New Harbor: A Time For Staying Out Of Harms Way

News & Current Events Public News & Current Events
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Given the brutal start to the markets in the first three weeks of 2016, we thought it a good time to check in with the team at New Harbor Financial. We have had them on our podcast periodically over the past years as the market churned to ever new highs, and have always appreciated their skepticism of these liquidity-driven ""markets"" as well as their unwavering commitment to risk management should the party in stocks end suddenly.

So, how is their risk-managed approach faring now that the S&P 500 has suddenly dropped 8% since Christmas? Quite well. Their general portfolio is flat for the year so far -- evidence that caution, prudence and hedging can indeed preserve capital during market downdrafts.

We've invited the New Harbor team back on this week to hear their latest assessment on the markets, as well as how they're approaching their portfolio positioning moving forward:

We spend a lot of time talking about position sizing. Right now we have very little in the stock market. We never cheer for a crash in the sense that we know a lot of people would likely get harmed in such a scenario, but we also spend our time assessing reality and probability. The likelihood of probability for a crash certainly has never been non-zero, but it has developed a greater likelihood than it had even just a few weeks ago. There has been a notable sentiment change.

I'd like to point out: we're not even a month into the year and we have already clawed back over two years’ worth of gains in the stock market. Even if you look at the S&P 500, which has been the most lofty because of its capitalization-weighted nature, where we are at right now takes us all the way back near the end of 2013. 

There is a set of conditions -- deterioration of breadth, deterioration of market internals, a sudden shift of investor mindset from speculation to conserving capital -- when these kinds of things are present, at least history says it almost does not matter what the central banks do. In fact, when they get more and more aggressive in those kinds of environments it may just convey greater desperation and panic on their part. Investors run to the sidelines even more quickly. It would take a lot right now in changing those things for us to want to put down our defenses in any material way due to central bank desperation at this point. 

This is a time for holding things like cash, holding things like very short-term high-quality treasury bonds, having some hedges on. Even in a crash scenario at some point this kind of strategy could actually have positive, albeit modest, additive value to an account. Sometimes the simplest thing you can do is the best way to avoid getting harmed in the crash: that's holding cash and just staying out of harm’s way. It happens to be one of the hardest psychological things to do, but it is one of the most effective ways. 

Transparency note:  As a result of our public endorsement, Peak Prosperity has a commercial relationship with New Harbor. The details of this relationship are clearly presented in writing during the referral process -- but the punchline is, our relationship does NOT result in any increased fees to those who become clients.

If after listening to this podcast, you find yourself interested in connecting with Mike, John, and the rest of their team to learn more about their advisory services, please use the form here to do so.

cheers,
Adam

It should go without saying: this discussion should NOT be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which we and our guests are obviously unaware of) and should be obtained directly from a financial adviser you trust. Before acting on any of the statements made in this podcast, we advise you do just that.

Click the play button below to listen to Chris' interview with New Harbor Financial (32m:28s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/new-harbor-a-time-for-staying-out-of-harms-way/

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Aloha! Maybe because I am a relative newcomer here compared to some, but this is the first I have seen of a Hedge Fund recommendation from Peak Prosperity. I have seen gold  and oil stuff float by from time-to-time and even a farm or two, but not much in the way of hedgies! Hedge or IMM? No matter they're all selling your client services. Wall Street is a giant sales operation!
Okay, I get it … former UBS guys looking to modify their spots to appeal to an alternative audience. I can see that in the "story" section of your website. I also see the "buy and hold" disclaimer also, which these days is suppose to denote an alternative investing style sort of anti Warren Buffet, who seems to be the ultimate "buy and hold" guy throughout the decades. By claiming not to be engaging in a "buy and hold" strategy you tap into the myth that you are more prudent and risk averse.

When I look at the SEC 13F filing for the various quarters I see on average around 150 issues in AUM. Are you really anti buy and hold because it seems like a lot of the same issues are in your 13F holdings from 03/15 to 09/15. I also find it hard to believe you can effectively trade in and out of 166 issues in one quarter. Maybe that is just my limited abilities talking.

