This Week in the Market

With Scott McCaghren and Tony LaPorta

U. S. equity markets are down roughly 1% from this time last week while trading in a 2.5% trading range.  That large of a trading range 18 months ago would’ve had everyone panicking and scrambling for cover.  In today’s market, it actually feels a bit quiet.

Almost every asset class on the board looks identical in terms of being essentially unchanged. We are looking for a very short- term grind higher in equities, which would translate into a grind lower across the treasuries and our volatility hedge. In addition, we are looking at the potential for another nasty surprise in October which would play excellently into the hands of our volatility hedge.

Every allocation this year has been done from an extreme tactical vantage point which has worked out nicely. We have managed to hold a hedge on the majority of the year, while also posting double-digit returns. From a risk-return standpoint, we believe that the portfolios have been in an incredibly nimble position to withstand volatility while capturing market upside.

October could very well put the icing on the cake for the year. Remember back to the last quarter of last year when indices capitulated lower, sending Joe Mainstreet into worries of a market crash. The reality is that September and October are traditionally weak months for stocks, which in turn should mean higher prices in the credit markets. However, this was not the case during that time period which led to panic selling. The traditional risk parity approach was a complete disaster due to treasuries and equities harmoniously plummeting.

The entire investment environment has changed from yesteryear and it appears that will not be changing any time soon. Therefore, we believe the portfolios have the most efficient risk adjuster inside the volatility hedge. The ONE thing that moved higher at the end of last year was volatility, and if we were to get a repeat performance, we would be in a very effective position to strike. The main point is this, who wouldn’t want to protect double-digit returns with all of the geopolitical AND monetary easing headwinds that we see on a daily basis.

As always, we continue to monitor all equity, treasury, commodity and currency conditions in order to efficiently deploy capital as well as protect invested assets.

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