Quarterly Special: Q2 23'

Welcome back 🌻

On behalf of the quant team at SQRT, I’m delighted to share some exciting updates about Project StraBerry. Also, this letter includes a very special quarterly report prepared by our financial advisor Andrew Lee, who’s currently a trader at Millennium in NYC. If you’re looking for some good weekend reading, you’re in for a special treat.

Without further a do, let’s get straight to the 🥩 of the things.

1. Project StraBerry: Updates

+10%

StraBerry has achieved an impressive total cumulative return of +10% (currently +11.8%, with minor fluctuations within a 0.5% range per user). While Yi Sun-Sin went through some tough times just as the Project started in mid-May, it made impressive rebounds in the following weeks. You’ve been at every juncture of the ups and downs over the past 80 days, and it’s our great pleasure and privilege to have made such progress with you all onboard.

Daily Cumulative Profit & Loss (PnL)

⁠

Our Commitment

As quant traders, we face cycles of success and setbacks all the time. Every event provides a new learning experience for us, as there isn’t such a thing as "profit guarantees" in quant trading, and uncertainties and risks are intrinsic to the journey. I cannot say that it’s an easy job, but the entire process of formulating a strategy, subjecting it to rigorous testing, and executing it in live trading is incredibly satisfying and rewarding.

While we cannot promise returns, we can promise this one thing—that we’ll continue to do our best in exploring wealth-creating opportunities and keeping our pipeline absolutely of high quality. Quality > quantity, always. We stand by our commitment to bring only the best to our customers and make crypto investing easy, safe, and fun for all.

Yours truly,

Juho, CTO & Head of Quant

2. Andrew’s Quarterly Report

Andrew (Jeongseog) Lee serves as our financial advisor, specializing in the US traditional market. With more than a decade of experience spanning hedge funds and investment banks, including such renowned institutions as Millennium, Bank of America Merrill Lynch, and Goldman Sachs, Andrew brings a wealth of expertise to our team.

Andrew holds a PhD in theoretical physics from Princeton University.

Looking back at the 2023 market year to date

SPX +18%, NDX +41%, AAPL +48%, MSFT +43%, Bitcoin +53%, Meta +145% (!). If you proposed these return prognostications at any respected investment or Wall Street firm, no one would have taken you seriously, and you might have received a macroeconomics 101 textbook to read through. After inflation accelerated explosively at a rate which hasn't been seen since 1970, almost every investor was pessimistic about the near-term perspective of economics and risk assets while hoarding cash as much as they can. As legendary investor Warren Buffett famously said about the contrarian mind that any investor should have: "Be fearful when others are greedy and greedy when others are fearful." Hindsight is always 20/20, but this year couldn't have been better advised than that almost cliche sounding one-liner. Then why almost no one was able to present this case as one of possible scenarios at the end of last year? To make sense of this slightly better, let's reflect on what happened in the 2020s.

How the grand monetary rescue during COVID turned into the worst nemesis, inflation

