James Simons recorded double-digit losses at a time when even the most cerebral of investors are finding it challenging to navigate a financial landscape littered with Zombies epitomized by bankrupt companies with billion-dollar valuations.
The central banks’ pandemic response to the great lockdowns of 2020 have been trillions of dollars of electronic duct tape to keep risk assets from becoming unstuck and giving way to gravity, price discovery. So the Fed, the world central bank by default ramped up its quantitative easing QE program with its balance sheet swelling to nearly $7 trillion since the outbreak.
Moreover, the European Central Bank ECB €750 billion Pandemic Emergency Purchase Program (PEPP) entailed the purchase of €186.6 billion of public-sector securities and The Bank of England (BOE) also adopted policies in tandem with other major central banks. Put simply, BTFD is back in vogue.
“James Simons recorded double-digit losses at a time when even the most cerebral of investors are finding it challenging to navigate a financial landscape littered with Zombies”
THE WEALTH TRAINING COMPANY
James Simons recorded double-digit losses in a dystopian world where risk assets melt-up, while the fundamentals meltdown
If you are making losses you might find it comforting to know that you are in a smart crowd.
James Simons, a former Cold War code breaker mathematician boffin, hedge fund manager and named by the Financial Times in 2006 as “the world’s smartest billionaire” has recorded double-digit losses this year, according to investors.
As we reported in a piece, entitled James Simons’s Renaissance Technologies strategy change, dated April 11, 2019, we noted that his fund was relying less on quants and more on macro investing strategies which suggest unprecedented volatility ahead.
A macro strategy bases investment decisions on overall political, economic views, and macroeconomic views. Quants strategies, on the other hand, use advanced quantitative analysis and customized models using software programs to make investment decisions.
“James Simons, a former Cold War code breaker mathematician boffin, hedge fund manager ”
THE WEALTH TRAINING COMPANY
James Simons recorded double-digit losses, despite being right about the volatility playing out, in the first quarter of 2020
Due to the black swan event, a 2020 pandemic, and the great global lockdown which triggered a massive sell-off in global risk assets in late February, March.
At one point the VIX smashed through the 70 threshold during March’s big sell-off peak, which is evidence of extreme fear among investors. The last time the VIX reached this level was during the 2008 financial crisis. The Volatility Index, VIX, is a contrarian sentiment indicator that helps to determine when there is too much optimism or fear in the markets.
James Simons recorded double-digit losses is an extension of Renaissance Technologies’ recent run a poor performance over the last few years
Back in December 2018 traders/investors may have remembered that it was the worst for stocks since the Great Depression and January was the best for stocks in 30 years. As I noted, the bot traders (algos) can’t make heads or tails of the market.
A similar partner of volatility played out in the second half of 2020. March’s stock market crash, triggered by a pandemic sent the stock down by 25% to 30% in most G20 nations, the largest drop in recent memory then came the best April for the Dow in 82 years.
With so much liquidity sloshing around the financial system, courtesy of the central banks’ unprecedented asset purchase programs we could continue to see extremely volatile stock markets going forward.
“James Simons recorded double-digit losses with its Renaissance Institutional Diversified Alpha fund declined 8.8 percent in the first week of June, and is now down 20.7 percent year to date” – The Wealth Training Company
James Simons recorded double-digit losses underscores the difficulty of navigating a market that is no longer determined by fundamentals, technicals but merely the whims of the central banks’ asset purchase program
Front loading the central bank, guessing what the central bank will buy and buying it beforehand has become the only factor in profitable investing where the fundamentals have become irrelevant.
But that is easier said than done so James Simons recorded double-digit losses with its Renaissance Institutional Diversified Alpha fund declined 8.8 percent in the first week of June, and is now down 20.7 percent year to date, according to numbers sent to investors.
Renaissance’s equities-focused funds were particularly punished in the coronavirus-led market rout in early March, which contributed to James Simons’s recorded double-digit losses
But it also looks like James Simons’s Renaissance missed out the April’s central bank induced stock market rally. So with all those recent volatility misses the firm is on track for one of its worst annual performances. The firm declined to comment on the numbers.
James Simons’s Renaissance, Long Island-based group was able to pare back some of its earlier losses as markets recovered from the initial shock of a global economic shutdown to stem the pandemic, but its recent losses gave back those gains.
Renaissance’s RIDA fund trades global stocks and runs a so-called ‘market-neutral’ portfolio that balances out bets on rising and falling prices. The fund also seeks to capitalize on trends and other patterns in futures markets.
“RIDA has made money in each of the previous five calendar years” – The Wealth Training Company
James Simons recorded double-digit losses mark a U-turn in performance for RIDA
RIDA has made money in each of the previous five calendar years, according to data sent to investors.
The fund gained 4.2 percent in 2019.
James Simons founded Renaissance in 1982, which is one of the most influential and secretive firms in the hedge fund industry. Its flagship hedge fund Medallion was so successful that it ejected outside investors in 2005, and now just manages the money of the firm’s employees.
James Simons recorded double-digit losses and he is not alone
We could also see a string of other top investors being caught wrong-footed by this extraordinary volatility stirred up by deteriorating long term fundamentals, the ongoing pandemic, and unprecedented central bank liquidity at whims.
These times are anything but normal and one wonders whether the status quo is sustainable for much longer. The Hertz moment, where investors piling into a bankrupt company propelling its market capitalization into the billion-dollar stratosphere ended in heartache for investors.
Could this be what lies ahead in the rise of the zombies?