMV with 50% of the dollar value of the portfolio.
III. Rebalance weekly to maintain the 50%/50% dollar value weighting between the two instruments.
Here are some graphs of the results:
(click to enlarge)
The graph above has a linear scale. The log scale graph is below:
(click to enlarge)
What's fascinating about this strategy is that it actually accomplishes what other strategies purport to. It outperforms the S&P 500's SPY (SPY) ETF by 38 percentage points per year, it consistently outperforms the S&P 500 in every calendar year since inception of the strategy, and it does so with a smoother ride. I have absolutely no idea why people would be interested in individual stock ideas, or complex strategies which use dozens of stocks, when they can use a strategy which can be executed easily with two instruments rebalanced weekly. The fascination of the public with complication, rather than with mathematical elegance, continues to amaze me.
Clearly, this strategy massively outperforms the S&P 500, with a far superior CAGR/Max Drawdown ratio, also known as the MAR ratio. The MAR ratio is the ultimate measure of a strategy, trader, or investor's performance. Moreover, the ride for an investor in this strategy is not very bumpy, with a Sharpe ratio which far exceeds that of the S&P 500.
I am always fascinated with the illogical obsession that the public has with investment bestsellers, the best of which present tired investment strategies which only outperform popular indices by 2 to 5 percentage points per year. These books are usually mechanized, warmed over versions of Benjamin Graham's original value-based investment strategies, which were totally revolutionary decades ago. And of course, Graham was a total genius, and many of his strategies continue to perform extremely well today. I just have a real problem with people taking leftovers from the master, putting them in the microwave to reheat them 70 years later, then calling it original cuisine, rather than blatant copying with very few new ideas.
The goal of my firm's intellectual property library of quant strategies and of our continuing R&D is to do wildly new things which no one has seen before. But no individual strategy is the product. The product is innovation itself. And I think we have accomplished that on many occasions, with the public version of long-biased Hedged Convexity Capture, even stripped of its advanced bells and whistles, outperforming the S&P 500 by 38 percentage points per year.
This does not mean that this massive outperformance will continue, but it does mean that the strategy is well worth further exploration. Interestingly enough though, long-biased Hedged Convexity Capture continues to dominate the SPY YTD by 15 percentage points, which is outstanding in a choppy market, and blows away the critics who thought the strategy could not withstand equity headwinds.
(click to enlarge)
My personal view is that the strategy could underperform during strong bull markets, but will outperform during choppy and bear markets for equities. Of special interest is the high Sharpe, combined with a MAR ratio that far exceeds that of the SPY ETP over the same time period with only moderate correlations to the S&P 500.
However, even though the strategy tests well, I never rely on theory alone. The advanced non-public version of this strategy uses a systematic switch to enter and to exit the strategy to further reduce risk.
I believe the strategy's major risk, since it uses shorting, is a discontinuous drop in markets which causes the TZA leg of the trade to skyrocket far more than the TMV could drop.
As I often say, no strategy is even close to perfect. There are only strategies which are preferable to all other possible alternatives. We have created an advanced non-public version of the strategy for clients which does not use shorting. I think the public version presented here has the ability to stimulate thinking on the part of investors by clearly illustrating that even seemingly simple strategies using powerful mathematical principles can dramatically outperform strategies presented in popular bestsellers, while using fewer instruments with less hassle to implement.
Investors are constantly bombarded with intuitive strategies. And intuitive strategies may be excellent marketing vehicles, but they are often far worse performers than non-intuitive strategies. Strategies which rely upon an understanding of pure mathematics have a higher probability of sustained outperformance, because most people are not wired to feel emotionally comfortable with mathematical strategies.
It is this emotional discomfort which not only hinders the popular adoptions of such strategies, but also creates the potential for sustained outperformance for those unique investors who do appreciate their logic.
The bottom line for investors is that technology is evolving quickly. Professional traders like myself have invested heavily in cutting-edge R& We have objectively proven that the results of this R&D far exceed the performance of everything else publicly available up to this point. Therefore, the public should stop being impressed going forward with any method which does not have the ability to outperform equity indices by huge margins.

