Muck's Model

[Ursa Majoris]

You just know once they get this debt ceiling raised the markets will rally. It's such a B.S. dog & pony show they're putting on. They won't default and everyone knows it. And when it gets passed, the market manipulators will rally this thing to a new high (probably).

This is why I gambled and stayed in high risk / high reward rather than bail last weekend, which I came within one mouse click of doing. I'm hoping the five figures I've already lost this week will be recouped quickly.

[Brentastic]

This is why I gambled and stayed in high risk / high reward rather than bail last weekend, which I came within one mouse click of doing. I'm hoping the five figures I've already lost this week will be recouped quickly.

You know my long-term view and my opinion is that the downside risk far out-weighs the upside. But I wish you the best. I just hope you pull out before the S hits the fan. IF we do make a new high in the coming months/rest of the year, I don't think it will hold very long - imo of course. Good luck.

[muck]

Out of curiousity, does any one here actually use these signals when making decisions?

[Brentastic]

Out of curiousity, does any one here actually use these signals when making decisions?

I take them into consideration for sure but I'm 100% cash (basically) right now, so I'm taking no action. I'd appreciate it if you keep posting, though.

[Ursa Majoris]

Out of curiousity, does any one here actually use these signals when making decisions?

I certainly take notice but it's very difficult for a person entirely wrapped up in 401k to switch frequently as there are penalties for moving stuff about too often. I do realize the model is likely pointing the way for more than a week at a time though.

[yo mama]

Out of curiousity, does any one here actually use these signals when making decisions?

I look at it. I'm just waiting for your model to tells us when to move everything into Swiss Francs.

Edited July 29, 2011 by yo mama

[muck]

I look at it. I'm just waiting for your model to tells us when to move everything into Swiss Francs.

 

HA!

 

Actually, I'd love to build a multi-market model, but, as of this posting, I'm finding that I don't have sufficient time for such activities...alas...

[yo mama]

HA!

 

Actually, I'd love to build a multi-market model, but, as of this posting, I'm finding that I don't have sufficient time for such activities...alas...

Do you agree that merely moving everything to (US) cash isn't necessarily the safest thing to do in the event of a financial meltdown?

[muck]

Do you agree that merely moving everything to (US) cash isn't necessarily the safest thing to do in the event of a financial meltdown?

 

I've been advising anyone w/ meaningful wealth to put 5% of it in gold, silver and diamonds in a safe in their basement for the last decade. I tell them that it's an insurance policy on someone somewhere doing something stupid. And, if that never happens, then they have really lost very little opportunity-cost-wise in not having that money invested in something else.

Edited July 29, 2011 by muck

[Brentastic]

I've been advising anyone w/ meaningful wealth to put 5% of it in gold, silver and diamonds in a safe in their basement for the last decade. I tell them that it's an insurance policy on somewhere doing something stupid. And, if that never happens, then they have really lost very little opportunity-cost-wise in not having that money invested in something else.

What about the other 95%?

[muck]

What about the other 95%?

 

Depends on what's going on at the time.

 

I'm not going to get this thread too off-topic on asset allocation theories.

[Big Country]

From the blog of Allan Roth, an advocate of index investing

 

I admit that I’m feeling a mixture of queasiness and impatience as the clock ticks toward the August 2 default and Congress continues its partisan political posturing. Yet there are three things I keep in mind when it comes to my portfolio that remain unchanged.

 

1. I am not investing in the stock market. I’m actually investing in global businesses that create products for consumers, and betting that the stubbornness of our politicians are no match for the strength of global capitalism.

2. I am not going to be toting a pouch of gold to the supermarket next year to buy groceries like some character in a Dickens novel. The very thought of our economy turning back to the days when gold and bartering were mediums of exchange is downright silly.

3. I am quite sure our politicians will act when theoretical consequences become a reality. To term the current bickering of Congress as childish is fair. As with children, there’s nothing like being faced with corrective consequences for bad behavior to get that behavior to change. If our economy and the stock market begin a downward spiral, I suspect our politicians will get the message very quickly.

 

Though our politicians certainly have the power to create short-term disruptions to our economy and the stock market, if they try to mess with capitalism too much, they will lose their jobs. That thought is particularly calming in what is now a very unnerving time.

 

My portfolio may be a tad different than my fellow CBS MoneyWatch writer Jill Schlesinger’s Doomsday Portfolio, but neither of us are doing much. And if the stock market does tank, I’ll be greedy when others are fearful, as the legendary Warren Buffett put it best.

[Brentastic]

Depends on what's going on at the time.

 

I'm not going to get this thread too off-topic on asset allocation theories.

Well, his question was whether or not you think a cash-heavy position is the safest thing to do in the even of a financial meltdown.

[yo mama]

Well, his question was whether or not you think a cash-heavy position is the safest thing to do in the even of a financial meltdown.

