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2014 First Quarter Review

The ValueAligned Hedge Fund was up +3.3% for the first quarter, and that compares to +1.3% for other stock hedge funds like ours, as measured by the HFR Equity Hedge Fund Index.

The ValueAligned® model portfolio, which is available only to our clients who hold assets at Folio Institutional, was up +2.7% for the first quarter against the S&P 500 index which was up +1.8%. It’s important to note that the ValueAligned® portfolio was only 85% invested in stocks with 15% of the portfolio invested in FDIC-insured bank deposits.

Note: The numbers at the beginning of each section are the position in minutes on the video.

00.35 Real Estate topped the major asset classes. We follow up +10% for the quarter.

01:03 Bonds up, interest rates down. The 20-year Treasury Index was up over +7% for the quarter. The 10 year yield was down to 2.7% from over 3.0% at the beginning of the year.

02:02 The fear index gold was up for the quarter. Natural gas was up +12.8%. Our hedge fund gained almost one percentage point from its natural gas trade using the UNG etf , we went out of the quarter flat natural gas. Energy, food and gold are up, while the industrial metals are down for the quarter, and this is because the world is confused about American leadership of the 60+ years of a fairly stable globalization regime.

03:24 What Drives the Obama Anti-Strategy? By Victor Davis Hanson in the April 8, 2014 National Review Online.

“The world is confused. Is the US just inept, and therefore our friends and enemies for a while longer are putting decisions on hold assuming that wiser heads in the Democratic Party, or the voters in 2014 and 2016, will correct the aberration? Or is the new anti-strategy a deliberate effort to diminish US influence and outsourced regional problems to local hegemonies…?

04:40 Hays Advisory’s Tactical Allocation Model.  Sentiment is still too rosy in the short-term, but valuation and monetary policy still suggest a double-digit return back-loaded in 2014.

The stock market fell in January, but there was still too much optimism at the bottom. Therefore, we’ve maintained about a 70% exposure to the stock market in the hedge fund and about 85% exposure on average in the ValueAligned® portfolio.

06:52 A look at the temporary interruptions of the permanent uptrend in the stock market from 1928 to the present.

There were essentially three periods of interruptions that marked extreme volatility in the stock market trading within a wide range for about 10 to 15 years. The first was during the new deal for 15 years starting at the end of 1929; the second was the Kennedy assassination during Pres. Johnson’s Great Society and his escalation of the Vietnam War into the Watergate era and culminating in the Progressive policies of the Carter administration; and of course the third, was after the .com Crash in 2000 till the end of last year when we had a breakout in the stock market. Again, the last 14 years have been characterized by top-down federal intervention in the economy with acceleration after the Democrats took over Congress in 2007 and into hyper-drive when Pres. Obama took office in 2009.

After each period of Progressive economic policies, characterized by very low employment, way below trend economic growth or increasing inflation with low economic growth (stagflation), there was a significant BREAKOUT after the new policy regimes were clarified and then decisively moved by the electorate toward more economic freedom.

Remember that we use economic freedom as a measure of the percentage of the economy that is taken up by government. The smaller government spending is as a percentage of the economy, the larger private income is, which has been shown to lead to much faster economic recoveries and prosperity for everyone, including those in formally impoverished nations throughout the world.

10:14 GDP growth is plugging along. Stocks are about fairly valued. We need Dumb Money to get more scared. In the meantime, we will be pruning our winners and buying undervalued stocks on dips with the considerable amount of cash we have available.

To receive updates like this directly in your inbox, sign up for my email newsletter today. And contact me at david@www.valuealigned.com or 732-800-2375 to get started with ValueAligned Investing.