Boy is this getting silly.
Apparently, we never learn. Well, we at PSW learn. We've been hedging the crap out of this rally for reasons that should be entirely evident on this chart – earnings are NOT GOOD!
If earnings aren't good, then why are companies racing up to all-time high valuations? Simply because (as I noted yesterday) monetary manipulation is at work.
It's not like we haven't gone along for the ride – we're still up 30.7% in our bullish, Long-Term Portfolio, which is the where the vast majority of our allocations are put to work (see “Smart Portfolio Management” in the PSW Wiki). Sure it's been 15 months now, so less impressive than 30% in a year – but not a bad pace (2% per month), nonetheless.
Our Short-Term Portfolio, where we do our hedging, has taken a beating in February as we have spent a good deal of money adding protective short positions to protect the $150,000+ we gained in the Long-Term Portfolio – just in case the market isn't as safe as people seem to think it is. Our STP has dropped from $204,000 in February (up 104% in the same 15 months) to just $193,720 as of yesterday's close, down $10,000 but still a nice, combined $844,000 – up 40.6% as a pair.
We spent that $10,000 on purpose, re-investing part of our 2014 profits into hedges that will (in theory) protect us from a market correction. Long-term, we are still bullish and we intend to ride out a pullback but short-term, it's hard to imagine the market crushing through these nose-bleed levels without some sort of pullback. That's why we're hedging in a nutshell.
As you can see from Doug Short's S&P chart, we're “only” up 151% from our 2009 low on the S&P on an inflation-adjusted basis. In raw numbers, we're up 217% at 2,117 from 2009's Hellish low of 666 but that still doesn't bring us to the levels of those 5 other historic bull runs. It does, however, mark the biggest move made without a significant correction since before the crash of 1929 – so can you really blame us for being just a little bit cautious?