More specifically, a US dollar-heavy position. And I meant that more within the context of an investment fund than cash in a sack with a $ painted on the side of it.

[Atlanta Cracker]

Out of curiousity, does any one here actually use these signals when making decisions?

 

I follow it and am very interested but don't actually buy or sell each week based on your signals. I'm actually not quite sure of the best method of implementing things if I really wanted to. That and you may stop posting and then I'd be like Brent stuck in cash

 

I've been advising anyone w/ meaningful wealth to put 5% of it in gold, silver and diamonds in a safe in their basement for the last decade. I tell them that it's an insurance policy on someone somewhere doing something stupid. And, if that never happens, then they have really lost very little opportunity-cost-wise in not having that money invested in something else.

 

Good idea. If there truly is ever a global financial meltdown then I don't think US$ denominated cash will be worth anything. That 5% would then be the 95%.

[Brentastic]

More specifically, a US dollar-heavy position. And I meant that more within the context of an investment fund than cash in a sack with a $ painted on the side of it.

You probably don't want my opinion but it would be an emphatic, FRACK NO! Unless you are comfortable that the promise to pay is backed mostly by bad debt.

[muck]

Rough week this week... Barring a gigantic rally tomorrow, we will be "+1" heading into next week.

 

*********************

 

Summary of the past 17 weeks:

 

4/8 -- "+1" -- next week = -0.6% return for the S&P500 (model lost -0.6%)

4/15 -- "+3" -- next week = +1.3% for the S&P500 (model made +4.0%)

4/22 -- "0" (i.e., cash) -- next week = +2.0% for the S&P500 (model made 0%)

4/29 -- "0" -- next week = -1.7% for the S&P500 (model made 0%)

5/6 -- "+1" -- next week = -0.2% for the S&P500 (model lost -0.2%)

5/13 -- "0" -- next week = -0.3% return for the S&P500 (model made 0%)

5/20 -- "+3" -- next week = -0.2% for the S&P500 (model lost -0.6%)

5/27 -- "+3" -- next week = -2.3% for the S&P500 (model lost -6.9%)

6/3 -- "0" -- next week = -2.2% for the S&P500 (model made 0%)

6/10 -- "0" -- next week = +0.0% for the S&P500 (model made 0%)

6/17 -- "0" -- next week = -0.2% for the S&P500 (model made 0%)

6/24 -- "+1" -- next week = +5.6% for the S&P500 (model made +5.6%)

7/1 -- "0" -- next week = +0.3% for the S&P500 (model made 0%)

7/8 -- "0" -- next week = -2.1% for the S&P500 (model made 0%)

7/15 -- "+1" -- next week = +2.2% for the S&P500 (model made +2.2%)

7/22 -- "0" -- next week = -3.9% for the S&P500 (model made 0%)

7/29 -- "+1" -- next week = -7.1% for the S&P500 (as of the time of this post, the model lost -7.1% this week as of this post)

 

S&P500 over period = -9.6%

Model over period = -3.7%

 

...if we can continue to outperform the market by nearly 6% every four months, I think we'll end up doing quite well over the longer term...

[Azazello1313]

...if we can continue to outperform the market by nearly 6% every four months, I think we'll end up doing quite well over the longer term...

 

well now, I'm not sure that's anything to crow about over a period when the S&P is down. your model is sometimes cash, sometimes S&P. so over a period when stocks are down overall, ANY model that is a hybrid of stocks and cash (which by definition is going to be more conservative than the market) is likely going to outperform the market.

 

put a slightly different way, brent's model (duffel bag full of cash in the closet) is up almost 4% over yours over the same time period. doesn't mean you're likely to win with brent's strategy over the long haul, but isn't a more conservative portfolio pretty much always going to fare better over a period of time where the market tanks?

 

not bashing your model, as it seems to (I think?) have fared better than either the market OR cash over a longer period containing ups and downs in the market. if that is the case then it is certainly a worthwhile tool.

Edited August 4, 2011 by Azazello1313

[muck]

17 weeks is really a lousy timeframe. Not long enough.

 

That said, you'd have a better point if the model had gone short some of the time, but as it was, the model was either long or cash during a period in which the market was down. Picking the weeks to be one and not the other is critical. If we'd picked the other way around (i.e., been long when the model said to be in cash and to be in cash when the model said to be long), we would have lost -8.4%.

 

Simply trading a model that has you in cash around half the time is not necessarily "more conservative" ... it is only if the market moves the same each week and you are chosing to be in or out based on a coin-flip (i..e, head and I'm in cash, tails and I'm long, but every sixth tail, I'll go short"). I believe that the model tilts the odds, loads the dice, whatever analogy you want to use ... it's not going to be right all the time, but it does a pretty good job of keeping an investor out of harms way (and a pretty good job of making money --- 32% annualized return for 27 years vs. the S&P500 at around 8%).

