Grizzly Bulls Models Performance Update - Q3 2022

Lee Bailey
Oct 1, 2022

While every model is in the red this year, each is also outperforming the benchmark S&P 500...

Grizzly Bulls Models Performance Update - Q3 2022
The true investment challenge is to perform well in difficult times. Seth Klarman

Model Performance (2022 Q3)

YTD
S&P 500 (benchmark)-24.30%
TA - MR Basic-20.98%
TA - Trend Basic-23.03%
Vix - Basic-23.44%
Vix - Advanced-20.50%
Vix - TA Advanced-20.50%
Vix - TA - Macro Advanced-15.03%
Vix - TA - Macro - MP Extreme-8.00%

While every model is in the red this year on an absolute performance basis, each is also outperforming the S&P 500 benchmark to a varying degree. At Grizzly Bulls, we seek positive absolute, risk-adjusted and relative performance to the SPX benchmark. So far in 2022, we've delivered on two of those three goals. Our top model stands out with a single digit loss and a +16.3% outperformance gap over the SPX benchmark. At one point in Q3 it crossed into the green, but the final two weeks of the quarter proved difficult for all the models with the choppy conditions.

Weekly Economic Statistics

3.7%
Cur. Unemployment Rate
193k
Initial Unemp. Claims
1.35M
Continued Unemp. Claims
3.83%
10 Year Treasury Yield
4.27%
2 Year Treasury Yield
3.08%
Effective Fed Funds Rate
18.12
S&P 500 Price / Earnings
26.98
Shiller P/E (CAPE)
-0.1
Shiller Risk Premium (CARP)
19.95%
AAII Sentiment Bulls
19.24%
AAII Sentiment Neutral
60.81%
AAII Sentiment Bears

The market was down -2.93% this week with choppy intra-week action. Yields have backed off slightly from their recent highs, but the curve remains highly inverted. The Shiller Risk Premium (CARP), the most reliable valuation indicator over the past 25 years of increased Fed involvement in the markets, remains dangerously low at -0.1. For reference, values below 1 are considered very overvalued, 1 - 2 moderately overvalued, 2 - 3 fairly valued and 3+ undervalued. At this point, the only hope to avoid another lost decade in stocks is for inflation to weaken so that the Fed can resume its ZIRP and QE policies. It's clear that the markets became incredibly overvalued through the Fed's policies since the last major recession in 2008 as the easy money and negative real interest rates forced all investors into equities under the TINA mantra.

Commentary

There's no doubt that it's been a challenging year for most investors and traders with inflation at 40 year highs, a 180 degree shift in monetary policy and war in Europe. The first bear market (defined as both a -20%+ drop from highs and a 2+ month timeframe on a daily closing basis) in more than a decade is upon us, and the long-term tailwind of falling interest rates and QE is likely dead for the forseeable future. While the models have not performed as well this year as in prior years due to the extraordinary circumstances and off-the-charts data relative to the historical backtest, they have still delivered strong relative and risk-adjusted performance compared to the benchmark. We expect them to continue to do so going forward, and we also expect the absolute performance to improve substantially as data normalizes in this new rising rates, post-QE era.

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