I am playing defence. One of the best ways of making sure you are around in the good times is by knowing when to get out of the way of the bad times. I see a lot of potential trouble in Q1 2012, most of it focused on growth indicators and European Bond Markets. For the month Kelpie was down 1.3% compared to the FTSE All Share which was up 0.8% and the HFRX Global Hedge Fund Index which was down 0.5%. Most of this was down to losses in the portfolio hedges which have a very high delta to market movements.

Sales were a mix of two groups – ideas that I no longer have as much faith in (Japanese Equities, Andean American and Silver) and cheap stocks that I like but which I worry will have a tough time meeting even depressed expectations over the next few quarters (Western Digital, Dart Group and Cisco Systems). Thankfully, all of the latter group were sold at a profit and I hope to own them again. Lombard Street Research have voiced concerns that a provision for 100% deduction of capital spending in 2011 would pull capex forward from 2012 and create the illusion of growth in 2011. I suspect this is exactly what has happened and explains the stronger (but being revised down!) GDP growth rates in the US. 2 tech hardware companies and an airline are not going to benefit if there is a “surprise” weakening in corporate capex.

 

Kelpie had an inflow of near 20% this month which I am happy to integrate into the portfolio as cash initially – this explains much of the jump in the size of that weighting.

Yukon Nevada Gold had a tough month, being down almost 30% before jumping 18% on the last day of the month on news that senior management have commenced buying stock. This is an extremely volatile position but one I believe is hugely undervalued. Q1 2012 should see the completion of the turnaround of the company and hopefully a substantial re-rating for long suffering shareholders.

 

Over the Christmas break I read “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession” by Richard Koo and I would highly recommend it. I think is crucial that investors today grasp this concept of a “Balance Sheet Recession” as to me it seems the most likely roadmap for how we get through our own Great Recession. It is because of the way that different governments are addressing the balance sheet recession that we are beginning to see material divergences in the growth rates of the US relative to the UK and Europe. More on this on my previous post   http://kelpie-capital.com/2011/12/29/balance-sheet-recession-basics-not-your-fathers-economic-cycle/


SALES
 
Western Digital
Cisco
Dart Group
Japanese Equities (currency hedged)
Andean American Gold
Silver ETF
 
INCREASED
 
Equity Hedges
AUD/USD Short
Microsoft
Yukon Nevada Gold
 
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