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Times Like These

It’s fun to compare market conditions in the past to current conditions.  Unfortunately, it usually isn’t very informative.  Since 2000 there have been three instances where our position was changed from a Market Risk Warning (where we’re hedged with something that contains volatility) to a fully hedged position (using a short of the S&P 500).  Usually, enough of our core market indicators have turned positive that we come out of a market risk warning into a moderately hedged position.

The first instance was on 6/2/2000 where we tried to add exposure and got whip sawed all the way to 9/5/2000 where we were 60% exposed.  Then added hedges every week until we got another Market Risk Warning on 9/25/2000.

 

 

The second instance occurred on 6/6/2005 where we slowly added exposure while the market moved sideways and were 60% exposed when our market risk indicator flashed a warning on 8/22/2005.

The last instance happened on 8/21/2006 where we quickly added exposure and were 80% exposed by 10/9/2006 allowing us to catch a good part of the late 2006 rally.

So you can see, with small samples (only 3 occurrences of moving from aggressively hedged to a 100% hedge) history isn’t very informative.  So in times like these all we can do is watch and wait to see what happens.

 
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