Calpers(california public pension fund) returned just over 1% on their money in 2011. The problem with that is that they had built in an assumption of around 7.5% in their models. Im sure this is being viewed as an unmitigated disaster, and if it is repeated in 2012, heads will roll. Now repeat this same scenario another 1000 times across the country because , just about, every other pension fund is in a similar predicament.This is significant in that i expect money to start crawling further out on the risk spectrum in a desperate attempt to post returns. I suppose this is exactly what the geniuses at the fed want, to push people into riskier assets. So, from a long term perspective , i am still positive u.s. equities and other traditional risk assets. That being said, there is always potential for a correction when you've had the kind of run up that we have had.. I like being long the s+p for now, but if the futures trade below 1307-08(1311ish in the spx) tomorrow i will rethink my near term strategy. The bottom line is that i am enjoying the rally, and i'm on board, but evry day i'm getting more leery and may be quick to reverse if things start to falter. The vix at 18% provides an excellent opportunity to hedge equity risk with options, or to replace long exposures with calls or call packages.
Both the charts in gld and slv look fine, and i plan to stay long. Tomorrow i may add to long positions in slv as that chart looks like it could have more momentum than gld(will look at a 35-37 call spread). When i pitch a trade i normally like to give a technical argument and then a fundamental, back up, argument. With gold and silver that seems painfully redundant as we are reminded everyday of a global disrespect for ones own currencies. The same argument that supports pm's doesn't translate perfectly to the oil market and todays selloff in crude seems to have other triggers. I wish i could put a finger on what those triggers are but, so far, i have nothing. Probably, the crude market is taking away some of the headline risk premium. As a rule, i dont like to be short crude because of the tendency of explosive moves to the upside so, even though the chart looks bad, i will sit it out. Yesterday i added to longs in msft and i still think that is my favorite play right now as it represents a small step out the risk spectrum and i think that level will be of particular interest. I also am long yum brands even though i know my italian grandma would roll over in her grave if she knew i had stock in something called pizza hut. Its painful but its just business grandma.
The last thing i want to discuss are a couple of recent failures; SO was a bad call and it seems like there are some longs that still need to be shaken out,but soon it will flash buy again..And, i have been wrong again on those damn bonds and i am close to a stop out level if the long end rallies tomorrow.. This will be particularly painful because i already owe a beer to jeff kilburg who bet me that i'd be wrong if i shorted the long end..hav a great night...jim
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