Monday, August 22, 2016

August 21 Update: Keeping HDGE as insurance

The Schiff-Maloney portfolio continued to follow the bullish triangle pattern over the past two weeks, and its value reached an all-time high of over $112,800 on Thursday.  Presently it stands at $112,137.

I've been thinking about the bearish stance on the U.S. stock market using HDGE, and its seeming futility in the face of central banks buying tens of billions of dollars worth of equities, but I've decided to keep HDGE in the portfolio.  As much as the returns have been hurt by the rise in the stock market and the corresponding drop in HDGE, it provides vital insurance against a global market crash, particularly for retirees or people nearing retirement.  The portfolio has been making steady gains since November of last year, and that's more important than the performance of just one fund.

Sunday, August 07, 2016

August 6 Update: Fooled by the Fed Again

1) Stealth QE and HDGE

One-quarter of my Schiff-Maloney portfolio is a bet against the U.S. stock market using a bear fund (ticker symbol HDGE), with the proviso that I will sell it if and when the Federal Reserve Bank announces the next round of quantitative easing (QE).  The first three QE programs all caused stock prices to rise and HDGE to fall, while in 2015 the market started to fall and HDGE rose when there was no quantitative easing.

Just two days ago it was revealed that a new round of stealth quantitative easing (SQE?!) has been going on under our noses for most of 2016.  The website Zerohedge revealed the big news on Thursday.  The Swiss National Bank, already an owner of $41 Billion of U.S. stocks as of 2015, purchased another $21 Billion in just the first six months of 2016, thus explaining the out-of-nowhere rally that's taken the stock market to new all-time highs:

If the central bank of Switzerland was compelled to buy U.S. stocks, other central banks (Japan, EU) were probably following suit.

This was a clever and timely intervention by the central banks.  It was clever because many U.S. investors had recently become aware of the nearly perfect correlation between the Fed printing money (QE1, QE2, and QE3) and the stock market rallies from 2009 to 2014 shown above.  Having foreign central banks do the next round of stock buying without any announcement of QE4 by the Fed, and keeping the U.S. money supply flat, made it look like this year's rally was due to prosperous and optimistic investors buying stocks, when in fact it was foreign central banks who were buying stocks with newly created currency.  The intervention was timely because the U.S. stock market was rolling over in late 2015, and was approaching a 2-year low point in February of this year.  Just as QE1 stopped the 2008 market crash in its tracks, SQE reversed this year's decline and has taken stocks to new all-time highs.

The lesson is that central banks will always stay one step ahead of investors - even well-informed investors - and there is almost nothing they won't do at this point to prevent a bear market or a crash.   There was probably a quid pro quo agreement between the Fed and the other central banks that instigated this year's SQE program, but I don't know what "quid" the Fed gave in return for the foreign banks' "quo", and by the time somebody figures it out, it will probably be to late for investors to profit from it.

Future stealth intervention will probably prevent any major stock market decline before the dollar collapse happens, and that would make HDGE a pointless component of my portfolio.  I will consider dropping it over the next few weeks.

2) A simpler portfolio for small accounts

For investors with small accounts, such as a $5,000 Roth IRA starter account, I've identified some ETFs that can create a decent portfolio with just a few purchases.  (Remember that I may be ejecting HDGE soon, which would make the portfolio even simpler.)

DVYA 25% (Pacific ex-Japan Dividend Fund)
FXF  25% (Swiss Franc Currency Fund)
GLTR 25% (Precious Metals Fund)
HDGE 25%

Aside from HDGE, this portfolio uses only three funds to invest in ~40 stocks, five of the top six Schiff countries (Australia, New Zealand, Hong Kong, Singapore, Switzerland), and 4 precious metals. (GLTR invests in a combination of gold, silver, platinum and palladium!)

3) Slower trend

The Schiff-Maloney portfolio fell 1% this week to $111,369.  Overall its value is still rising, but it's been growing more slowly since mid-June.

4) New silver bullion bar

Many online bullion dealers, including Provident Metals and JM Bullion, are selling a new 5-ounce silver bar that can be broken up into 20, 1/4 ounce pieces for bartering.  It looks to me like an ideal combination of large and small, and best of all it's cheaper than buying twenty quarter-ounce coins.