Macro Tsimmis

intelligently hedged investment

BUY ProShares Short QQQ (PSQ), Short Dow30 (DOG), & Short S&P 500 (SH)

Posted by intelledgement on Tue, 25 May 10

One expectation that exists with a macro-strategy fund is that as material economic, political, and social forces drive the investment strategy, it is more like conning an oil tanker than a destroyer. For the captain of an oil tanker, setting the course should be fairly straightforward, being derived from an analysis of the various routes available to get from point A to point B, taking into consideration major ocean currents, weather conditions, and any relevant particulars (e.g., avoiding shallows, pirate infestations, and difficult waters)—always keeping safety paramount. Thus one would expect relatively few changes in course, and those that are made should generally be anticipated well in advance.

This contrasts with the captain of a destroyer, whose mission may require him to expose his warship to danger, and whose course is highly likely to vary greatly from one moment to the next depending on the tactical situation (e.g., tracking or engaging a hostile sub that is undertaking evasive maneuvers).

However, when icebergs suddenly appear where they normally don’t, then all bets are off for the oil tanker, and while it may not be designed for bobbing and weaving, if that is what is required to optimally protect the cargo, that is what the captain has to do.

Folks, we are in iceberg territory. The market’s perception of reality vîs a vîs the European sovereign debt crisis—which morphing into a liquidity crises akin to 2008-09—is coming into closer congruence with our own analysis faster than we had heretofore anticipated, and as a consequence, we are reinstating our index short positions.

While we never anticipated that the “solution” of the Eurozone politicos—fighting too much bad debt with more debt—would be a viable solution, we are surprized the market so readily agrees with us. Default disguised as “restructuring” remains the only viable alternative for Greece (at least). The powers-that-be have avoided it for the same reason that the Fed and US government bailed out AIG, Citibank, Freddie, Fannie and their ilk—too many lenders to Greece are at risk. Unfortunately (although not surprizingly), delaying the inevitable has not, as was hoped, gotten us to a more convenient time for taking the medicine.

It will be interesting to see what happens but to improve our chances of enjoying the view, we need to move back to the “short” section of the stadium.

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.”

Previous DOG/PSQ/SH-related posts:

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