Trend Prophecies Newsletter for January 29, 2024
Hi reader,
In this issue of Trend Prophecies, we look at:
- Q4 2023 US GDP indicates that the US economy continues to advance.
- Key equity index returns remain near record highs, while Fixed Income retraces some gains as rates climb.
- Many aspire to attain Bitcoin returns without experiencing significant declines. This is precisely what Trend Prophets offers. We delve deep into why our system has performed exceptionally well for Marathon Digital, achieving a remarkable 60,000% return since 2017.
Market Update
We continue to see all-time highs in most markets despite some increased volatility this year. It is really quite amazing despite some really weak economic indicators that would otherwise have us think a recession is coming. Yet, there is still no sight of a recession. In fact, US GDP grew at a 3.3% annualized rate in the last quarter of 2023.
The figure below shows the breakdown of US GDP by the main four components. We see two main takeaways from this:
1) Personal consumption (consumer spending), continues to be strong. Consumer spending is the largest component of GDP, representing 60-70% of the US economy. A strong consumer is always what we want to see.
2) All components were positive contributors. This is the third quarter in a row where all major components contributed positively. The US continues to be show net exports (Total exports less imports).
Figure 1: Breakdown of US GDP. Annualized, quarterly growth. Source: FRED, Trend Prophets
Table 1 shows that US equity indexes and the TSX remain incredibly close to their all-time highs. They are also sitting comfortably above their 50-day moving averages. Fixed income has pulled back slightly this year as yields climbed on the back of the strong economic data we are seeing. The weakness seen in non-North American Equities (EFA, EEM) is likely due to the higher yields which also caused the US dollar to strengthen. Both of those ETFs are in USD and not hedged, so currency is affecting returns.
Table 1: Index performance, as of January 26, 2024. Source: EODHD, Trend Prophets
With earnings season gearing up and the big tech companies reporting this week (not to mention a Fed meeting), this could be very interesting!
Marathon Digital Strategy
Digital currencies have emerged as a prominent investment theme in recent years. Whether regarded as an asset class or a speculative opportunity, it is challenging to ignore the potential returns associated with owning Bitcoin or Ethereum. However, the remarkable triple-digit returns are accompanied by significant volatility, which may deter many investors. One of the most pressing issues faced by cryptocurrency investors is the substantial losses incurred during price crashes, which have occurred repeatedly. Nevertheless, these assets have consistently rebounded and rewarded those who have timed their investments well. Nevertheless, this still exposes investors to the risk of substantial losses, often exceeding 50%.
Bitcoin miners offer an alternative approach for investors seeking exposure to Bitcoin. Similar to how gold miners provide leverage to the price of gold, Bitcoin miners offer amplified exposure to Bitcoin’s price movements. This means that by owning shares in mining companies, investors can potentially achieve greater returns compared to owning Bitcoin directly. This is due to the operational dynamics of these companies, which can expand their profit margins as Bitcoin’s price rises. With higher prices leading to larger profits and relatively stable fixed expenses, mining companies often experience rising share prices.
However, it’s important to note that miners are subject to significant drawdowns. For instance, Marathon Digital (MARA), a Bitcoin miner, at one point experienced a 98% decline in its value, with its worst 12-month period showing a 91% decline. Such volatility might be challenging for many investors to tolerate. What if there were a way to reduce those losses significantly while still participating in most of the upside potential?
The Trend Prophets system has demonstrated exceptional performance with Marathon Digital. Figure 2 displays the investment growth of $1,000 starting in 2017 using the Trend Prophets system, alongside a buy-and-hold case for MARA. The results are remarkable, illustrating how Trend Prophets’ timing for entering and exiting the market has protected against severe losses seen in the buy-and-hold strategy.
Figure 2: A $1,000 investment in MARA while using the Trend Prophets system would now be worth over $600,000.
Table 2 presents the calendar year returns for our system with MARA and without it (buy and hold). This table vividly describes the behaviour of MARA when combined with Trend Prophets. It’s evident that, in nearly every year except 2023, our system has significantly outperformed the buy-and-hold approach. In some years, where MARA’s performance was deeply negative, we achieved surprisingly positive returns. This is because Trend Prophets helps investors exit when the trend turns negative and re-enter when the trend becomes positive again. The cost of this protection may involve missing some of the upside during a year of strong reversal, such as the previous year. However, protecting capital in the face of extreme volatility can result in long-term results that may seem too good to be true.
Table 2: Calendar year performance for our MARA strategy, compared against the buy and hold case. Source: EODHD, Trend Prophets.
Table 3 provides key statistics, highlighting that holding MARA since 2017 would have resulted in an annual loss of -6.79%. In contrast, when combined with Trend Prophets, the average annual return is +150%. This emphasizes the power of downside protection, especially in the context of an annualized volatility rate of 173%. It’s crucial to acknowledge that Trend Prophets does not eliminate volatility entirely but significantly reduces it, along with mitigating drawdowns, leading to impressive long-term results.
Table 3: Selected performance statistics for our MARA strategy. Annualized.
Figure 3 illustrates the historical drawdowns for MARA, clearly demonstrating the effectiveness of Trend Prophets in protecting against downside risks.
Figure 3: The drawdown analysis for MARA demonstrates how well the Trend Prophets system times entries and exits, providing exceptional downside protection.
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That’s it for this edition of the Trend Prophets newsletter! Please contact us at info@trendpophets.com for any questions.
Cordell L. Tanny, CFA, FRM, FDP
President & Founder
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Disclaimers: Past performance is no guarantee of future results. This newsletter should not be considered as investment advice and is intended for information purposes only. Please see our Terms and Conditions for all disclaimers.