The saying goes, “actions speak louder than words”, and despite the denials at the time, it now appears obvious that G20 Finance Ministers and Central Bank Governors did in fact strike a deal during their late February 2016 meetings in Shanghai to weaken the USD. The funny thing is that the only action the FOMC took to cause the USD to recently hit 18 month lows was to state its expectation that 2016 would feature only two rate hikes versus the previously telegraphed four. In addition, the Bank of Japan and Europe’s ECB proceeded to push deposit rates into negative territory, but counterintuitively, speculators played along, taking their late 2015 ~$45B net long position in the USD to a net short position by mid-April. Take two hikes in minimum margin requirements by the Commodity Mercantile Exchange (CME), return to heightened speculative commodity trading in China, and initiate a tsunami of trend-following capital into “value-type” assets and you had the recipe for an acceleration of the reflation trade during April. Fortunately our funds were not short these reflation assets but neither were they long. Regardless, both of our funds made money during April...
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Rising oil prices and a steady hand at the People’s Bank of China (“PBoC”) combined to knock fear from the top rung on the asset allocation factor ladder during the first half of March. Mid-month, Yellen’s FOMC turned shockingly dovish. This action accelerated the decline in the US dollar, indirectly assisting the PBoC by weakening its trade-weighted RmB currency, and caused investors to chase stocks, enabling the “bull” to celebrate its 7th anniversary while the VIX closed March at 13.95, down from its year-end close of 18.21...
January’s market volatility continued through the first half of February as fears surrounding oil, China and US economic growth dominated the psyche of investors. However, improving economic data from America plus provocative and suggestive talk from oil producing countries combined to cause stocks to “V-rip” higher during the second half, creating a sense of calm to the casual monthly observer. Amidst this storm, each of the two funds at Forge First generated respectable profits during February 2016.
Wow, wasn’t January a fun month! In my previous commentary, I tabled three potential scenarios for stocks during 2016. My pessimistic scenario saw oil prices staying lower for longer, the duration of which was positively correlated to the rising risk of a market meltdown driven by a heightened probability of a liquidity crisis. I placed a 30% chance of this scenario unfolding, but I didn’t think it would happen during the first two and a half weeks of 2016. Fortunately, we entered January with conservative gross and net exposure positioning, so our funds suffered only modest losses for the month.