Sunday, February 23, 2014

2/23/2014 Quick Look at the Sector Model


Style Model
Mid Blend
Sector Model
XLU
2.42%
Large Portfolio
Date
Return
Days
ABX
4/11/2013
-12.96%
318
NEM
9/30/2013
-15.75%
146
EW
10/28/2013
-11.45%
118
JOY
11/18/2013
0.21%
97
SWM
12/31/2013
-9.03%
54
TM
2/3/2014
1.38%
20
RS
2/10/2014
0.73%
13
CSCO
2/12/2014
-2.55%
11
INT
2/18/2014
-0.38%
5
CBI
2/20/2014
-0.99%
3
(Since 5/31/2011)
S&P
Annualized
12.05%
Sector Model
Annualized
26.14%
Large Portfolio
Annualized
27.46%


Rotation: selling SWM; buying BT.

Given the robust performance of the Sector Model compared to the Full Model, it’s time to take a look at the Sector Model’s performance in more detail.

First, here is the Year to Date performance:




And this is compared to a 15 year back-test:



That last chart represents the following return rates:

S&P
Sector
Total
52.57%
1560.49%
Annualized
2.82%
20.35%


For most folks this is good enough, and there has been some interest off site over the past several years to use the Sector Model as a standalone fund.  I’ll have more detail next week about that separate fund, but it’s enough for now to mention that the Year to Date returns represent trades in that fund.

Tim




Thursday, February 20, 2014

2/20/2014 Global Warming is a bunch of hot air


One of the most common logical fallacies we humans have is anchoring.  We tend to see only short term trends and ignore long term trends.  Nowhere is this more apparent than in the current “settled science” of global warming.

We are all familiar with the hockey stick graph showing a sudden spike in temperature corresponding to the modern industrial age.



I’ve reconstructed this graph from two sources:


and



The first source uses Greenland ice cores going back for the past 50,000 years (ending around 1905).  The second source uses Northern Hemisphere temperature recordings from 1880 to the present.

Each data point on the first source is approximately 30.63 years.  I have therefore used 31 year averages from the second source for the remaining data points, and adjusted them by -31.291 degrees to fit the scale differential from Northern Hemisphere average to Greenland temperatures (i.e. Greenland is colder than the Northern Hemisphere average by 31.291 degrees).

In any case, we can clearly see the hockey stick graph that is all over the news.  This is the same graph that John Kerry recently spoke about to show the single greatest threat to human civilization.

So why on earth did I go back to Greenland ice core data just to reproduce the same graph we’ve all seen a dozen times?

Well – I want to show you what you are NOT seeing.  You are NOT seeing the full 50,000 year view.  By attaching 1880-2013 recorded temperatures to the entire 50,000 year data set we get an entirely different picture:



Those low temperatures from 48,000 to 8,000 BC were during the last Ice Age (technically, the last Ice Age would have ended around 12,000 BC, but there was a comet or asteroid that hit Canada around that time and plunged us back into the “Younger Dryas” cold spell).  For most of human history we were freezing our fannies off and hiding in caves from the weather.  The ice was MILES high well into the United States.  I live on a Terminal Moraine where one glacier dumped piles of earth to form Long Island New York.

Then about 10,000 years ago we had enough global warming to crawl out of the caves and start civilization.

If you squint real hard you can still see the hockey stick at the far right of the graph, but it doesn’t really look like much.

So let’s zoom in a bit to just look at recorded history:



Yep – there’s our hockey stick – still at the right edge of the graph.  But compared to recorded history we can see that the current temperature has merely risen to the civilization AVERAGE (marked on the graph in red).

That’s right.  We aren’t looking at an unprecedented heat wave.  We’re just AVERAGE now.  It was warmer in the Middle Ages, even warmer than that in Roman times, and even warmer than that in the Late Bronze age (when civilization really started to take off).

And yet, we never see this in the news and never hear politicians talking about it.  You can’t get very many votes or government grants by shouting “We’re average! We’re average!”  It’s far more exciting to ignore over 90% of human history and say, “It’s a heat wave!”

Does that mean that we aren’t warming?  Well, we haven’t warmed at all for the past 17 years.  We COULD warm up to the Middle Age levels when Vikings grew grapes in Canada and started a colony in Greenland.  We COULD warm up to Roman levels.

But none of that would be “unprecedented.”  A better word would be “normal.”

That said, I do believe that humans can cause warming and affect the environment.  I also believe that we should study greenhouse gas effects and develop fusion energy to replace fossil fuels.  But we don’t have to shut out the lights until then.  There is no crisis – unless Roman or Medieval climate levels were a crisis.

