continuation of the investment committee meeting of which i am a member
From: W
Sent: Thu, April 21, 2011 4:30:49 AM
Subject: summary
PC, thks for putting in the research effort on hussman and your comments.
On the strength of your recommendation, I read hussman 2x and slept on it before responding:
Hussman:
the new news for me was how slow fed can raise rates because of the large monetary base post qe2. before the unconventional qe2, we never had to deal with this drag on raising rates.
disagree that there can be any exogenous event which can influence short term rates. 3mth tbills will be dictated by fed funds. Disagree that fed has to worry about any 50:1 leverage ratio or any loss to balance sheet. It’s truly accounting games.
W’s view of the world
what is the best hedge against inflation? Tips or gold or silver? Tips is actually not a bad instrument as I checked it out further and it gets adjusted for headline inflation, not core inflation. BUT tips as we know is a hedge against usa inflation, not global inflation such as gold. There is neg real rates in usa , china and japan. The 3 largest gdp. That’s good enough for me to think that gold rallies until rates go up meaningfully.
any drag on raising rates because of the large monetary base according to hussman means current steep yield curve will stay steep for longer.. so nly is the curve steepening play.
This week was probably my personal best trading week against adversity. So I began the past week’s ic call by saying that I felt better about the portf than would be indicated by the mtd on Monday at -.50%; today, we’re at +1.1% mtd because on Monday, we
1) bot gold, gdx and silver on the dip
2) bot xle and xlb as an outperformance for spy
3) bot audjpy
4) I wasn’t shaken out of the large incr of risk units from 2.3 to 3.0 as I had in the past because I was highly convicted in our lterm trends and swb showed that after the 1st hour of selling by huge volume, the rest of the day rallied right into the close with steady volume. This gave me conviction. Then swb showed support. On tues, swb showed breakout of support and I held the position further.
5) Mon was an oppty to buy on the dips which we have all agreed are lterm trends on the above mon purchases
Today, what to do now?
I converted some outright longs in gld, gdx and silver to selling puts; the volume on silver even tho its gone vertical is further reaffirmed by the px action. Since the $40 to 45 move in past 5 days, the avg volume has also incr by almost 2x. wow.
tbt finally found a base here according to swb and I added to our single biggest postn: .7R on tbt; this is double my natural steady state of .30R on any single position
mon risk units were 3.0R. today its 2.5R
the key debate for our IC team is not to debate our views which we all agree but what should our portfolio look like in terms of position size. How much in slv, gld, gdx, tips, as a core position which is not to be touched!!!!! What is to be traded around because there will be increased volatility as we head toward end of qe2.
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