This mornings action makes me feel a great deal better about our hedging and risk reduction over the past month. Getting defensive when the market is in a downturn not only preserves your capital but your state of mind as well. Keeping a clear and unemotional frame of mind is very important since it prevents you from being emotionally shell shocked when the time is right to buy again.
If you’re a mutual fund investor you should be aware that tactical shifts in assets and risk are rarely done if ever. Most funds are obligated to remain fully invested in their strategy regardless of the economy. Our ability to adapt and hedge risk is a great advantage with markets in turmoil.
Not all markets are in turmoil though………..Gold is an unrelenting beast.
Long GLD
It would have been nice if our models had gone to a hedged position a couple of weeks ago but we use earnings as a timing mechanism and earnings are only now rolling over and I think this is just the beginning. Our models have formally gone to a hedged position so the risk is very high and preservation is paramount.
This signal is relatively weak so time will tell, on a subjective note I don’t trust 2012 estimates at all, at least not until they come down hard. If anyone honestly thinks $112 estimated earnings for the 2012 S&P 500 is achievable then you must be having a Woodstock flashback.
Trading and “investment” opportunities remain: Precious Metals (PM) and on the Dark Side with Inverse ETF’s.
And if that isn’t gloomy enough: David Crosby of CSNY turns 70 today.
Long SDS, GLD, SLV
Parabolic moves higher within mature bull markets usually lead to market peaks. Granted, we live in unusual times so the price action is fitting, but still…….If the US stock market gains some traction in the next week or two, it will be at the expense of gold and the franc. As I write this the Fed minutes state that they will keep rates low to aid the domestic economy…………(and, gold). Gold remains the primary beneficiary of all that’s happening.
Still don’t believe a solid market bottom is in place although yesterday could be the peak crescendo of the down move. I expect 2 or 3 retests of the Monday low, hence rallies are for selling stocks not buying. If we can get close to 1200 on the S&P 500, inverse exchanged traded funds will be of interest.
Long GLD, SLV, FXF
Anticipating some questions regarding metals and currencies in light of a potential resolution to the near term budget crisis.
1. I like Gold, Silver and safe haven currencies like the Swiss Franc for the long term. Once the current issue of the budget is resolved we still face the tsunami issue of total debt to GDP. Long term being defined in 2-4 years time frame.
2. Are you still focusing on SRI and green/humane investing? Of course we are but we must also be agnostic to the realities of debt to GDP and its impact on equities. We don’t own any mining stocks or consumer non cyclicals such as factory farm companies. Macro issues like debt can and will dwarf the positive impact of green equity investing. To ignore this reality is to be naive or oblivious to the facts as say…..an American politician.
3. The diversification into Gold and currencies is a balancing of risk to dollar denominated equities. Our primary responsibility is to our clients and their assets not to our holdings.
4. If you’d like to learn more about the issues we face from a long term perspective, I’d suggest you follow the link: “A template for understanding what’s going on” by Ray Dalio of Bridgewater Capital
And…………a new Clapton album is coming! Eric Clapton and Wynton Marsalis live from the Lincoln Center due September 13
Long GLD, SLV, FXF
In case you just can’t get enough chatter about debt, here’s a wonderful chart worth 13 trillion words.
Investing in socially responsible investing has for the first time in my 30 year career a luxury when faced with the tidal wave of Macro circumstances relating to debt.