Hmmm … well … I may be off base here. I go to stockzoa website, which I never heard of before, and they list your company making a 2,349% gain on a GLD  trade in 2015. Also a 13,600% gain on a Franco Nevada trade in 2015. A 1,150% gain on a Pan American Silver trade. A 700% gain on Barrick Gold. A 24,120% gain on AGNI. A 15,582% gain on Sprott Silver. WOW! Fantastic! I haven't seen numbers like that in the mining sector in many years. Is there another New Harbor Financial? 

Your holdings in 03/15 were 146 issues valued at $84m and by 09/15 you had 166 issues valued at $66m. That was a buy and hold loss by SEC 13F standards right? IRS defines a long term gain as one year or more. By some traders definition two days is long term!

The last SEC 13F listed you had 38% in US bond ETFs. In fact most of your largest holdings are ETFs. If that is the case then you cannot really "technically" say your company is the sole manager of your clients portfolio. ETFs are set up and managed by wall street entities outside your influence and control. In fact your 12% GDX holding changes its holdings every year and you have no say so. So when you short the Russell or S&P you buy an ETF to do that. That means you are susceptible to whatever quant and derivatives get mixed in. You don't actually manage any of those ETFs that you park your clients funds in … you just adjust your clients ETF weightings. It's still "buy and hold" though as far as I can see. Unless the definition of "buy and hold" has changed and it could very well have. It seems nothing is what it means any more and in fact is always turned upside down and inside out to fit the narrations!

It's like annuities. In my instance Merrill Lynch sells an annuity to a client and gets a fee. It then passes off the management of that annuity to American Fund and more fees get generated which ultimately the client pays, but Merrill cannot really say they are managing anything because they aren't. American Fund is. Its the great Wall Street way! Don't ever really risk anything just collect fees for risking other people's money. Then do multiple layers of "risk management" whereby every layer gets a fee. Fees and fees on top of fees! In fact it is the identical business model to the other great trump … the US Legal system! Lawyers get paid whether they win or lose a case. Fundies and Wall Street are full of lawyers and all those managers get paid whether they make money or lose money. Come to think of it the US Congress is full of lawyers too and Congress gets paid whether they do anything worthy or not! OMG! That makes the most foolish risk takers ultimately small business owners who actually have to work hard and be successful because they're the only one's who write business models where they don't get paid to fail! How stupid is that? They need to hire more lawyers …

If I seem overly critical … I am! I just believe most people are brainwashed into believing that if they hand their life savings over to a bunch of strangers with Wall Street credentials that it automatically guarantees success. All it guarantees is more liabilities waiting to happen!

Was all that the red pill or the blue one?

 

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"That makes the most foolish risk takers ultimately small business owners who actually have to work hard and be successful because they're the only one's who write business models where they don't get paid to fail! How stupid is that? They need to hire more lawyers …"
 

Exactly how I feel.  Instead of working hard and taking risks with my personal assets, how do I become a member of the skimming and scamming economy?

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Give up the idea of peaceful sleep…then you…

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While telling one's self this is different. As everyone stands around hoping someone has courage, or maybe hoping a collapse will remove that cumbersome emotional element.

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Aloha!
There are some important clarifications I should make here.  For the record, New Harbor are the guys managing some of my funds, Adam's, various people we know really well, as well as a fair number of people who found them via this website.

[quote=kaimu]

Aloha! Maybe because I am a relative newcomer here compared to some, but this is the first I have seen of a Hedge Fund recommendation from Peak Prosperity. I have seen gold  and oil stuff float by from time-to-time and even a farm or two, but not much in the way of hedgies! Hedge or IMM? No matter they're all selling your client services. Wall Street is a giant sales operation![/quote]

New Harbor is not a hedge fund. They manage money for clients.

When I look at the SEC 13F filing for the various quarters I see on average around 150 issues in AUM. Are you really anti buy and hold because it seems like a lot of the same issues are in your 13F holdings from 03/15 to 09/15. I also find it hard to believe you can effectively trade in and out of 166 issues in one quarter. Maybe that is just my limited abilities talking.
First off, the 13F filings don't reflect the firm's cash holdings, which have been a large part of its portfolio allocation over the past year. 

