Nothing but hope provided the ammunition to drive this market out of the deep hole that was dug last week. Sure, after relentless selling, there is bound to be a dead cat bounce or a head fake similar to the one we saw the week prior.
The hope was that European regulators are designing a plan, or a crisis solution, to help stabilize the region via the expansion of a rescue fund and subsequent bond sales to provide the liquidity for banks to absorb the losses if and when Greece defaults.
While that was enough to soothe the markets, at least for one day, details emerged that, in order to raise enough funds to create a big enough bailout gun, leverage will have to be used. Some analysts likened this concept to the last hand in poker, as in “going all in.”
It is unbelievable to my way of thinking that desperation is so great that such extreme measures would even be considered. If you have used leverage with your own investments, you know that if you are right, you can make tremendous profits. On the other hand, if you are wrong, you could be wiped out.
In regards to Europe, using leverage would translate into betting on an economic recovery. What if it does not happen? Through my lens, on a global scale, we are going in the direction of economic slowdown and not growth, as I have repeatedly pointed out.
In any event, I used today’s rally to unload some 50% of our PRPFX holdings. The events of the recent past (the sharp selloff in gold and silver) made me realize that the type of hedge I have been considering will not do the job sufficiently well to protect capital should the markets head further south.
With gold and silver making up about 25% of PRPFX, the balance of the portfolio can’t simply carry the entire load, should the precious metals sink further. While Europe’s leveraged proposal may possibly support the metals, I can’t be sure that this will be a lasting proposition.
As I am writing this, gold is making a sharp rebound in the evening session. I will play off the events as they unfold and, if need be, will liquidate the remaining PRPFX holdings as well.
Uncertainty and desperate acts, such as we are seeing in Europe now, seem to become the order of the day, and I’d rather be safe than sorry.
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Comments 2
how did the pullback in gold and silver effect your portfolio returns>? considering the PRPFX realisation.
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What are the alternatives for a hedging strategy at this point ?
Jefcek,
Please see updated portfolio returns tomorrow. As I said, I don’t see a good hedging option and will stay with the remaining PRPFX balance for the time being; especially since the markets have shifted back into rally mode.
Ulli…