 

*********************************

 

So, over the last 1,410 weeks (approx. 27 years):

 

25 times the market dropped more than 5% in a week. Of those 25 weekly observations, my model had "-1" nine times, "0" nine times and "+1" seven times. So, of the worst 25 weeks over the last 27 years, you would have been either short or in cash 72% of the time (i.e., not losing money).

 

101 times the market dropped between -2.5% and -5%. Of those 101 weekly observations, my model had "-1" 26 times, "0" 48 times, "+1" 22 times, "+2" once and "+3" four times. So, of the next worst 101 weeks over the past 27 years, you would have been either short or in cash 73.3% of the time (i.e., not losing money).

 

242 times the market dropped between -1% and -2.5%. Of those 242 weekly observations, my model had "-1" 36 times, "0" 137 times, "+1" 50 times, "+2" eight times and "+3" 11 times. So, of the next worst 242 weeks over the past 27 years, you would have been either short or in cash 71.5% of the time (i.e., not losing money).

 

...so, how about when the model says to buy? Well...

 

27 times the market rallied more than 5% in a week. Of those 27 weekly observations, my model had "-1" once, "0" 11 times, "+1" 10 times, "+2" twice and "+3" three times. So, of the best 27 weeks over the past 27 years, you would have been cash, long or long-on-leverage 96.3% of the time (i.e. not losing money).

 

131 times the market rallied between +2.5% and +5% in a week. Of those 131 weekly observations, my model had "-1" 13 times, "0" 49 times, "+1" 41 times, "+2" six times and "+3" 22 times. So, of the next best 131 weeks over the past 27 years, you would have been cash,. long or long-on-leverage 90.0% of the time (i.e. not losing money).

 

332 times the market rallied betwen +1% to +2.5% in a week. Of those 332 weekly observations, my model had "-1" 20 times, "0" 161 times, "+1" 96 times, "+2" 20 times and "+3" 35 times. So, of the next best 332 weeks over the past 27 years, you would have been cash, long, or long-on-leverage 94.2% of the time (i.e., not losing money).

 

Finally, there were 552 weeks over the past 27 years (i.e., nearly 11 years worth of weeks) where the market was up or down less than 1%. Of those 552 weeks, my model would hve had you in cash and earning money market rates of return 315 times (i.e., 57% of the time).

 

Does that answer your question (to the extent you had one), Az?

[Azazello1313]

17 weeks is really a lousy timeframe. Not long enough.

 

That said, you'd have a better point if the model had gone short some of the time, but as it was, the model was either long or cash during a period in which the market was down. Picking the weeks to be one and not the other is critical. If we'd picked the other way around (i.e., been long when the model said to be in cash and to be in cash when the model said to be long), we would have lost -8.4%.

 

sure, but even if you just picked the "cash" weeks at random over a period when the market was down, you're probably going to outperform the market. that was my only point. and I agree that 17 weeks is a lousy time frame.

 

Does that answer your question (to the extent you had one), Az?

 

it does, and it confirms my statement that your model has "fared better than either the market OR cash over a longer period containing ups and downs in the market. if that is the case then it is certainly a worthwhile tool."

Edited August 4, 2011 by Azazello1313

[muck]

Well ... here goes nothing ...

 

:gulp:

 

Barring some very unusual trading tomorrow (like going below 1100 (approx. 6% lower from today's close) and then rallying back north of 1130 or 1140 prior to the close), if the S&P500 closes above 1150 tomorrow, we're going to be a "+3" for next week ... long on leverage ...

[yo mama]

Well ... here goes nothing ...

 

:gulp:

 

Barring some very unusual trading tomorrow (like going below 1100 (approx. 6% lower from today's close) and then rallying back north of 1130 or 1140 prior to the close), if the S&P500 closes above 1150 tomorrow, we're going to be a "+3" for next week ... long on leverage ...

What, no Swiss francs this week?

[muck]

I forgot to update that the signal for this current week is "+2".

 

...note that the longer-term technical components have rolled over ... and the fundamental components have not been this bullish since early December 2008 (the last time they were more bullish than they are now was in March 2003) ... definately interesting times to be running a quantitative approach to investing ...

[muck]

Someone go tell Brent ... barring something unusual between now and the close, it looks like we're going short for next week "-1".

[Brentastic]

Someone go tell Brent ... barring something unusual between now and the close, it looks like we're going short for next week "-1".

I'm all ears. I believe that this is the first time your model recommendsa a short position since you've been posting this analysis.

 

I'm doing well on my GS short (shorted in June) and I recently bought the inverse ETF, SPXU. Volatile times and the VIX hasn't really settled yet. I too think next week will be bloody red.