Second, the New Harbor strategy, as discussed, includes the use of puts and calls to minimize the risks associated with specific client holdings.  While the specific list of holdings may indicate what appears to be 'buy and hold' that's not the case if things are appropriately hedged.  

Further, a lot of clients have to be in the market, because they have locked trusts, 401k holdings or tax considerations, and/or they simply want to be.  Because this is the case, you will find all sorts of different holdings in 'their portfolio.'

Hmmm ... well ... I may be off base here. I go to stockzoa website, which I never heard of before, and they list your company making a 2,349% gain on a GLD  trade in 2015. Also a 13,600% gain on a Franco Nevada trade in 2015. A 1,150% gain on a Pan American Silver trade. A 700% gain on Barrick Gold. A 24,120% gain on AGNI. A 15,582% gain on Sprott Silver. WOW! Fantastic! I haven't seen numbers like that in the mining sector in many years. Is there another New Harbor Financial? 
What you are looking at there is not the monetary gains, but the percentage gains in the volume of shares held in that particular holding. A big 'gain or loss' in that column simply indicates that more or fewer of those shares are being held as compared to previously.
Your holdings in 03/15 were 146 issues valued at $84m and by 09/15 you had 166 issues valued at $66m. That was a buy and hold loss by SEC 13F standards right? IRS defines a long term gain as one year or more. By some traders definition two days is long term!
Nope, not a buy-and-hold loss. There are lots of reasons that the portfolio stock holdings might go up or down. Clients come and clients go. People withdraw funds and put more in.  Sometimes the portfolio will weight more heavily towards cash, sometimes less. The underlying value of the portfolio's holdings will go up and they go down [which would cause the sorts of losses you alluded to...].

The particular listing you have cited and are drawing from simply shows only 'company holdings' which includes various ETFs. Importantly, the cash flows and balances are not stated here (cash is a specific defensive strategy employed by NH).

So, no, that was not a buy-and-hold loss as you describe. That's not the right data source for that information.

I'm personally of a mind that there will be a time to get back into all sorts of different investments, equities included.  But if I were locked into being in the market right now, as many are, then that money is either going to be managed with an eye towards risk management, as this podcast outlined, or it won't.

It's a choice…but my clear choice is to be more concerned with return of capital than return on capital…at least for a while longer…

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[Comment removed for lack of substance – Admin]

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I'm always amazed at how quickly people choose to find fault in the opinions of others. From what I gleaned, listening to the New Harbour team, I think all the PP folks that listened to this podcast should give you the thumbs up on what was discussed. I also think (from the dearth of comments) the NH team identified the overall trend that the world is facing. We are headed for a substantial contraction of the world economy over the next few years. What better advice could the NH boys give than to "keep your powder dry" and minimize your risk exposure.
Your comment on the importance of return to capital verses return on capital sums up what everyone should make themselves aware of. NH's team identified cash as a smart place to be with investments followed(somewhat tentatively)by bonds(not high yield junk). A "buy and hold" mentality only reflects a mood of caution that is slowly taking hold among average investors The "oodles of paper" dumped into world economies by the US and other OECD counties will only exasperate the deflationary contraction that's coming. Once the oil glut subsides and prices start back up again, count on everyone taking it on the chin as our world begins to "decarbonize" it's societies. It only reaffirms the Crash Courses' basic tenants of a finite world. Maybe the message wasn't put forward strong enough, but it certainly was welcome by me. Energy will be the key factor in how the world works and we'd better not think it won't.We all better be thinking of novel new ways to subsist in a brave new world. Takes me back to an article by Chris Nelder a few years back. Worth a look. Good podcast PP team.

http://www.getreallist.com/economic-theory-and-the-real-great-contraction.html

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https://www.youtube.com/watch?v=eK0pO79YkvY

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Indexing the Capital Gains Tax to Protect Taxpayers from Inflation
https://youtu.be/tvzqa71plv4

Current policy of not adjusting capital gains for inflation (and how about true inflation?  Or no capital gains tax?) incents retail investors to turn into speculators since the savvy investor knows under current policy long term investing loses money on a real basis no matter what happens.  Yes, we already have had Atlas Shrugged for decades.