Gregor Weekly Model Portfolio Update: 28 October 2009

• Gregor Macdonald
• October 28th, 2009

The usual volatility that comes with large Treasury issuance has now arrived with force. Asset markets are having to endure a liquidity drain, as hundreds of billions are sucked away into these auctions. Adding to weakness is the current newsflow which is running between fresh data on housing weakness, downgrades of Q4 GDP estimates, and yet another sickening bailout injection for GMAC. One has to marvel at the continued irony of a government that announces token, 3-4 billion dollar Alternative Energy and Smart Grid Programs as their multi-billion dollar support for Housing and Autos grows. This is a classic case of sunk cost decision making, and is a hallmark of a system in decline.

The model portfolio has been hit pretty hard in just the past 3 trading sessions. Last week’s loss of 60 basis points during broad market weakness was but a nick, on a relative basis. But this week’s pounding in gold, silver, and forex is starting to show through. The thesis coming into this week was that precious metals would do “ok”  in the aftermath of options expiration week, even with lots of Treasury supply. That thesis is being tested right now. (this article continues for subscribers through the membership gateway, on the right side of this page.)…{+}

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