2016 Is Shaping Up to Be a Year of Market Volatility After a Difficult 2015

2016 is shaping up to be a volatile year for financial markets. In order to get an understanding of how major asset classes will perform this year, let’s review their performance in 2015.

2015 Returns

2015 was not kind to equities. The “FANG” stocks (Facebook, Amazon, Netflix, and Google) were the only high-profile gainers. Investors bought them in size at the beginning of the year and rode them all the way up. We tried to hop on the same momentum train, but exited at break-even when we didn’t see enough follow through by year end. Despite the success of FANG’s, most index investors lost. Even a majority of high profile hedge fund managers struggled in 2015. BIllionaire investor Bill Ackman finished down 20% for the year. And Buffett’s Berkshire lost 12%.

Treasuries lost money as well. With low rates and a FED tightening cycle at the top of everyone’s mind, bonds have had a hard time breaking out.

The fall in the junk debt market was not a surprise. Plummeting oil has killed a lot of energy companies who are now struggling to service their debt. Further downside and defaults are likely. To make matters worse, many investors were pressured a few years ago to buy into junk bonds to increase the yield on their portfolios. Instead of earning 1 – 2% on government bonds, they “reached for yield” and bought junk. These investors, hands forced by the actions of FED ZIRP, are all underwater. Watch for even more of them to puke out at the lows. We look forward to digging into the long side of this battered down debt market when the dust settles. There will definitely be some quality buys at bargain prices.

Gold continues to underperform with the rest of commodities, hanging near recent lows. Perhaps it will excite the market in 2016, but until then, watch for sideways trade.

Those who bought the dip too early in oil suffered the most. They got smoked. We have been short oil since the beginning of November. We continue to see headwinds and an over supplied market until at least mid-2016. There will come a time to swoop in and buy up oil, but trends often last much longer than what people anticipate. This is why we don’t pick bottoms or tops, but instead wait for price to tell us when an asset decides to turn around. It could be years before oil rebounds significantly…. we’ll let price lead us.

Emerging markets continue to disappoint. Investors have not seen new all time highs since 2007. And now it looks like a trip back down to 2008 lows is more likely. Brazil is in depression territory. Russia can’t keep it’s head above water with oil prices so low and China continues to fight a plummeting stock market while struggling to safely devalue its currency. We attempted to short EEM in November of 2015, but got stopped out on a sharp retrace. The stock continued down without us, but that’s part of the game. Right or wrong we must always respect our risk. 2016 will bring many more opportunities to play EEM to the short side.

Real Estate stayed out of the news for most of 2015 and continues to trade sideways.

And finally Apple topped out after a nice run up and continues to fall on China slowdown worries.

Markets are signaling that the raging bull cycle we’ve had the last few years has started to stall. Assets can’t rise forever, and with stocks as rich as they are, forward returns look paltry. We talked about the death of the bull in this article.

Most investors look at this return table and lash out in anger or frustration. It’s never fun to open up the year-end brokerage statement and find out you’re down money after suffering a roller coaster of volatility.

Our reaction at Foundation differs. We embrace volatility. We profit from it. Our core strategy has the ability to go both long and short in any market. It doesn’t matter if it’s stocks, bonds, commodities, or currencies. We go everywhere and trade everything.

When things get wild and move fast, we thrive.

Our portfolio stays calm because we control our level of exposure at all times. If markets are choppy with nothing compelling — we stay out. When opportunity presents itself — we strike in size.

We look forward to a 2016 full of volatility.



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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.