Macro Tsimmis

intelligently hedged investment

2Q08 Intelledgement Macro Strategy Investment Portfolio Report

Posted by intelledgement on Wed, 09 Jul 08

Summary of Intelledgement’s Model Macro Strategy Investment Portfolio performance as of 30 Jun 2008:

Position Purchased Shares Paid Cost Now Value Change ROI CAGR
EWZ 03-Jan-07 192 46.85 9,003.20 89.29 17,374.66 14.27% 92.98% 55.49%
FXI 03-Jan-07 81 111.45 9,035.45 130.84 10,812.83 -2.72% 19.67% 12.81%
GLD 03-Jan-07 142 63.21 8,983.82 91.40 12,586.02 -4.79% 44.47% 28.02%
IFN 03-Jan-07 196 45.90 9,004.40 35.38 8,537.76 -10.99% -5.18% -3.51%
IXC 03-Jan-07 81 111.47 9,037.07 152.60 12,618.53   17.73% 39.63% 25.12%
PHO 03-Jan-07 489 18.41 9,010.49 20.71 10,187.34 13.33% 13.06% 8.59%
SLV 03-Jan-07 70 128.64 9,012.80 172.63 12,084.10 -11.53% 34.08% 21.76%
SRS 31-Aug-07 92 97.84 9,009.28 105.00 9,805.98 -15.05% 8.84% 10.72%
DBA 13-Mar-08 235 42.50 9,995.50 40.68 9,559.80 11.60% -4.36% -13.87%
cash       17,907.99   27,395.04      
Overall 03-Jan-07     100,000.00   131,354.82 3.70% 31.35%   20.10%
Macro HF 03-Jan-07     100,000.00   115,477.35 2.38% 15.48% 10.14%
S&P 500 03-Jan-07     1,418.30   1,280.00 -3.23% -9.75% -6.66%

Position = security the portfolio owns
Bought = date position acquired
Purchase Price = price per share
Shares = number of shares the portfolio owns
Cost = what portfolio paid (including commission)
Value = what it is worth as of the date of the statement (# shrs multiplied by price per share plus value of dividends)
Change = Change since last report (blank for positions new since last report)
Return on Investment = on a percentage basis, the performance of this security to date
Compounded Annual Growth Rate = annualized ROI for this position (to help compare apples to apples)

Notes: The benchmark for this account is the Greenwich Alternative Investments Global Macro Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.3%. For comparison’s sake, we also show the S&P 500 index, which historically provides a CAGR of around 10.5%. Note that dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: Nothing doing this quarter other than booking some dividends:

  • 20 Jun – PHO dividend of $0.019/shr
  • 23 Jun – FXI dividend of $0.56167/shr
  • 23 Jun – IXC dividend of $0.40133/shr
  • 24 Jun – SRS dividend of $0.44/shr

Performance Review: A good quarter, much better than 1Q08. We thrashed the S&P 500—which which suffered a third consecutive losing quarter and is down 16% since 30 Sep 07—and gained back some of the ground we lost last quarter to the Macro Hedge Fund index—which, while eating our dust overall, has gained ground in every quarter since we started tracking our performance (we have been in the black five out of six).

Our Asian holdings (FXI and IFN) were down this month as were precious metals (GLD and SLV) and our one remaining inverse fund (SRS real estate). However, Brazil (EWZ) and the other commodities (the IXC energy fund, the PHO water fund—and check out this Business Week article on the subject—and the DBA agriculture fund) were all up more than enough to compensate.

YTD, the Macro Hedge Fund index is up 3% while we are down 4% and the S&P 500 index is down 13%(!). But even with the 2008 losses we’ve incurred, we are in a great place overall, with a compounded annual growth rate after 18 months of operation of 20% compared to 10% for the average macro hedge fund and -7% for the market overall.

Analysis: We continue to monitor the course of events in the expectation that the dollar is going to collapse and the US economy has a long way to go to adjust to the new reality that we are no longer king of the value-add hill in either manufacturing or services. While we still don’t think that is all likely to happen before the election, the risk of a major market meltdown continues to increase. June all by itself was a minor meltdown: the worst month for the DOW since 1930.

The underlying strategic problem is that we have been living beyond our means both as individuals and as a nation and borrowing money to fund our addiction to conspicuous consumption…and our credit rating is headed south thanks to the bad real estate loans we foisted on everyone during the housing bubble. The tactical problems revolve around the insolvency of our financial institutions saddled with varying quantities of mortgage-backed securities and corporate paper of unknowable (but certainly reduced) value. The Fed and the ECB can and apparently fully intend to delay the inevitable day of reckoning with various credit offerings, loans, and brokered “rescue” deals to address the tactical issues, whilst pretty much ignoring (and probably exacerbating) the strategic problem.

At least through August, they will have China on board as Beijing will not want any serious financial crisis disrupting the Olympics. Actually, China depends on the USA and Europe to buy their exports and thus fuel their double-digit growth…plus we owe them tons of money…so they are likely to cooperate in whatever dubious attempts to maintain confidence in the broken system the Fed deems appropriate.

The presidential election campaign has—unsurprisingly—been a disappointment. With such deep problems abounding, it is dispiriting to say the least to see both major party candidates putting forth manifestly unrealistic promises and, mostly, failing to address the main points. One almost hopes there will be a crisis prior to November, which at the least should have the effect of raising the level of debate on the issues.

Conclusion: Not much has changed in the last three months. Machinations by the Fed and the ECB still appear to be holding the line for the most part, although the dollar is noticably wobbly in the wake of all the credit injections (which increase the supply of dollars). Thus we still anticipate it is most likely the markets will muddle through the Olympics/USA election without a major collapse, although we remain focused on the US consumer and the US dollar as our “canaries in the coalmine.” Should either begin to degrade rapidly, then we stand ready to sell off the emerging market ETFs (EWZ, IFN, FXI) and possibly the energy and commodity ETFs (IFC, DBA) in favor of additional sector/index “reverse” ETFs (such as SRS already in the portfolio).

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