Rough Day For Markets & Fascinating Fund Outcomes

First up, I sent this out as an email to clients about 40 minutes into the day with subject Market Up Big, So Is It Over?

The answer is probably not. John Authers from Bloomberg is calling it the end of the beginning. It is possible it's over but I would be ready for more volatility. The history of huge up days during events like this isn't great. On December 24, 2008, the Dow Jones was down 1000 points and then on December 26th it was up 1000 points but of course that market event still had several months to go. 

I think mentally preparing for volatility, as well as steps taken ahead of time in portfolios, can make enduring market volatility a little easier so I would reiterate that this probably is not over. 

The shock is attributable how the tariff policy appears to be rolling out but of course it could change. Even if you believe in the idea of reciprocal tariffs, the policy as of now establishes a tariff based on the trade imbalance between us and the other countries, not their tariff rates. 

The policy as revealed on April 2nd calls for 44% tariffs on Sri Lanka. Sri Lanka has 22 million people with a per capita income of about $15,000. There are not enough Sri Lankan rupees in existence for Sri Lanka to buy as much from us as we buy from them which is what the policy calls for as of now. So yes, it will have to change but there is no indication of when it will change or how it will change and that is the shockwave that has gone through markets. 

Before this started, the S&P 500 Index level was around 6000. As we sit here today, there is no question it will get to 12,000. absolutely no question. But we do not know the path to 12,000 and we do not know how long it will take. Maybe it goes to 4000, then maybe 7500 and then maybe back to 6000, up to 9000 and you get the idea. It will happen, but we do not know the path or how long it will take. I bet I said the same thing about 6000 a few years ago when the index was at 3000.

This sort of message reiterates the idea of conveying how things usually work. If this is playing out in a similar fashion to previous events, it helps to reiterate in real time the idea that the details might be different but the market manifestations are the same. 

The action in stocks though, after I sent that email, suggests that we do have more to go in this thing. The continued lift in yields also suggests more is coming in terms of tumult. Hopefully it is clear that my observations aren't attempts to make predictions. This exercise is more of an attempt to weigh out different things in the market to better prepare clients in case, I say in case this goes on for a while which seems likely until policy starts to turn the corner to solutions that can actually work, see above about Sri Lanka. 

Ok, now to the fun stuff. In an odd twist for ETF listings, there is now a 2x XRP ETF before there is a simpler 1x tracker. XRP is an alt coin that one Tweet I saw said there isn't much of a use case for. I don't know either way but the symbol for the 2x XRP ETF is XXRP and it was down a little over 13% versus a drop of about 6.5% for the underlying. FWIW, XRP is uncorrelated to equities and bonds but if there's no serious use case then at best it's an uncorrelated tool to gamble with. If you know of a real use case that doesn't read like the "use case" for the other alt coins, please leave a comment. 

Checking in on the STKd 100% MSTR/100% COIN ETF (APED) which if it's not clear, levers up to own 100% of Microstrategy and 100% Coinbase.

The chart goes back to the fund's inception so timing of course is unfortunate. I am fascinated by these, there are several others, even if I'm not going to use them for clients. 

The above is why I am fascinated. A small slice to insanely volatile stocks and a bunch allocated to T-bills has a very compelling result. Yes, idiosyncratic risk galore but someone who implemented Portfolio 1 on day one of APED, is down 2.5% versus about 7.8% for VBAIX. But with APED cut in half, as hard as it might be, it would be time to rebalance. Note that VBAIX paid out a dividend and capital gain in late March that was a hair above 2%. It's worth staying touch with the 100/100 stock ETFs. 

Bob Elliott had a good writeup on global macro funds that included this chart showing how the strategy does during down months. Again, the chart is down months only, not the entire time.

I have a global macro fund in my ownership universe. It was doing very well through this but got beat up on Monday and then was down a little more today. As a diversifier, it clearly works long term. It won't give growth that approaches anything that equities will typically give which needs to be understood but with the right expectations and properly sized, it's a useful holding.

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