Tuesday, March 25, 2014

Market Timing Report: Negative Divergences Set The Stage For A Nasty Spill

  • In the stock market, there has historically been a pronounced correlation between what occurs in January and what happens for the remainder of that year.
  • The January 2014 correction and subsequent rally have left some significant negative divergences and subsurface weakness, which the indexes are masking.
  • The “January Barometer” is firmly in place, insider selling is at alarmingly high levels and margin debt is being used in a reckless fashion.
  • Thus, we feel the stage has been set for a nasty spill in the stock market.
Editor's note: This report was initially released to the author's subscribers on 3/18/14. All references to specific dates should be read accordingly.

The January Barometer has been much debated over the years, yet the data clearly supports the fact that stock market performance in
the first month of the year predicts performance for the remainder of
that year. The charts to the right clearly illustrate what a strong
January leads to for the rest of that year versus what occurs when
a weak January has occurred. A data outlier occurs for 2009
(second chart). In 2009 we were just coming off the 2008 crash.
January 2009 was down 8%, yet yearly performance was actually
up 23%. This outlier does not negate the efficacy of the January
Barometer; entering another bear market would be highly unlikely
after having just experienced such a significant crash.

Until recently, the financials have participated in the general upswing in equities. However, over the last six months financials have begun to
underperform the stock market. This is a concern because when financial institutions begin to have difficulties, problems are exacerbated and spill over into the general economy.

The Sector Sum Short- Term Status is determined by its chart direction in combination with the direction of the group’s cumulative advance decline line and the last three day’s direction on the NYSE bullish %. Not only has the Sector Sum been on a sell signal, but it has also been making a series of lower highs over the last 12 months. The indexes, in comparison, have been making higher highs. This shows that not all sectors are moving up higher with the market. Although the indexes have moved higher, the Sector Sum Indicator is showing subsurface
weakness and deterioration.

One can see in the chart below that although the indexes have been moving higher over the last six months, the number of 52-week highs has been in steady decline. This warning sign is a direct symptom of a narrowing tape.

It is useful to gauge speculative fervor in the Over-the-Counter market. At this time we are noticing a significant spike in speculation. Since February 10th there has been increased volume in penny stocks relative to the NASDAQ Composite volume. This activity is a warning sign; traders are becoming extremely active in penny stocks, which are traditionally speculative in nature.

While corporations have been a steady buyer of stocks, foreigners have begun to sell US securities. In fact, their purchases have fallen to a 20-year low. This move downward encompasses both official institutions and private investors.

There is currently 3.68 times more money allocated to stocks than is
invested in money market funds. This is a 30-year high. The last two peaks occurred during the top of the last two markets of 2000 and 2007. While most believe there is plenty of cash on the sidelines, this
ratio indicates otherwise and is a significant intermediate term negative.


The Bulls/ (Bulls+Bears) sentiment gauge remains at a lofty level. The
current reading of 78 reflects an overoptimistic marketplace with high
expectations. Margin debt is also at an all-time peak, reinforcing our assertion that speculation is running high.

The CBOE 25-day Total PutCall ratio is designed to monitor monthly put versus call activity. It is used in a contrary fashion, meaning that when more puts are purchased it is a bullish sign and vice versa. The most recent reading of .83 shows that currently excessive call buying is taking place, which is extremely bearish.

We’ve written about Price To Sales in previous issues of LMTR. This
indicator recently hit a 50-year high. Many fundamentalists assert that the stock market is “cheap”, but we do not believe that this is the case. Sales are extremely difficult to manipulate through earnings buybacks, and the current reading of two standard deviations from the mean is extremely bearish.

The primary concept expressed in this final chart is a comparison of stock market value relative to GDP. We are presently above 2007 levels and are fast approaching 2000 levels on this indicator. Such distortion typically occurs during periods when stocks are overvalued in comparison to the GDI.


The January correction and subsequent February rally have created some negative divergences. As the indexes continue to advance, more and more indicators and fewer and fewer stocks are participating in each upswing. Sentiment, margin debt and insider selling are all in red-hot sell zones. In fact, insider selling has accelerated 30% over the preceding period. Such negative readings lead us to maintain our 32% short position.
Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.
This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential.

