Posted by intelledgement on Thu, 21 May 09
We’re back short as of the close today.
When we hit the eject button on the short positions in March, we expected to be back here sooner or later. We believe that the optimism the market has reflected in the 37% surge in the S&P 500 index between 9 March and 8 May has been sadly misplaced. The collapse of the residential real estate bubble is still ongoing, with concomitant credit card debt defaults, decreases in consumer spending, a continuing rise in unemployment, and coming soon will be a spate of commercial real estate defaults.
Furthermore, the new US government has disappointingly extended the policies of the previous administration to attempt to prop up the zombie banks and keep the easy credit spigots open. While these policies have been successful in staving off “systemic risk” defaults, they will only postpone the day of reckoning and, by throwing increasingly less good money after bad, are debilitating the already-weak dollar as well.
We are going with the Proshares Short QQQ (PSQ) ETF, whose managers “seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ-100 Index,” their Short DOW 30 (DOG) ETF, aimed at achieving “daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Industrial Average Index,” and their Short S&P 500 (SH) ETF, which seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P500® Index.”
One strategy note: we seek to invest congruent with long-term, macro trends which, typically, should result in relatively rare adjustments to the portfolio lineup. Obviously that has not been the case in the last nine months or so, during which time we have switched from long to neutral to short to neutral to long (for five days earlier this month) to neutral to short! This unusually frenetic maneuvering is a function of off-the-scale levels of volatility, as outlined in this recent Motley Fool article. The specter of systemic risk has made it extraordinarily hard to assign valuations, and in the fog of this uncertainty, when you have the market moving as much in two or three days as it “normally” does in a year, more frequent adjustments are appropriate.
For example, while it would have been rational to ignore the rally that started in March and stay short—because eventually when reality reasserted itself, the market would come back down to us—by divesting ourselves of the short positions, we afforded ourselves an opportunity to reacquire them here, at a 25% discount. That is too big an opportunity to ignore.
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Posted by intelledgement on Wed, 13 May 09
OK, the danger of irrational exuberance appears to have abated here, so we are cashing in our updraft insurance. The reality is that we are in far worse shape than justifies a +35% move in the market. We are back to neutral here and eying the short ETFs closely.
Posted in A.1 Investment Recs | Tagged: EWZ, IXC | Leave a Comment »
Posted by intelledgement on Thu, 07 May 09
In a world where rising energy demand outstrips supply, the macros dictate being long energy, as we said back at the inception of this portfolio. Tactically, we dropped the position when we entered the storm shelter last year. We are reinstituting our position here not because we think the storm has passed, but because while in the eye of the hurricane here, the market is making a serious move northwards and—just in case we are wrong about this recovery having legs—we are protecting ourselves against that risk.
We are still in a downward trend, and there are still shoes overhead but for now, the sun is peaking through so it’s time to make hay. The stress test results whitewashing the banks seem zany to us, but the market is seeing everything through rose-colored glasses just now. We could be seeing a replay of 1933-37 when, starting within a few months of the inauguration of the new administration, the market rallied furiously, even though the depression was far from over. If the speeded up 21st century depression-related market collapse lasted 21 months as opposed to four years (1929-1933), then this false dawn, which lasted four years back in the thirties could persist for up to two years here. We doubt it, but the risk is significant enough to be positioned appropriately.
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Posted by intelledgement on Wed, 06 May 09
Our gold mining spec play, Golden Star Resources (GSS), released 1Q09 results today and although the bottom line was more red ink—the ninth consecutive losing quarter—things are definitely looking up. The company lost $1.1 million (half-a-cent per share) on record sales of 96,971 ounces of gold, at an average price of $904/oz. It was the narrowest loss the company has had since the progression of consecutive red-ink quarters began 1Q07. The record production amounted to a 69% year-over-year improvement, and was up 13% from 4Q08. Even better, production costs were $571/oz, which was the second lowest quarterly cost performance since commercial-scale BIOX® processing began at the Bogoso mine in early 2007, and a healthy improvement over last quarter (-10%) and a year ago (-12%). The 1Q09 decrease in production costs was also the second consecutive…one more data point and we will have us a bona fide trendline!
It still ain’t all roses. Bogoso continues to lag expectations. Production this quarter was lower than projected, principally due to a two-week hiatus “due to electrical issues including an electrical fire in the liquid resistance starter and continuing poor quality power from the VRA,” according to the press release (click here and on “Golden Star Reports Record Quarterly Gold Sales of 96,971 Ounces”). And costs are still high, running $813/oz for the quarter, which was not even an improvement over last quarter’s $799. (Fortunately, costs at Wassa came in quite low at $397/oz.) Management expect the Genser power plant being constructed cooperatively by several mining companies to come online during 2Q09, which should improve the power reliability problems.
Still, it is hard to see how the company will meet their target cash cost of $650/oz for all of 2009 at Bogoso. FWIW, management are still projecting production of 400,000 ounces for the year. Be that as it may, the prospects of increased production at a profitable cost has the stock up 46% YTD as of today’s close, and with these improved 1Q09 results (announced after the market closed), tomorrow should see further gains. For now, we are staying on this train; it’s running way late and the amenities are considerably poorer than advertised, but at least it is now headed in the right direction, and appears to be picking up steam.
Previous GSS-related posts:
Posted in B.2 Spec Equity Updates | Tagged: GSS | Leave a Comment »
Posted by intelledgement on Wed, 06 May 09
The strategic rationale for being long Brasil has not changed since 2006 (when we first initiated that position). Tactically, we dropped the position when we entered the storm shelter last year. We are reinstituting our position here not because we think the storm has passed, but because while in the eye of the hurricane here, the market is making a serious move northwards and—just in case we are wrong about this recovery having legs—we are protecting ourselves against that risk.
Posted in A.1 Investment Recs | Tagged: EWZ | Leave a Comment »
