As the fat tail risk of Russia invading the Ukraine lessens, global equity markets continue higher with the US Dow leading the way. The Dow, with lower and more predictable P/E’s, has outperformed the S&P and NASDAQ, both of which are skewed toward technology companies with inflated P/E’s. The weakest global equity market continues to be the Nikkei as the Japanese economy adjusts to higher consumption taxes. Europe continues to be supported by talk of ECB QE and negative real interest rates. We continue to believe the US Fed will keep short term interest rates at 0% for as long as possible and that our long term rates will be held down by lower European interest rates. In sum, our outlook is for long term interest rates to stay stable and renewed economic growth should push rates higher. As mentioned in the previous email, the US$ is bottoming, which combined with stable to higher interest rates, should support higher global equity markets.

Tuesday, May 13th, we executed our synthetic DAX option on the close for a small loss by covering our short of the June DAX futures at an equivalent index price of 9,755. We are now long half positions in the Dow, S&P, DAX and $Yen and are 100% invested.

Modeled performance since inception, May 2012, is 58.43% and net of all fees, is 47.07%
In 2013, modeled performance was 24.16% and net of all fees was 19.73%
In 2014, modeled performance is 12.91% and net of all fees is 10.46%