Friday, March 21, 2014



2014年03月19日 07:51  《中国企业家》杂志  我有话说(20人参与) 收藏本文     
文_本刊记者 邹玲编辑_袭祥德
  2013年1月,本刊记者赴广州采访唯品会时,创始人沈亚声称这将是他最后一次接受媒体采访。2013年至今,他信守了“诺言”。但低调的同 时,唯品会在资本市场的表现却一发不可收。2014年3月,唯品会股价站上了170美元,市值超100亿美元,成为继腾讯、百度、奇虎360之后第四大市 值的互联网公司,以及电商圈中炙手可热的新贵。
  作为一个偏安于华南一隅,远离电商漩涡的企业,唯品会在成立之初被嘲笑为清理库存的“下水道”,商业模式简单,页面设计“土气”,购物体验不 佳。但现实是,截至2013年第四季度,唯品会毛利为24.5%,同期当当为17.6%,京东为9.8%。在电商平台中几乎最高的毛利率造就了唯品会一路 高歌和疯涨45倍的“神话”。
  沈亚算是电商中的异类。传统贸易行业出身的沈亚和另外一名合伙人洪晓波在通信器材外贸领域已浸淫10年,与马云、刘强东等互联网或者IT背景的 创业者不同,沈亚和洪晓波并不懂互联网(这一点在上市时也被投资人拿来诟病),从来不号称自己是“产品经理”,甚至连微博账号都没有。
  正因如此,唯品会流血上市之初,许志宏非常看好。不过,随着唯品会股价飙升,与许多投资者一样,许志宏也开始怀疑“唯品会”的真实业绩是否能支 撑起高估值,他将唯品会与当当、Amazon等中美同类电商股比较,得出的结论是被“严重高估”,他甚至有了“做空”的冲动。让他惊奇的是,唯品会一直没 有给他做空的机会,反而一路上涨至170美元。
  派代网独立电商分析师李成东对《中国企业家》表示,对于估值的计算方法不同是造成分歧的重要原因。“美国的母婴闪购电商Zulily,2013 年营收才7亿美元,市值77.15亿美元,华尔街的分析师看电商主要看的是市销率P/S(普通股每股市价与每股销售收入的比率),而不是市盈率P/E(股 票市价与其每股收益的比值)。”李成东认为,唯品会第四季度财报净营收6.510亿美元,较上年同期增长117.3%,实现了首个盈利财年的目标,而同期 其它电商大多还在亏损。这一亮眼的业绩让华尔街对唯品会信心大增:相比于Zulily10倍的市销率,唯品会的净利润和营收更高,而不到6倍的市销率仍有 上涨空间。
  眼下,唯品会100亿美元市值的高位上,其“清库存”模式是否已经撞到了天花板成为市场质疑的另一个焦点。杨东皓向《中国企业家》解释说,关于 尾货市场的规模,外界普遍有一个认识误区,认为是经济大势不好,衰退经济周期导致大量库存,“但实际上,即使是在欧美成熟市场,也会有大概20%的销售额 来自于尾货。中国一年的服装规模是3300亿美元,20%就是4000多亿人民币(6.2250, -0.0025, -0.04%),我们2013年才做了100多亿,这里面是完全没有泡沫的。”
  尽管如此,唯品会目前股价是否合理仍然存在争论,在一些投资人士看来,它已经过度透支了未来两年的上涨动力,而且面临一个新窘境:电商巨头开始 跟它抢夺蛋糕,而唯品会现有的增速开始放缓,其2010年-2013年营收增速分别为1061%、597%、204%、145%,它急需新故事来为增长注 入动力。
  互联网的消费主力是女性,沈亚所处的温州商人圈深知这一点,并且知道怎么从女性身上赚钱。唯品会早期的股东之一欧时力,一个温州起家的女装品牌 做到了估值20亿美元,吸引了LVMH集团的投资,“这样的人隐身在唯品会后面,决定了唯品会跟任何一个电商的基因都不一样。”专注于女性消费的尚道咨询 公司董事长张恒评价道。
