Weekly Wrap, 8/6-12/2017

With this post I’m kicking off a new series of weekly updates to appear each weekend. For now this is a new experiment so the format will be fluid.

Macro

All eyes are on the escalating tension in North Korea this week. If history were any guide, some kind of détente is to be expected. Even if rationality fails to prevail, IIRC, stocks rallied when the bombs started to fly at the beginning of both Iraqi wars. There is the risk of US appearing to sink to the same level as the NK brat with the weird haircut while China and Russia look like adults (may already be the case anyway). But it’s an outcome infinitely more palatable than losing the key strategic outpost (Guam) in the Western Pacific. Conclusion: fade the panic. The bigger take-away is that the rest-of-the-world might continue to diversify away from the USD as a vote of no-confidence in the current administration. Any weakness in the US inflation data will only cement that view.

Precious Metals

Spot gold exceeded $1265 comfortably on the back of several Presidential tweets, and was able to hold above $1280 in recent days. Normally I’m suspicious of geopolitically driven rallies but given the extreme COT readings a while back I think we’re in the clear long term. Short term there may be a pull back around $1300. If that happens, whatever room left in the portfolio will be directed towards miners.

Cryptocurrencies

Bitcoin cleared $3500 this week, a new all time high. The BCH (Bitcoin cash) hard fork turned out to be a free dividend. It does appear that wider adoption is on the horizon but I’ll refrain from giving price targets. I still plan to gradually sell at set intervals. For kicks I calculated the IRR from early March and it was over 3400%.

Portfolio

Picked up more CEFs on Thursday and Friday on their usual “swoon” that occur every several months. Placed additional directional option bets on the Q’s. The initial margin is at about 1/3 of the total equity in the main trading account but I’m already at my volatility limit. On Thursday the total portfolio dropped 1.4%, roughly matching that of the equity market. But that’s with 12% in stable value funds, 5% in cash, 12% in PMs, and 2% in cryptocurrencies. The latter two had strong gains. Anyway, it reflects the additional risk in the options positions. For the last several months, my overall portfolio managed to gain more and lose less than SPY, that’s a trend I intend to continue.

Outlook

I’m now fully “locked and loaded” for the post-August moon-shot I’ve been expecting. Contrarian indicators abound: there is no shortage of gurus urging caution; the sentiment index shown below (source) is another. If the North Korean situation resolves satisfactorily we’ll be off to the races in the blink of an eye. My overall projection has not changed: in round numbers the S&P to 3300-3500 and the NDX to 10K in 12-18 months. This bubble will be another for the history books.

Good Reads

None of the above is investment advice, the standard disclaimer applies.