Credit Crunch January Portfolio Review

Davos finds no answers to crisis

The [Davos] World Economic Forum has ended with a call to rebuild the global economic system ... However, most discussions described the problems, not solutions ... Nobody in Davos tried to refute the prediction that the global economy is heading into a deep and long recession.
BBC News, 01/02/2009

Deflation Draws Near In Europe
Forbes, 30/01/09

If financial sector problems are not remedied or further shocks add to current stresses, there is a significant probability of more negative deflationary outcomes, with a deeper and more prolonged recession
The IMF, quoted by Reuters, 28/01/09

While such an outcome is clearly not our main case, the risk of hyperinflation cannot be dismissed very easily any longer, in our view.
Morgan Stanley’s Jocahcim Fels and Spyros Andreopoulos

Gordon Brown has reportedly said that the government must use simpler language about the credit crunch, because banking and financial-policy jargon just confuses everyone. Well, I can sum it up quite easily: we're bust, and we're going to print money to make ourselves feel richer.
Dr Eamonn Butler, 30/01/09

Well, that's enough light relief. How has the Credit Crunch Investor portfolio performed over the past month?

Short-term Speculations:

Ultrashort Lehman 20+ Year Treasury (TBT.AMEX)
Initially bought on 6th January at $42.33/£28.42, then whipsawed out on 20th January at $41.24/£29.61. Note that, despite this being a failed trade, it actually realised a sterling profit of some 4%! Another example of my "anything-but-sterling" investment theme (much related to, I suspect, Guido Fawkes' "Anyone but Gordon" tag).

However, I bought into TBT again the 22nd, at $43.25/£31.47. It now stands at $47.80/£32.89, so is going in the right direction, if not exactly coining it in. If you look at the chart of TBT's inverse ETF, the iShares 20+ T-Bond (TLT), you'll see that the dma's suggest continued decline. However, the 14-day RSI is now at 30.9, which is approaching oversold territory, so this trade may not last much longer.

I do agree with the likes of Marc Faber that this could be THE big trade of 2009, but the problem is there is no way of knowing for sure exactly when. And, with a leveraged ETF like TBT, knowing "when" is essential - look at when I tried this in November 2008, when the fundies were just as compelling. If I'd hung onto my TBT, purchased at $62.70, I'd now be down about 24% in dollar terms. In the absence of knowing "when", I'm left to follow my technical rules, which should at least get me in and out of the big moves.

Ultrashort DJ US Real Estate (SRS.AMEX)
Bought on 12/01/09 at $62.04/£41.72, and a definite failure - a positive 3/13 dma cross on IYR occured on Friday, so I'll be dumping SRS on Monday. The price today is $59.32/£40.81, so it looks like being a sterling loss in the region of 2% (helped, once more, by the anything-but-sterling effect). I can live with that.

Long-term positions:

iShares Euro Government Bond 15-30 (IBGL.LSE)
Bought 13/09/08 and again 23/09/08 at average price £116.96; price now £135.41, sterling profit about 16%. Actually, this is a big decline on the start-of-January valuation of £153.25 - a decline of about 12%. Nonetheless, I remain happy to hold, as I think that real deflation is more likely in the euro-zone than anywhere else, and the ECB hasn't reduced short-term rates to zero yet.

M&G International Sovereign Bond Fund
Bought on 24/10/08 at 60.61p; price today 77p, profit 27%. Note that this is virtually the same as the start-of-January valuation (78p); the benefits of diversification, even when it comes to something as boring as government bonds. Keep holding, both for possibility of more deflation ahead, and as an anything-but-sterling play.

CurrencyShares Swiss Franc Trust (FXF.NYSE)
Bought on 19/12/08 at $90.24/£60.53; price now $86.19/£59.30; sterling loss 2%. Now, this is a big one-month reversal, as FXF was at $92.35/£63.47 at the start of January (so, down near 7% this month). Such is the nature of short-term currency fluctuations; all fiat currencies are fundamentally worthless, but some are more worthless than others, and I suspect (believe?) that the Swiss Franc is likely to prove more enduring than (certainly) sterling and (very possibly) the US dollar and the euro. At any event, FXF is (for me) simply a diversification tool for holding cash in an non-USD or GBP form.

iShares MSCI Singapore Index Fund (EWS.NYSE)
Bought at $7.66/£4.59 on 21/10/08; price now $6.45/£4.44; sterling loss about 3%. Again, note that this is a big one-month reversal, from a start-of-January valuation of of $7.25/£4.98, so losing about 11%. Still a HOLD for me, as my intention is to soak up the divi's until the global economy (on which the Singapore stock market is something of a leveraged bet) eventually recovers. And, when it does, I suspect the epicentre of that recovery will be in the east.

Lyxor Gold Bullion Securities (GBS.LSE)
Bought 18/09/08 at $81.38/£44.35; price now $90.50/£62.26; sterling profit 40%. In the past month, it's been a move from $86.31/£59.32, so a January advance of about 5%. Now, that's a bit more like it! Have you worked out why I love gold so much? In fact, I'm going to get myself a lady covered in gold paint ... must remember to leave the base of her spine clear, though, unlike that poor Miss Masterton.



Market Vectors Gold Miners ETF (GDX.NYSE)
Added to the portfolio on 08/01/09 at $31.52/£20.71; price today $34.23/£23.55; sterling profit about 14%. A gold mining ETF is essentailly like gold, but with leverage. Hence, GBS up 5% this month; GDX up 14%. Plenty of upside yet; this baby has barely gotten started.

Centamin Egypt (CEY.LSE)
My favourite gold junior, added to the portfolio on 13/01/09 at 39p, price today 41.75p; profit about 7%. CEY is moving in the right direction, although noticably weaker than the GDX producers' ETF. To my mind, this means CEY is relatively cheaper than before; assuming it all works out, one of those GDX producers will end up having to buy CEY a long way north of 41.75p. CEY issued its quarterly report on 30th January, indicating that "Commissioning and gold production remains on track for Q2 2009". It is also interesting to note that CEY was able to raise C$60M in finance during January, to advance the Sukari mine, so indicating that, credit crunch aside, money can be raised for projects such as this. Hold on for a double within 12 months.