Credit Crunch October Portfolio Review

Inflation a winner for now?

Well, the drama has continued over October, with much more action in the CCI portfolio than I anticipated. Let’s have a look at how things went.

Closed positions:

Titanium Metals Corporation (TIE) – my September Contrarian pick blew its stop-loss at $9.26, getting me out at about £5.22 in sterling terms (21.5% loss). Only a small side-bet, so limited damage in overall terms.

Ultrashort QQQ (QID) – my Nasdaq 100 short, bought and sold twice, losing 5% and 25% in the process.

Ultrashort MSCI Emerging Markets (EEV) – also bought and sold twice, losing 2% and 47% in the process.

Ultrashort FTSE/Xinhua China 25 (FXP) – also bought and sold twice, losing 8% and 40% in the process.

Ultrashort DJ US Real Estate (SRS) – bought and sold only once, for a gain of 36%.

Powershares DB US Dollar Index Bullish Fund (UUP) – my September US Dollar Bull pick, sold for a sterling gain of around 17% (fortunately, my biggest single position).

Open positions:

iShares Euro Government Bond 15-30 (IBGL) – my long-dated euro sovereign bond pick, average buy price £116.96, current price £119.00, profit about 1.7%.

Lyxor Gold Bullion Securities (GBS) – my gold bullion pick, added to the CCI portfolio at $81.38 (about £45.57 at the time – 18th September, 2008), current price $74.52 (but £46.59 in sterling!); sterling profit about 2%.

iShares MSCI Singapore Index Fund (EWS) – following Dr Doom into Singapore, bought at $7.66 (£4.59) on 21st October; price $7.37 today (but £4.60 in sterling!); sterling performance flat.

M&G International Sovereign Bond Fund – bought on 24th October at 60.61p; price today 64p; profit 5.5%.

Ultrashort Lehman 20+ Year Treasury (TBT) – bought at $62.70 (about £39.00), current price $63.94 (£39.95); sterling performance flat.

Ultra S&P500 (SSO) – bought at $30.74 (about £19.13), current price $34.26 (£21.40); sterling profit about 12%.

Thoughts (“analysis” is too grand a term for these ramblings):

Both TIE and my Ultrashort ETF’s were very much speculations, so I am not too shocked to have been burned on these. I will try to pay closer attention to the risk/reward ratio on Ultrashort ETF’s in future, though.

The sterling performance of gold (via GBS) is worth noting. Internet gold investment commentary is invariably written from a US dollar perspective, so it is instructive to see a USD decline of some 8.4% actually become a sterling gain of 2%. Gold has not been a poor investment during the last couple of month’s crisis; it’s just that the US dollar has been a better one – as one would expect, given that the Lehman disaster has been highly deflationary. As of last week, however, I believe that has changed.

Ultra S&P500 – way to go! This is, however, IMHO a highly speculative investment – simply a way of cashing in on a medium (at most) term bounce. I do think that President Obama’s coronation will boost this one further, but am keeping a close watch on the technicals.

The relative performance of my two bond holdings is troubling me. Not the M&G fund – 5.5% up in couple of weeks is great stuff for a unit trust. The relative weakness of the IBGL ETF worries me, given my thesis that long-dated euro government bonds should outperform US T-Bonds and British Gilts. Could I be wrong? Could euro zone government finances be ruined even more than the US and UK? True, euro zone debt may be high now, but my thesis is that the Stability and Growth Pact will prevent future growth at the same pace as seems guaranteed for the US and UK. Of course, it could just be the inflation monster knocking IBGL down, but (in that case) why has the M&G fund done so well? One to ponder.