Latest Thoughts
June 2010 Performance Report
09/07/2010
June proved to be another month of performance and it was dramatic - taking the performance index back to levels seen in May 2009. A whole year of effort destroyed!
Equities weakened due to concerns that problems besetting the fiscal policies of Euroland would weaken global growth generally. That resulted in positive performance from the equity short. However, the currency positions performed poorly - being long Euros and short GBP was an expensive trade. Being short gilts was similarly costly.
There are two policies being pursued in the western world: negative fiscal thrust in Europe and fiscal profligacy in the US. At some point the USD will suffer, but for now it benefits from flight to quality properties - although in the last few weeks that correlation has started to weaken.
The portfolio lost 51% of the previous accumulated total
Currency (contributed -60%)
I am not sure I could have held worse currency positions. Short EUR / CHF cost 30% with the remainder coming from the short to GBP. Sterling performed strongly (as did gilts) as the coalition government announced plans for fiscal tightening. Whilst at the margin this might benefit short dated gilts, the last thing the economy needs is a stronger currency. Export data is already suffering due to a fall in EUR/GBP in recent months. Tighter fiscal policy will be offset by weaker monetary policy, irrespective of inflation concerns.
Bonds (contributed -16%)
The short to gilts was expensive - fiscal consolidation is promised in the UK, thereby ensuring at least 5 years of low real growth with the only hope that inflation speeds up the de-leveraging process.
Equities (contributed + 20%)
The short to the SPX was one bright spot in a dim month. Global growth is slowing and equities need to price in the risk of a double dip. The passing of time, lower volatility and a pop up in equities mid month from lows, provided the opportunity to close down the written call option - all the short is now linear.
Single Equities (-1%)
Sadly the the single equity positions had to be closed. Well, there was no evidence of skill in adding value through single equities, but I am sure the short to Ford and UK retailers would at some time have worked. In the meantime, starting employment means difficulty from a compliance viewpoint in expressing single equity positions, so best to close them all.
