News Story of the Year

Evenin' all

It's not the purpose of this blog to pass political comment. There's plenty more out there that can do so better than I. But, when looking back on this year, there's one little story from back in June that should serve as a warning to all U.K.-based investors.

If you like gold, for instance, as an investment (as I do) then you may read on other websites that you should avoid "paper" gold investments such as futures or options, or even ETF's such as GBS. US-based comments usually allude back to Roosevelt's private gold confiscation of the 1930's, and the fear of something similar happening again.

The problem is, if you live in the U.K., what are your options? Oh, you can certainly buy yourself a stack of gold goins or even bars, but what are you going to do with them? Unfortunately, in modern Britain, all you are doing is making yourself a target for the criminal underclass, whose numbers will surely swell massively over the next few years, as unemployment mounts, and prison budgets are cut even further. And, we all know what happens to anyone in this benighted country who tries to defend themselves or their property.

So, some of you may be thinking that a safety deposit box is the way to go. If so, I suggest you remind yourself of this little story from back in June, about "Operation Rize".

Fancy having to trott along to Plod and justify exactly why it is you were holding 200 gold sovereigns in an anonymous secure location? Thought not. Especially when, as part of their follow-up, the police will, of course, be informing HMRC all about it too.

Happy New Year from Police State Britain, where only the criminals are free.

Another shot at my favourite short ETF - SRS

Others may take time off from trading at this time of year. There is logic to that - volume is low, so technical signals are less reliable. Nonetheless, I simply cannot pass up the chance to lock into my favourite inverse ETF - the Proshares Ultrashort US Real Estate (SRS). Fundamentally, I think that US commercial real estate still has a terrible day of reckoning looming, and looming soon after Christmas (as shopping mall developers, etc., need to roll over loans and find they cannot, while retail sales evaporate).

And, the technicals are right for me - the iShares IYR ETF (SRS's positive inverse) posted a 3dma below the 13dma yesterday, so it's sellin' time again.

I've just bought a big chunk of SRS at $60.00 (about £41.42).

Shorting the S&P500 - SDS

My favourite technical indicator tells me it's time to short the S&P500, so I have just bought a substantial chunk of the Proshares Ultrashort S&P500 ETF (SDS), at $76.35 (£51.83).

The Zero Option - FXF ETF

Greater minds than mine can pass comment of the Fed's latest (and surely final) rate cut, but my response is to diversify my cash pile away from dollars slightly. I've just bought a big slice of the CurrencyShares Swiss Franc ETF (FXF.NYSE), at $90.24 (about £60.53).

SRS - bye bye for now

With IYR's 3dma popping back above the 13dma, it was time to dump SRS yesterday. I got out at $119.18 (£81.54), a sterling loss of around 12%. Such losses are inevitable for this sort of short-term trading.

iShares MSCI Singapore ETF (EWS) - still looking good

Despite being down on this one since purchase, I remain keen, not least because of the impressive dividend yield - currently 9.25% ! Even if divi's are cut (and remember, this ETF tracks a whole stock index), that's enough of a yield to say "who needs capital growth?".

I'm not alone, as this comment on Seeking Alpha indicates.

SRS - Another bite of the cherry

Perhaps I'm being greedy, but my technical signals tell me to go short of US Real Estate once more, so I have again bought the Proshares Ultrashort DJ Real Estate ETF, this time at $137.23 (£92.95).

Credit Crunch November Portfolio Review

Lots of fireworks over the past month

Another month passes, and it's time to see how we've done:

Closed positions:

Ultrashort Lehman 20+ Year Treasury (TBT) – bought at $62.70 (about £39.00), dumped at $62.70 (£40.19); sterling profit 3%! Yes, my failed speculation on falling long-dated T-Bonds actually returned a sterling profit, thanks to the plunging pound.

Ultra S&P500 (SSO) – bought at $30.74 (about £19.13), dumped at $27.91 (£18.65); sterling loss about 3%.

Ultrashort DJ US Real Estate (SRS) – bought at $129.65 (£83.06) and sold at $205.45 (£136.69); sterling profit about 64%

Open positions:

iShares Euro Government Bond 15-30 (IBGL) – my long-dated euro sovereign bond pick, average buy price £116.96, price last month £119.00, price today £134.06. So, that's profit of about 14.6% since purchase (13th September, 2008), or 12.6% in the past month alone.

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), price last month $74.52 (but £46.59 in sterling!), price today $75.39 (£50.68). That's a sterling profit of about 11% since purchase, or 8.7% in the past month.

iShares MSCI Singapore Index Fund (EWS) – following Dr Doom into Singapore, bought at $7.66 (£4.59) on 21st October; price last month $7.37 (but £4.60 in sterling!), price today $6.21 (£4.17). That's a sterling loss of about 9% since purchase, or about the same over the past month.

M&G International Sovereign Bond Fund – bought on 24th October at 60.61p; price last month 64p; price today 69p. So, a profit of 13.8% since purchase, or 7.8% in the past month.

Analysis:

Both SSO and TBT were inflationary plays; SSO in particular being a play on a short-term bounce in the S&P500, which I felt was justified by the technicals and general Obama euphoria. In practice, the rally proved to be a feeble affair, with the 3dma dropping below the 13dma again after less than two weeks, and the 39dma still trending down.

But, losing plays where I only lose 3% are speculations I am happy to make, especially when they are balanced by big winners like SRS. November's SRS trade was pretty much a textbook play of my favourite technical methods. I was certainly right to liquidate when I did, with SRS now trading at around $142.

Turning to my more fundamentally-based positions, it is interesting to note that IBGL has now begun to outperform the M&G International Sovereign Bond Fund (a 14.8% November gain, vs 7.8%, respectively). It's also interesting to compare IBGL against similar iShares ETF's for US Treasuries and UK Gilts, ie, the iShares $ Treasury 7-10 (IBTM) and the iShares FTSE UK All Stocks Gilt (IGLT). IBTM is up by 17% in the past month, while IGLT is up only 4.8%.

Gold continues to perform well in sterling terms, even though the US dollar price is still below the purchase price. In common with my bond plays, then, the lesson is “anything but sterling”, which is the market's verdict on the Zanu-Labour's economic mismanagement.

EWS is a bit of a sorry loser, with even the “anything but sterling” effect failing to save it. But, I'm hanging on in there for now.

Overall, the portfolio now consists of two deflation-friendly plays (IBGL and the M&G fund) and two inflation-friendly positions (EWS and GBS). I think that's about the right balance, although I still think a really substantial bounce is likely at some time. After all, there is a pretty universal consensus amongst governments as to what needs to be done (“keep printing money until asset markets start rising again”), so surely the medicine will take effect at some point, if only in purely nominal terms (ie, markets may rise, but only in an utterly debased currency – what von Mises termed the “crack-up boom”). On the other hand, I have no idea when, so a 50-50 split seems reasonable for now.

Oh, and if you haven't come across this yet, it says more about current US and UK government policies than I ever could. In the realm of “you couldn't make it up”, the Reserve Bank of Zimbabwe now writes:

As Monetary Authorities, we commend those of our peers, the world over, who have now seen the light on the need for the adoption of flexible and practical interventions and support to key sectors of the economy when faced with unusual circumstances.