On Markets During the Ides of March
Current and Future Events
On March 1st I recorded a podcast titled Rights, Liberty, Justice and the Islamic State. On February 28th, American and Israeli intelligence had finally vaporized the leadership of the death cult known as the Islamic State of Iran. The official name is “republic,” but these violent cowards have no regard for republicanism.
Today is Sunday March 22nd and this brief essay will focus on the performance of three major capital market asset classes and one hybrid over the last three weeks. Of course, three weeks is a miniscule sample, but for objective investors, it is worthwhile to study market behavior during extreme events – and then put that into the context of the money-weighted performance of The Moneyball Method.
Bear in mind, the performance data in this paragraph was predicted by no one and the overwhelming justice being served on the Iranian crime syndicate is news that was not discounted by markets on February 27th. Because that is not possible. The US stock market, as measured by the S&P 500, is down 5.4% over the period. More significantly, the ten-year US Treasury market is down 11.1%, and gold is down 14.4%.
To me, what makes this extreme is not equity market performance, but its positive correlation with US Treasuries during the month. On top of that, gold proved once more that it not a reliable hedge against geopolitical risks – as too many pundits would have you believe.
Of course, the sharp selloff in bonds is due to price inflation fears in the event of a prolonged shortage of gasoline and other oil products. And naturally, you would think the effective hedge against this kind of stock and bond market risk would be commodities. If you own one of the leading commodity funds or ETFS, your total return for the month is likely around 8%. While most of these funds are overweight with energy stocks, and those prices are bouncing wildly, precious metals would have been a drag on performance.
So far, this conversation is about percentage returns and has nothing to do with your money-weighted results as measured by risk capacity and funding status. Certainly, no one likes to see their account values below their all-time highs or last month’s statement, but we control what we can control, have confidence in our well-defined futures, and have contingency plans.
The last three weeks are merely three weeks and markets like this were included in the random simulations that helped you determine your cash flow and investment strategies - but only if you are using the most reliable historical data. We don’t predict the future, but we anticipate the possibility of large deviation events. Objective investors are flexible with strategy and measure success by looking through the windshield - not the rear-view mirror.