By John Thomas, MadHedgeFundTrader.com
That great sucker of market volatility, gridlock in Washington, is back! Last time, it was a Democratic president versus a Republican congress. This time it is the far right wing of the Republican congress versus the middle.
The result is the same. We are now witnessing the longest period in history for the start of a new presidency without a major bill passed by congress. And while traders absolutely despise gridlock, with its endless months of no net movement in the market, and a collapsing Volatility Index (VIX), investors absolutely love it.
To understand why, take a look at the chart below.
The last round of gridlock started on January 20, 2011, when Congress flipped from a Democratic majority to a Republican one, with a Democratic president. It lasted until January 20, 2017. As a result, almost no new laws were passed for six years. Yes, there were a lot of executive orders issued during this time. But you can’t get anything big done that way. You can only chip away at the margins.
How did the market do during this time?
The S&P 500 catapulted a stunning 113.51%, an average annualized return of 18.92%. Try beating that with your money market account. And the entire time the market was escalating, there were naysayer’s poo pooing every step of the way, who I completely ignored.
Dow 3,000 anyone?
Yes, I know there were other factors in play.
Some five years of the Federal Reserve’s quantitative easing placed a huge premium on all paper assets and real estate. Another major driver was America’s (read Silicon Valley’s) enormously increasing technology lead over the rest of the world.
But you can’t deny that gridlock helped. At the end of the day, most investors, like most individuals, are afraid of change. This is why I am running an almost perfectly gridlocked trading book right now.
On board this week, I have both longs and shorts in the S&P 500 (SPY) and longs and shorts in the interest rate space, utilities (XLU) and bonds (TLT). As long as nothing happens for three more weeks, I stand to make a killing.
My Mad Hedge Fund Trader Profit Predictor Market Timing Index is dead in the middle at 48, confirming that this is the right stance to have. More on this in a future issue.
So is a VIX hugging the low teens.
This explains why the Mad Hedge Fund Trader Alert Service keeps posting new all time highs on an almost daily basis. As of this writing, we are up an enviable 21.22% so far in 2017, with a trailing one-year return of record breaking 44.56%.
I expect the market to not do much in the coming week, until Friday, when the March Nonfarm Payroll report emerges from the murk of the Department of Labor. The big show starts next week, with Q1 earnings announcements beginning in force.
On Monday, April 3rd, at 9:45 AM EST the first report of the week is the March PMI Manufacturing Index.
On Tuesday, April 4th at 10:00 AM EST, we receive the February Factory Orders.
On Wednesday, April 5th, at 10:00 AM EST, the trifecta of monthly employment data come out with the ADP Employment Report.
The weekly EIA Petroleum Status Report is out at 10:30 AM EST.
On Thursday, April 6th, at 8:30 AM EST, we learn the Weekly Jobless Claims. Last week’s number showed a big jump.
On Friday, April 7th at 8:30 AM EST, we learn the blockbuster of the week, the March Nonfarm Payroll report.
Wrapping up the week at 1:00 PM EST is the Baker-Hughes Rig Count, which has been up for most of the last year, boding ill for oil prices.
Good luck and good trading.
44.56% Trailing One Year Return
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