In the first half of 2020, COVID nearly stopped the entire world. Almost every country imposed severe lockdown protocols, hospitals were at some point almost paralyzed due to a lack of beds - there were even temporary hospital beds in Central Park. The economy is a living organism through societal interactions, hence it was no surprise that apocalyptic depression almost ate up the financial world (there were four circuit breakers - S&P 500 index falling more than 7% during the day - in the US just within 10 days!). So here, two saviors came through to rescue us from the nadir, government and the central bank. Through fiscal stimulus and monetary easing, the US injected almost 4 trillion USD into the market to backstop the credit freeze. Arguably their swift response successfully avoided severe economic recession, but left another problem for tomorrow. Too much money has flown into people!! Well, what would people do if they have too much free time (c'mon, we all know that work from home wasn't really working always after all) and leftover money? First, we just tend to spend more time watching and reading random stuff from the internet. And then, you buy seemingly necessary but fairly random things which were contemplated over your time spent web surfing. With fast and streamlined social networks coupled with amazingly working apps such as Robinhood and Coinbase, most people ended up buying stocks and cryptos. From mid-August of 2020 when S&P 500 recovered its high pre-COVID, the only thing you can read from news and financial magazines were all about how people became rich trading cryptos, how hot tech stocks are, and all those young entrepreneurs in their 20s have a net worth of more than 8 figures. Without realizing much, we were baking a much worse problem behind the scenes - inflation. There are so many theories as to why inflation wasn't already there in 2021 - reasons such as COVID variants depressing service prices, low labor participation depressed not only supply but also demand at the beginning - but one thing is clear. People were just too used to ever-decreasing long-term interest rates since 1985. What can we say when even the most celebrated economists in the world - Chairman and regional presidents of the federal reserve - were even saying the inflation is "transitory". So when it really caught us in 2022, the damage was already done too much, prompting the federal reserve to start the most aggressive rate-hiking phase in 40 years. Given all large-cap growth stocks - aka tech stocks - enjoyed parabolic growth based on a low-rate environment, it was understandable that investors freaked out, and we were well into the bear market by the end of the third quarter in 2022. By Christmas last year, I can't remember any chief economists in major Wall Street firms putting more than 4000 as their end of 2023 target price for the S&P 500, most of them urging to stay short equities saying the bottom hasn't come in yet.

What did they miss so bad?

Even after general corporate earnings have indeed shown some slowdowns. Personally, I think there were three reasons that could be the main driver of this relentless market rally immediately after the deep bear market. First, residential mortgage and corporate debts were locked in at ultra-low rates by the end of 2021 with maturity of 5 to 30 years. This kept consumers in good financial health, letting them continue spending on discretionary items, and corporations were never in the situation where their interest service cost was shooting up so much prohibiting them to perform their business as usual. Second, the advent of ChatGPT. I remember the first time when I used it last December where it wrote me a fancy and in-depth job opening post in just 15 seconds. This natural language processing at its finest together with billions of documents used for training mesmerized everyone, and the world has been going through a shocking paradigm shift since then. With this, tech stocks were likely to have another phase of price explosion but this time very limited to the top 5 market cap ones thanks to OpenAI's deep tie to Microsoft. This led to the market so-called low market breadth in a sense that most stocks did not perform better than the market index, top 7 stocks explained the majority of market performance. Last, investors being underinvested or even leaning short equities coming into 2023. Most asset managers, buy-side investors, and retail were very much underinvested in equities compared to long-run averages with reasons that I mentioned above. They were caught by surprise with a market rally in the first two months, however, the bankruptcy of Silicon valley bank and near miss one by Credit Suisse hit the market hard in March, and the debt ceiling till May drama gave them hope that the market may finally crash in a way that they were expecting. Both incidents were resolved in time, then it left them with a meager return, made them desperate to catch up driving the market into melt-up and short squeeze modes. So now, where would we be at by the end of this year given these recollections? At this point, still the air feels like that catch-up to touch all-time high S&P 500 seems to be one with recent lower than expected inflation prints, expecting the federal reserve to end its hiking phase (believe it or not, if you bought stock at each end of the central bank's hiking, you enjoyed the positive returns). However, many known-unknowns such as geopolitical tensions with China, still ongoing Ukraine war, and possible re-acceleration in inflation. One thing which you can control is first to define your financial needs and goals, then doing your diligence in understanding risks in possible investment choices and how to execute that accordingly. Allocation to passive investment strategy is one, and now you can even get exposure to institutional-level of well-defined quantitative strategies that weren't available for retail just a few years ago. What would you like to do? Only you can give yourself an answer.

Good luck and be safe.

Welcome back 🌻

1. Project StraBerry: Updates

+10%

Our Commitment

2. Andrew’s Quarterly Report

Looking back at the 2023 market year to date

How the grand monetary rescue during COVID turned into the worst nemesis, inflation

What did they miss so bad?

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