Trade log update… 6/23/17

We remain long the NASDAQ futures contracts. And have begun adding hedges to the portfolio. Currently we have a gold hedge and a 10 year bond hedge buffering our equity longs.

Of course the best protection is not in portfolio construction but in derivative construction. However the prices are much higher for that kind of protection. Even with the Vix at current lows. The house (cboe)  bid/ask spread is expensive.

We are continuing to expect a drawdown this summer. And I am doubtful that the recent selloff qualifies.  I am wishing I was long the biotech index. Because there is a lot of sizzle there and we may be seeing the start of the longer push upward. But the recent advance is somewhat too violent for me to chase. Yet when I say that I wonder if I am not like every other portfolio manager who misses something and then tries to pretend they are disciplined and that’s why they missed it. Oh the catacombs of self deception…

The biggest sign of my conviction that we are entering a high-risk summer is that I am seriously considering activating a long volatility algorithm that normally sits in the gun safe (so to speak) waiting for dangerous threats.  Going long volatility is a sure way to lose money in this central bank driven environment but it is also the absolute gold standard in hedging the unknown, unseen, vague risks that may be beyond our horizons.

Also, because we are sitting on almost 50% returns over the last 12 months, one must expect to catch the attention of Mt Olympus, which will dispatch humbling events to keep the mortals from hubris…