October Review

Performance Review
October saw good performance, with the PA positing a +1.36% month. The performance during the month was driven by the Long Gold position (+c200bips), which was partially offset by the decline in the Long 20-yr+ Treasury position (-c60bips). However, the positives really came later in the month, after the S&P peaked on the 19th October. Firstly after breaking through its high (c$98) early in the month, the L GLD position was able to hold the level despite weakness towards the end of the month. Secondly, the Long Treasury position performed as hoped for, adding 90bips to performance when risk aversion returned more noticeably to the market in the final week of the month.

(The Kaching mirror portfolio was down 19bips from its inception on 10/19, benefitting from its larger position in Treasuries which contributed positively during the period).

Positioning Thoughts
The positioning of the portfolio remained unchanged going into November; Long GLD (54.01%) and Long 20Yr+ Treasuries (41.81%) with the balance held in cash.
- The Long GLD position continues to be viewed as 1/3 a long-term position and 2/3 a medium-term position. The medium-term portion was purchased in anticipation of the break-out through the March-highs, and with the intent of selling this portion should the breakout-fail (it didn’t), March-highs be broken to the downside or at $120-ish (though it may be run beyond there, but with a rolling stop…or as close to one as I can given the constraints). Furthermore, should a breakdown in GLD accompany a broader risk reversal, a portion of the long-term position will probably be exited at the same time. While the long-term broader arguments for Long GLD (see below) may still hold, the breakdown of GLD would signal Gold’s inability to retain its value in a time of increased stress and hence part of the attractiveness would be diminished.
- Our Man is comfortable with the Long 20yr+ Treasury position, though some of the risk capital may potentially be rolled into equity options should the S&P break-down through 1,020.