Portfolio Update: 7/31/20

August 6, 2020 by Matt McCracken

Performance Report: 7/31/20

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All performance data for our strategies is net of all fees and expenses.  All performance data for indexes or other securities is from sources we believe to be reliable. 

Investment Strategy

MAP Long-only (IRA)

Map Long/Short (Margin)

S&P 500 Index

YTD Returns




Daily Volatility




Worst Day




July was a very good month for both my strategies.  Everyone’s accounts appreciated somewhere between 7% - 8%.  The gains in the IRA accounts have added up nicely to make for an impressive YTD return.  The margin strategy including the LP is still lagging the IRA strategy but besting the overall market both in terms of raw performance and risk-adjusted returns.  And perhaps most impressively, your accounts have experienced less than 25% of the daily volatility of the S&P. 

We had a sizeable allocation to precious metals this month which outpaced nearly all other markets.  Silver went up 36% while gold hit new all-time highs appreciating nearly 11%.  We are currently holding CEF, SGOL, and SIVR plus a few mining stocks. 


Market Update

The stock market’s performance the past few months has been relentlessly bullish despite dire economic news.  The S&P 500 index rose nearly 6% and is now in positive territory for the year.  This is a testament that capital markets in the near-term are far more dependent on liquidity than they are economics.  Wall Street pundits claim the “market is forward-looking” which is complete balderdash as no one expected the Covid-19 pandemic to continue to surge as it has pushing our economy into a potential second lock-down.  Back in 2008, they said the same thing while the internals of the economy was crashing but the stock market remained resilient.   

The markets have rallied based on one singular catalyst and that is the $5T+ the FED has pumped directly into the capital markets plus the $2.5T+ Congress has used to backstop contagion in the bond markets.

Unfortunately, there are some cracks that are starting to appear.  First and foremost is the performance of gold and silver.  The media continues to speculate that precious metals are appreciating due to a “risk aversion” trade as concerns about the long-term impact of Covid are still front-and-center.  But if the market was moving to less risky assets, stocks, especially tech stocks, would be declining.  So, I doubt the media’s narrative regarding precious metals being primarily about risk aversion. 

I believe there is a host of speculative reasons why gold and silver have performed so well in this market but I’d like to focus on one certain reason. 

For as long as I can remember, the knock-on precious metals is that “they have no earnings and they pay no dividend”.  An investor was not rewarded in any way for owning them.   But now, there is a problem with that line of reasoning…US Treasuries have no earnings and practically no yield either.  Yes, technically, the yield on a 10-year Treasury bond is 0.50% which won’t even buy you a cup of coffee.  So why buy US-Treasuries as a safehaven play if they too have no yield to speak of?  Will investors keep flocking to Treasuries that provide essentially no yield when they are backed by a FIAT currency run by a Central Bank that just blew up their balance sheet to the tune of $5T (that we know about)!  Or will they focus on gold and silver that have been a store of value since the second chapter of Genesis?  For obvious reasons, the latter is gaining appeal within the investor community. 

The rise in precious metal prices provides a real conundrum for the FED.  Raise rates and risk sending the already vulnerable stock market into a tailspin. Or leave rates at 0% and risk having the USD lose its status as the world’s reserve currency and de facto safehaven play.  Anything outside of a proven resolution to the Covid virus will surely result in the FED having to make a very difficult decision.   

It appears the stock market is at a crossroads.  There are some hints the market could start another decline.  But if it fails to decline in a meaningful way, pauses such as it is currently experiencing typically portend a continuation of the existing trend which would be further upside.  In fact, I would be fairly convinced higher stock prices were in the works if it were not for the following. 

At inflection points, certain securities tend to lead the market.  These leading securities are financial stocks (IYF), transportation stocks (IYT) and small-cap stocks (IWM).  All three of these, especially financial stocks are lagging the broader stock market indexes.  The following table outlines how each of these are performing relative to the S&P 500 index:


S&P 500 (SPY)

Financials (IYF)

Transports (IYT)

Small-caps (IWM)

Percentage off 52-week high





Date of post-crash peak





The fact the transports are trailing is not headline news as the Covid crash targeted this sector specifically.  But the latter two are newsworthy.  The stock market rarely goes far without banking stocks in tow.  And Small-caps have not trailed the broader stock market to this degree since 1999.  Even during the 2008 Financial Crisis, small-cap stocks held up well until the entire market started to decline.  Both financial and small-cap indexes are not only well-off their 52 week-highs, but both have failed to appreciate the past seven weeks languishing in a sideways move while broad stock market indexes continue higher.   

The stock market has been grinding sideways-to-up for the past couple of months.  It was due to take a pause after its monumental bounce off the March lows.  Perhaps the market knows there is a real solution to the Covid-19 virus and it is priced into the market.  If so, the leading sectors should start to make up some ground.  But the longer they trail the broad market, the greater the chances are of another decline.  The severity of the decline would largely be based on whether it triggers a deleveraging event like March.  Given the massive liquidity injection and the dire fundamentals of the stock market, we should not rule out another liquidity event despite the FED willing do everything in their power to prevent it. 



My MAP system is doing a wonderful job of identifying low-risk opportunities.  The excessive volatility in March and April led to me passing on quite a few positions as the risk would have far too big.  But now that volatility has declined, it is identifying ample buy signals.  Gains should continue to come in “fits and starts” like we saw this month.   This is consistent with all my back-testing and my experience with live trading.    Of course, we have our stops in place if the markets move against us.  As we stand, we are well ahead of the indexes for the year and I’ve accomplished this with a fraction of the volatility.

If you have any questions about your account or about our strategy, please do not hesitate to give us a call at 830 | 460 2050.

All the best,

Matt McCracken