  3月8日,一场争夺女性消费者的电商大战开启:“骗女生,后果很严重!”一向以3C家电品类为主的京东出人意料地投放了一系列以女性消费为主的 广告,主打“美妆”等品类;此时,乐蜂网的“桃花节”正如火如荼;淘宝更是请来了女人心目中的“长腿男神”李敏镐做代言。这一切背后,显示出电商意识到了 女性消费市场的巨大潜力。
  除了巨头环伺,唯品会还将面临电商格局的大洗牌。腾讯2.14亿美元入股京东已水落石出,而腾讯的B2C平台QQ网购、拍拍网将一并并入京东, 一旦京东跟腾讯结盟,电商格局将会被重新改写。对此,唯品会给出的应对是发力移动终端,3月中旬在微信的“精选商品”频道推出移动端的“限时抢购”。沈亚 在最近电话会议中透露,唯品会2013年第一季度移动端只占总销售的8%,2013年第四季度增长到23%,最近一个月增长到超过三分之一,而且未来将会 继续增长。
  沈亚和洪晓波长期以来共用一间办公室,除副总级别采用全透明玻璃隔断独立办公室之外,基本采用全开放式,也没有明显的部门标识。除了这些透明化 的安排之外,很少能看到典型互联网公司的痕迹。而与传统互联网公司不一样的是,唯品会占地最大的是客服部门和拍摄间,IT部门只占据了小小的一个角落。
  唯品会有几个特殊之处容易被忽视。首先唯品会是一家“重公司”。京东主打3C等标准化高的产品,而唯品会则是标准化程度最低的服装鞋帽等百货类 商品。“我们跟京东的最大不同,就是京东不需要买手,没有专业门槛,而我们说白了就是要从卖不出去的东西里把好卖的挑出来,这个门槛有多高?”杨东皓表 示,唯品会有一支600余人的买手团队。买手多是源自于《瑞丽》、《昕薇》等美容和时尚媒体的编辑,对时尚敏感度高,这对于处理库存为主的特卖网站是第一 道门槛。
  电商圈对于唯品会的“买手制”运营模式一直存在争论。一名当当网员工对记者表示,“当亚马逊都在用长尾理论和大数据为顾客精准匹配需求的时候, 还有唯品会这么重的线下方式来做采购,实在是有违电商的本质。”而沈亚则认为唯品会以服装为主的品类决定了运营的方式,个性化品类的运营方式跟标准化品类 截然不同,同质化严重的商品反而很难做到高毛利。
  沈亚不想进入电商行业惨烈的“比价”模式圈套,而是不断推出新品来刺激女性的“冲动消费”。在沈看来,大部分女性购买是没有目的性的,以逛为 主,唯品会吸引的是这种女性,如果一旦让她开始搜索,比价,思考了,那就没有感性消费了。这也是为什么唯品会的重复购买率是电商行业中最高的,达到了 70%,正是这70%的回头客贡献了90.6%的订单量。
  “唯品会在运营思路上是很接近小米的,只服务特定的一个人群,忠诚度高,而且会重复购买。”唯品会的一名供应商对唯品会的库存消化能力非常惊 叹,据他介绍,唯品会对于品牌的运营能力首屈一指。“比如考察一个品牌是否要在唯品会上销售,它的一个衡量指标是在线下有至少200家门店。”该供应商告 诉记者,唯品会上销售最好的并非国外大牌,而是二三线城市店面较多的本土品牌。沈亚非常了解非一线城市顾客的需求,名字听说过,加上够便宜,这两点就能在 线上卖的好。
借助这一系列看似“逆互联网思维”的举动,唯品会攫取了大量三四线城市女性消费者的芳心。“她们大多月薪在2000到8000元,对款式没这么敏感,更 注重品牌和性价比。”杨东皓对《中国企业家》这样描述唯品会的主要目标群体。据杨东皓透露,唯品会在一线城市的订单仅仅占到13%左右,而二线省会城市占 据了30%,甚至四线城市和县乡都占比超过了20%。这一点也从唯品会物流总监唐倚智的采访中得到了印证,“我们内蒙古和贵州省的订单都进入了排名前十的 省份。”