August 2017 Commentary

September 8, 2017

Dipsea Capital Fund LP   

  

August 2017 Commentary:  

   

The Dipsea Capital Fund returned .61% to clients for the month of August, its 13th consecutive, positive month.  Year to date, the fund is up 5.64% after fees and the trailing 12-month return is 8.5%.  

  

Market Review: 

  

It was a quiet month.  Trading volume in the S&P was 25% below the monthly average, which by itself, tends to be sublime given the time of year.  The S&P index briefly made another all-time high, yet ultimately closed essentially unchanged. 

 

Although not reflected in the equity markets, a number of events did occur on the periphery that one might typically assume would elicit some impact. Happenings included a hurricane impacting a major U.S. economic hub and provocative geopolitical events in Asia.  Overall the markets conveyed little concern. 

  

The price action of financials stocks, banks and brokers, was lackluster.  The action is likely a derivative of the flat yield curve which hurts their interest rate spreads and reduces earnings. 

 

In contrast to the longer falling interest rates which hurt the financials, copper prices were up meaningfully.  A rise in this commodity’s price is often a sign of accelerating economic growth.  These two sectors clearly exhibited an atypical correlation.  Furthermore copper’s price appreciation was at odds with the economically sensitive transportation average, which starkly underperformed other broad indexes. 

 

Sometimes the data, and subsequent analysis, simply fails to communicate signals that justify conviction.  Currently the markets are not providing a compelling message upon which to invest, in our view.  Of course reality can, and often does, change in a hurry come Fall. 

 

Staying Busy: 

 

The only way to maintain consistency in the markets is to evolve.  We continue to work diligently to refine and build upon our methodologies.  Currently we are undertaking the following adaptations: 

 

1.    Seeking regulatory approval to become a Commodity Pool Operator (CPO).  This registration will enable us to more efficiently hedge our full portfolio, most hours of the day and night. This capability will aid us in even more tightly managing our portfolio risk. 

2.    Devoting a small portion of our portfolio, every week, to products which appreciate substantially should volatility increase in the advent of a negative, “black swan”, event.

3.    Enhancing our directional signals through ongoing database research and testing.  

  

 

Most importantly, we continue to adhere to our rules and maintain our obsessive focus on risk management. 

 

We observe a treatise shared with me by a former adviser, Mark Douglas.  The author of The Disciplined Trader, and Trading in the Zone would underscore, “Be rigid with your rules, but flexible with your observations”.   

 

The market seems unusually sanguine, perhaps complacent, with frequent storm clouds on the horizon.  Our approach, which succeeds in delivering consistent, uncorrelated returns, is an excellent allocation for a prominent segment of one’s investment portfolio, rain or shine. 

 

As partners and fellow investors in Dipsea Capital LP, please accept our continued appreciation for the trust you place in us as a steward of your capital. 

  

Sincerely, 

  

Chris Antonio 

 

 

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