I am an uber-bear?
From Telegraph (via Naked Capitalism) my french Ecole Polytechnique comrades over at the Societe Generale are striking a very bearish note in their allocation recommendation.
The bears at Société Générale are going into Siberian hibernation, issuing an "Ice Age" alert. They have slashed exposure to global equities to a minimum 30pc for the first time ever.
Their weighting of super-safe "AAA" government bonds has been raised to a maximum 50pc. This is a bet on gruelling "Japanese" deflation. The bank expects equities to fall by 50pc to 75pc.
"Nowhere and nothing will be immune. We are on the cusp of an equity meltdown that will slash and shred portfolios," said Albert Edward, SG's global strategist.
"We see a global recession unfolding. Liquidity will drain away and crush the twin emerging market and commodity bubbles. The recent hope that 'the worst might be over' is truly staggering. Profits are disintegrating," he said.
Well I am already at that allocation. So I guess I should be moving some more, but where, where the frak do I go from that kind of allocation. 10% equity? Synthetic exposure to market via options?
I am starting to get a taste and understanding for options and that may be the way to play this current market. I do share the view that there is one more drop to come. How bad it is is still fuzzy, but the shorts are out there. The word "hedge" takes on its full meaning, it isn't the bullshit structure that most snake oil vendors are peddling out there: put in bonds, borrow lower, multiply through debt. I don't need to be paying the fees for that NON-SERVICE. Managers are lazy and passive in these structure.
No, hedge means "hedge" meaning the capacity to buy risk protection in a portfolio above and beyond straight diversification. The zero-sum game nature of the options always makes it an interesting bet, I am always betting against someone else, and puts in perspective the odds, but I always had a taste for hedging in the roulette game at the Casino. It is the only one I could play.
Growl!
Comments
I was offered a note on inflation recently, on the theory that equities will lag inflation and fixed income, by definition, will lag inflation, buying inflation protection via options is an interesting arbitrage.
I mean arbitrage because obviously the price of the note reflects the markets expectations of inflation and therefore the bet in options is to say "I believe inflation will run more than market expectations". Which I don't.
And the response from the uber-bear, "Gold is for pussies! My money is in canned food and shotguns..."
Nah, options will do nicely. Volatility is a commodity and soon to be defined as an asset class :)
I was reading a research paper at the beginning of the year talking about a contrarian investment strategy to milk out volatility.... it was down to zero because volatility was gone. Is it back to a level that is workable through such a strategy? I don't know...
don't put your head in the gas stove just yet, the sun always shines somewhere. If you're interested, PIMCO just completed their spring symposium with John Plender, Raghu Rajan, Mike Spence, Nassim Taleb and of course they had the whole thing chaired by Al Greenspan. Check out their synopsis:
http://www.pimco.com/LeftNav/PIMCO+Spotlight/2008/Secula+Outlook-+El-Erian.htm
Andy
http://www.pimco.com/LeftNav/PIMCO+Spotlight/
2008/Secula+Outlook-+El-Erian.htm
Do you still read FiNTAG? If you saw his bit about sageGauge, I'm doing the technology for that.
http://fintag.com/sagegauge/
I noticed your comments today (Thursday) about professionals running around like chickens with their heads cut off. Well, we're going to start putting a little accountability into what pundits say.
I'd be interested what you think.
Andy
sorry for the delay
1/ I am not IDLE!
2/ Very cool on the sageGauge (except it sounds like sausage :). I would love to participate in this market. There was a great article by Yves Smith on the propagation of information in the internet age, I believe tools like this one can influence rather than track mood. DEFINITELY keep me posted.