Were they?

Of course not.

A bigger threat would be global cooling.  I’d hate to see the human race crawl back into those caves.

It is precisely that long term threat of another ice age that leads me to support climate science.  If we CAN figure out how to manipulate the global climate, then we may escape the next glacial destruction.  There are numerous forces at work:

The sun has a 14 year sunspot cycle that gradually heats and cools the earth.

The sun has a longer period sunspot cycle that has not been precisely measured.  The Maunder minimum was an extended period of very few sunspots, causing the “little ice age” a few centuries ago.  As we can see on our graphs there appears to be a thousand year cycle of warm and cool periods that may be connected to that long sunspot cycle.  We are on a high point today, just as we were 1,000 years ago, 2,000 years ago, and 3,000 years ago.

On more extended timeframes, eccentricities of the earth’s orbit cause variations in the amount of light that reaches the arctic at 21,000 year, 41,000 year, and 100,000 year intervals.  When those cycles correspond we enter deep ice ages and will continue to do so until the continent of Antarctica eventually moves away from the South Pole millions of years from now.

A more detailed explanation can be found here:


My point is this – even though we’ve crawled out of the caves, we still have the same primitive brains we had then.  We live too short lifespans to be able to keep timeframes of more than a few years in our minds.  One billion years from now the sun will have grown hot enough to burn away the oceans and destroy all life on our planet.  But how long can we keep “one billion years from now” in our heads?  A few seconds?  A few minutes?  There are other pressing concerns.

When John Kerry pontificates about the “settled science” of climate change, he never once mentions the bigger picture that shows us on the DECLINING edge of an interglacial period.  He never thinks of the fact that the earth was warmer one thousand, even warmer two thousand, and even warmer three thousand years ago.

No, he won’t mention that.  It’s not good business for a politician seeking votes – or a scientist seeking grants – to point out the obvious: we are now almost exactly AVERAGE for the climate civilization has always known.  Who will donate money when there is no crisis?  Only a crisis will pay.

It’s up to us to do the math ourselves.  The data is out there.  Anyone with a spreadsheet and access to the internet can reproduce what I just did in this little post.

Go ahead.  Try it.

But you won’t sell any books.

Tim









Wednesday, February 19, 2014

2/19/2014 rotation


Style Model
Mid Blend
Sector Model
XLU
1.52%
Large Portfolio
Date
Return
Days
ABX
4/11/2013
-17.86%
314
NEM
9/30/2013
-14.34%
142
EW
10/28/2013
-13.03%
114
JOY
11/18/2013
-1.31%
93
SWM
12/31/2013
-11.53%
50
TM
2/3/2014
0.40%
16
RS
2/10/2014
3.95%
9
CSCO
2/12/2014
-1.89%
7
ITRI
2/13/2014
8.09%
6
INT
2/18/2014
-1.00%
1
(Since 5/31/2011)
S&P
Annualized
11.93%
Sector Model
Annualized
25.85%
Large Portfolio
Annualized
27.31%

 

Rotation: selling ITRI; buying CBI.

The “scare market” continues to churn.  This is merely a transition from a fake market to a real one. 

The danger is that the “real” economy is far far below the stratosphere that QE has taken the market.  While the taper is nothing to fear, a hiking of interest rates could prematurely kill the first light the economy has seen since 2007.

Again, I’m talking about the economy itself.  People who work for a living (or people who would like to) have been in a recession during the entire QE fueled bull run.  Stepping back from the looking glass into the real world is a trick I’m not sure Janet Yellen knows how to do.

Time will tell.

Don’t fear the taper!  Only a full reversal of the Fed balance sheet could derail us at the moment.

Tim

 

Monday, February 17, 2014

2/17/2014 rotation


Style Model
Mid Blend
Sector Model
XLU
1.74%
Large Portfolio
Date
Return
Days
ABX
4/11/2013
-15.50%
311
NEM
9/30/2013
-14.13%
139
EW
10/28/2013
-12.37%
111
JOY
11/18/2013
0.09%
90
MUR
12/23/2013
-5.03%
55
SWM
12/31/2013
-10.55%
47
TM
2/3/2014
0.36%
13
RS
2/10/2014
5.99%
6
CSCO
2/12/2014
-0.66%
4
ITRI
2/13/2014
10.63%
3
(Since 5/31/2011)
S&P
Annualized
12.19%
Sector Model
Annualized
26.27%
Large Portfolio
Annualized
27.99%

 

Rotation: selling MUR; buying INT.

I have more to write, but the post I was writing is better divided into two – which I don’t have time for tonight…

Tim