December provided Our Man’s first dose of reality, with the portfolio bleeding steadily during the month resulting in a loss of 4.24% for the month. As indicated during the mid-month update (Waiting for Godot), substantially all of the loss came from the Long positions in Gold and in Long-term Treasuries. The L GLD position cost 160bips and risk management triumphed over patience, with the position substantially cut-back. The Long positions in Long-term Treasuries (L TLT and L Aug-29 Treasury Bond) cost 258bips, however no action was taken and this remains the portfolio’s largest positions.
Why the difference in reaction?
Well, without going into substantial depth, the underlying reasons are based on Our Man’s conviction (the underlying thesis being debt deflation and the key information being the lending data to consumers/commercial industries), maximum loss of capital (which Our Man believes to be substantially lower for Treasuries than for Gold), expected return (similar over a 12-month period) and time horizon (Our Man’s thesis behind his Treasury position is strategic and secular, and thus long-term in nature, whereas as discussed previously part of his Gold position was tactical). As such, Our Man has far more patience with his Treasury position (note the short-term volatility is also substantially smaller, which in conjunction to the above is why Our Man is comfortable with its size in the book).
Portfolio
40.08% -- Long Long-term Treasuries (via L TLT and L Aug-29 Treasury Bond)
9.11% -- Long GLD
7.49% -- Long Intermediate Bond Fund (via L VBIIX)
6.57% -- Long THRX equity
4.79% -- Long Restricted equity positions (via L NWS, L CMTL, L CRDN, L SOAP)
(4.01%) – Delta-Adjusted Short position in the SPY (via L Dec-10 puts, with strikes at 100 & 85; 0.88% premium at risk)
(2.04%) – Delta-Adjusted Short position in GS (via L Dec-10 puts, strike 120; 0.49% premium at risk)
29.58% -- Cash
Performance
No comments:
Post a Comment