THE FOLLOWING ARTICLE DOES NOT CONSTITUTE A SOLICITATION TO INVEST IN ANY PROGRAM OF CERVINO CAPITAL MANAGEMENT LLC. AN INVESTMENT MAY ONLY BE MADE AT THE TIME A QUALIFIED INVESTOR RECEIVES CERVINO CAPITAL'S DISCLOSURE DOCUMENT FOR ITS COMMODITY TRADING ADVISOR PROGRAM OR DISCLOSURE BROCHURE FOR ITS REGISTERED INVESTMENT ADVISER PROGRAMS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Our Diversified Options Strategy program for September 2006 returned a positive 0.77% resulting in a year-to-date return of 7.92%. The S&P 500 Index (GSPC) returned 2.46% adding to the gains from the prior month and is up 7.02% year-to-date. Meanwhile, the Barclay CTA Index is down as of this writing with a return of -0.20% for September; for the year the CTA Index is up only 0.64%. Please refer to our website at www.cervinocapital.com for the most recent performance statistics on our investment programs.
BUY BUY BUY!!!! The Wall Street trumpets and the airwaves of CNBC are at work again. The meaningless Dow is at historical highs and the S&P 500 is up 10% in practically a straight line since the lows of June. Volatility is again MIA as market players perceive the total absence of potential threats to this picture perfect situation.
Not to be cynical but the indices rallying so strongly in the name of suddenly “defeated inflation” and the much vaunted “soft landing” scenario seems naïve at best. Aficionados of this blog know well my tirades on how inflation is dramatically underestimated by official statistics. Again I will point out the rise in most of your daily living expenses and monthly bills…
For the bulls out there: yes, I acknowledge the rather significant decrease in oil prices, but I have to wonder on the timing given that on July 12th Goldman Sachs revised their benchmark commodity index (GSCI) from 8.45% dollar weighting in unleaded gas to 2.30%. This little noticed event forced hedge funds and institutions tracking the GSCI to sell 75% of their gasoline positions in order to conform to the reconstituted index. Mmmm... Goldman Sachs... Treasury Secretary Paulson... Elections anyone?
But seriously, the key question regarding oil is what will be the average price range going forward. Are oil prices settling into a much lower range or is this just a trading correction? Considering that some short term problems may indeed have been resolved, a re-pricing of the commodity may be justified. But then again, the ongoing imbalances of this depleting resource in the face of projected long term rising global demand supports my thinking that this current “re-pricing” is just temporary.
Another interesting fact is that soft landings in the history of this country have only been achieved once, in 1994, under much better structural contingencies. My fear of a potential “bull trap” seems to be justified by the “technicals” of this market. The rise is narrow and is concentrated in a few index related names. New highs have been hard to come by and the CNBC cheerleading thermometer is rising too far too fast. I suspect a lot of seasonal players and retail investors were caught on the wrong side of the fence after Labor Day and the oil drop added fuel, excuse my punt, to the fire.
Only time will tell if my thesis is correct.
As far as the other markets, gold seems to be searching for a floor and I believe it will have problems flying high until the dollar starts weakening again. I am not in the camp calling for the destruction of the dollar and the fiat money system but I do think gold should eventually benefit from a reallocation of foreign central banks’ reserves. This is a long term theory and I’m reminded of what J. M. Keynes once said: “In the long run we are all dead.” So in light of such wisdom we will continue to play the currencies (gold included) on a very short term and very technical basis.
It’s a short missive from the trenches this month but I am sure you would like me more engaged managing your hard earned money than fueling my vanity with these scripts.
I rest my case. Until next time...
Arrivederci!
-Davide Accomazzo, Managing Director
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