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The Whaley Report: Bizarro World

There is an interesting seasonality to financial markets that shows up each January. Namely, trades that kicked butt during Q4 suddenly reverse course and start the year as the worst performing trades, and vice versa. Why would this be?

This seasonal U-turn can be explained by two logistical phenomena. Firstly, the world’s largest pensions and endowments tend to rebalance during Q4 and the beginning of the year. Secondly, active managers tend to actively manage their own career risk by window dressing their portfolios. To improve the optics of portfolio snapshots taken on December 31, they add stuff that has worked and sell stuff that has underperformed.

In 2017 this seasonal shift could be on steroids given the move in markets since the election.

There are any number of markets ripe for a pullback or a massive dead cat bounce, but the two I want to focus on are long-dated U.S. Treasuries and gold. Both markets have been absolutely hammered in the last two months, and deservedly so.

A year ago, the economic and policy environment could not have been more bullishly conducive for these two markets. Fast forward 12 months, and they are in Bizarro World. The deck is stacked against them and couldn’t be more bearish. I hate to go with the consensus, but these markets are ripe for more downside in 2017. Don’t be fooled by any strength they show early in the year: they will likely show signs of life, but rest assured that this is strictly an opportunity to position yourself for the next leg down.

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Landon Whaley

Landon Whaley is the Founder and CEO of Whaley Capital Group. Mr. Whaley launched Whaley Capital Group in the aftermath of the 2008 Financial Crisis because he wanted to provide real value and a unique client experience in an otherwise highly commoditized industry. Whaley Capital Group delivers on this mission by following a rigorous investment strategy that is committed to a global macro-style of investing, while simultaneously providing a world-class, boutique-style client experience. You can contact Landon at: landon@whaleycapitalgroup.com