Tuesday, May 22, 2012

Alpha-D Update for May 2012

Here it is again.  My options from last month all expired unexercised.  It's always nice to hang onto cash earned from conservative hedges.  I have renewed my covered calls on FXI and GDX to expire next month.  I also renewed a short cash-covered put position under GDX, which I am increasingly likely to do as the price of GDX keeps dropping.  I realize I'm risking having more shares of GDX put to me but I don't mind doing so if they're getting cheaper.  A bigger pile of a hard asset ETF is one thing I wouldn't mind holding as the U.S. approaches hyperinflation.

I mentioned recently that I'm strongly interested in adding natural resource MLPs to my portfolio as a hard asset hedge against future hyperinflation.  I still plan to do so at some point but I'm much more skeptical now that using ETFs of MLPs is a viable way for me to do so.  Those ETFs have some odd ways of recalculating their daily NAVs that have the same effect as using leverage.  I hate leveraged ETFs and want to stay as far away from them as possible.  I may just go for a few reasonably priced MLPs and their associated operating companies (i.e., pipelines).

I'm also still looking for long positions in currencies of countries with low debt/GDP ratios and high transparency.  If I can't find correspondent banks in countries such as Australia, New Zealand, and Canada then I will need to look at currency ETFs.

I also wonder whether an agribusiness stock will perform adequately as a hard asset hedge.  People still need to eat even if the domestic currency they use to buy groceries is depreciating.  Maybe owning a farm or  even a backyard greenhouse is a substitute for such a stock; the big difference is that I would literally eat the yield.

My remaining California muni bonds mature in about a month.  I will not replace them with any fixed income instruments at all, although I would consider the sovereign debt of the three countries I mentioned above if those bonds were available to U.S. investors in their pure individual forms.  I am still not sure whether an ETF of TIPS will keep up with a hyperinflating U.S. dollar until I finish analyzing the fine print.  I do give myself a lot of homework but it's worth my time if it protects my net worth from chaos in the U.S. economy.

Nota bene:  I am not a financial adviser, planner, or counselor.  Please bear in mind that the above discussion is not any kind of financial advice for investors.  Like I've said in my legal disclaimers, nothing I say in any of my materials constitutes investing advice.  I do not tell other people what to do with their own money.  Enjoy my discussions as a form of entertainment.