Risk assessment Wednesday came and went without any action. The current portfolio consists of the following positions:
TMV - Average purchase price $21.24 – Current price $19.39 – 20 year+ treasury bear ETF 3X. The aversion to risk amongst Wall Street participants has manifested itself through a pummeling in the bond yields. Anticipation of an economic slowdown and fear of the European debt crisis resulting in a repeat of 2008 have created a premium in the price of “safe” fixed income instruments that may turn out to unjustified. Risk will be put back on in the months ahead. Long TMV is a good way to play the future embracing of risk.
DZZ – Average purchase price $4.34 – Current price $4.34 – Double short gold ETN. Another way to play the unwinding of risk aversion on Wall Street going into the 4th quarter. A new uptrend in the US Dollar paired with strength in US equities will be too much for an overextended gold market to take over the coming 4-6 weeks. Gold at $1800 is a bet on a financial pandemic swallowing all developed economies. Gold moving back to $1400 will reclaim its semi-legitimate status as an alternative to fiscal and monetary irresponsibility in the form of unstable reserve currencies. Cliff notes: $1800 gold = put option on the financial system of developed economies. $1400 gold = alternative to unstable reserve currencies.
EUO – Average purchase price $16.55 – Current price $18.34 – Double short Euro ETF. An unstable and unpredictable future for the EU means an unstable and unpredictable future for the Euro. The only path towards a temporary fix will be through a reluctant program of monetary irresponsibility that will be Euro bearish over the long-term. I’ll post the chart this weekend. If you look at it from a long-term view it looks as if a distribution pattern has been taking place over the past few years. A move below 1.20 on the EUR/USD wouldn’t be a surprise in 2012.
33% cash – waiting for an opportunity to initiate a long US equity position with the remaining funds. It’s not going to happen with market action similar to what we experienced today. While I have been bullish on US equities since 9-6 for an intermediate term run. I am not comfortable buying in what has turned out to be a brutal range for both bulls and bears. It’s a more sensible play to look at beneficiaries that lie on the periphery of a bullish move in equities. Beneficiaries that do not possess either the volatility or news driven paranoia that equities currently do. TMV, DZZ, EUO will all benefit from a 4-6 week run in stocks. They also have the benefit of not experiencing the same volatility barring a surprise economic shock i.e. a large financial institution going under, country defaulting, severe economic downturn etc.
I would like to put the cash to work. At the same time, I’m willing to be patient if the right opportunity doesn’t present itself in US stocks.