Posts by Niels Kaastrup-Larsen

I could hardly believe my eyes when I sat down to write this update, only to find that despite geopolitical tensions following the killing of a top Iranian General and the outbreak of the Coronavirus, the Trend Barometer had not changed from December 31 to January 31.

A lot of critics have labeled the last 10 years as the “lost” decade for CTAs and trend followers. And sure, with just 19.25% to it’s name in the last 10 years, the Soc Gen Trend Index, admittedly did not knock it out of the park during the 2010’s.

But this is still better than the -9% return that the S&P TR index saw during the previous decade (2000 to 2010)…oh and with a 51% drawdown along the way.

There was Black Friday in 1869, when the gold and stock markets collapsed after being driven to record highs by speculators trying to corner the gold market. And Black Tuesday and Black Thursday of 1929 probably need no introduction…Then there was Black Monday in 1987, when the Dow Jones Industrial Average dropped 22.6%, the largest one-day percentage loss in history.

These days we have Black Friday every year…but with a different meaning of course…but from a trend following/CTA perspective, this year coincided with the end of November…which looks like finishing in the Black for all the usual CTA indices.

Each year lots of pundits like to remind/scare investors about the historic negative events that sometimes occur during the month of October…especially the 1987 crash. And like all humans, investors fear the risk of loss much greater then then joy of gain…so this narrative always seem to do the trick.

But it strikes me that things have changed this year, as I see more and more commentators and non trend following managers play this card on a regular basis.

“Trend Followers have failed on their mandate to deliver Crisis Alpha…”

is what I’m hearing (followed by a marketing statement about a strategy being offered that is able to make money in periods like February and Q4 2018).

hmmm…

I wonder why they say this…I’m sure I don’t need to spell this out to you!

But here is the deal. Trend Followers do not design their strategies with “a mandate to deliver Crisis Alpha” in mind…but rather to deliver strong long-term absolute returns.

So needless to say, it was a challenging month for trend followers.

But lets just be clear about one thing…those shorter-term strategies that claim that trend following is too crowded and too slow and does not deliver enough convexity…did not do much better than their trend following cousins…and have certainly not delivered nearly the same return so far this year.

While Hurricane Dorian was building up to severe intensity before making landfall in the Bahamas…August also turned out to be a Category 4 or 5 when it comes to the intensity of strong trends and performance for the CTA industry.

Having gathered strength in the first 7th month of 2019, the momentum in many markets was further unleashed during the late summer month, a month that historically has proven to be full of surprises for the markets.

The hot month of July was not as quiet as you would expect, when lots of investors put on their “email auto responder” saying, “…I’ll be out of the office with limited access to email…” – clearly they did have access to their trading terminals as market prices continued to move in a trend friendly and divergent fashion.

US Stocks had their strongest June since 1955 and recorded their highest ever monthly close, leaving investors in the S&P500 17% better off than at the end of 2018, marking the best first half in more than two decades.

Fears for the economy have stoked government bonds as investors fret slowing growth and rock-bottom inflation. Treasuries returned just over 5% in the first half as they piled in. In the process more of the yield curve inverted, and the world’s pool of negative yielding debt swelled to a new record.

Yet as bonds screamed recession, stocks defied that, too.

A perfect set-up for the month of May…stocks at their most recent highs, moderate growth, a dovish FED, volatility back to it’s lows and confidence in the tariff war ending soon…was quickly crushed by new tweets and rhetoric that caught the bulls on the wrong foot.

The month of May left equity investors bruised whilst bond investors enjoyed and unforgiving rally during another flight to “safety” environment and reminded us all of the old saying “Sell in May…and go away”.

Global Marco is back with a vengeance…which could lead to big trends ahead.