More of the same

Global markets were very weak Monday as liquidity tightened and risk aversion increased. Tuesday was looking pretty ugly until the Fed showed up and offered to take $200B of crappy mortgages onto its balance sheet. The markets bounced initially (equities in particular were up very strongly) but now seem uncertain. Today's action was both positive and negative. USD continues to plum new depths against EUR and JPY indicating more risk aversion and less love for the USA. On the latter theme, the US Treasury 10yr auction today was very weak, and apparently foreign participation was almost non-existent. Perhaps we are finally nearing the lows in treasury yields. It IS pretty crazy that people are willing to accept 2.5% nominal yield when inflation is currently over 4%. You need to have an absolute collapse in nominal GDP growth to justify such yields, which seems inprobable. Ben has shown clearly that he will do whatever it takes to keep the economy out of a deflationary trap.

On that note, the Fed's actions seem likely to have the same effect as in the recent past -- propping up financial markets for 1-2 months before the problems return. Commodities continue to be well-bid, with oil at $110 and gold touching $1,000 today. I continue to believe that we will have some sort of correction at some point but timing is uncertain and prices will probably not fall as much as I thought earlier. So I finally dipped my toe a little deeper in the water and increased my gold holdings by one unit, plus one unit of energy companies. These should both perform well in the medium-term given current gold and oil prices. However, I also note that I added the position today at a time when I was very tired and stressed, and my judgement on the timing may not have been optimal. Time will tell.

On a portfolio admin item, I am re-basing my calculations of units to account for the fact that my holdings of SDS / HGU have perform much better than HXD.

MARKET POSITION: EQUITIES - SHORT (8 units); GOLD - LONG (2 units); ENERGY - LONG (1 unit)