Market Outlook 2/28/2018


Market outlook

As of today, Feb 28th, we are sitting on 95% cash. After an absolutely stellar run in the first month of 2018, we took our gains right before the correction that saw stocks pullback 10% or more. The timing was perfect, but we’re not convinced the correction is over. After enjoying a bull run that matches the rush of 1999 and 2007 thanks to an all time high in liquidity alongside an all time low in interest rates, we’re starting to see both of those catalysts reverse.


The fed balance sheet is at an all time high thanks to the quantitative easing we began after 2008’s recession, and just this year we began to reduce the balance sheet for the first time in a decade. At 10b/month right now, by October, the fed will be unloading it’s balance sheet at a rate of $50 billion dollars per month. As the treasuries begin to approach a 3% interest rate, not only will the market liquidity be removed at record paces, but the treasuries will provide not just an attractive option but also a fiduciary responsibility to reallocate towards. With consumer credit, and specifically consumer credit used to buy digital and equity assets at all time highs, the pressure towards a sell off is building. As in all previous corrections, the pressure causes a release to occur in one of the many areas of over extension. In the 80s it was junk bonds, in the 2001 crash it was nonexistent earnings in tech “growth plays”, in 2008 it was CDOs. There is no way to know which of the many blow off valves will be triggered but there are plenty to note: student loans, consumer credit, corporate credit, mortgages, a deplorable auto loan industry, political conflicts, or even cyber terror and cyber data protection issues. During any great rise and pullback there are always opportunities for the keen trader, but as we are more interested in investing in long term technological trends, we see the best course of action for now to hold cash, remain opportunistic, and look for major market hedge price inaccuracies specifically in the downside protection of the major indices via put premiums. As volatility pulls back (we believe temporarily) a number of new opportunities should present themselves for protection among a correction. If, at any point, the fed balance sheet or interest rate trajectories shift, we may see a reason to get back long into our growth plays, but for now we are content with the gains and being patient for new opportunity.


Thank you for being a part of this fund and we look forward to continuing to provide you with opportunities to produce stellar capital returns by taking advantage of long term technological trends.

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John Fazio

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By John Fazio