One of the nice things about managing the BDUIF is that even though its "philosophy" is to invest in oil and gold along with a balanced, leveraged hedge on the stock market, I can change it at will -- unlike real funds where the managers are trapped into a particular approach come hell or high water.
So I changed it a little today. Early in the morning, it was obvious that the hedge position was not keeping up with the drop in oil from yesterday and today. So I sold 25% of the OIL ETF position along with 25% of the BGZ ETF position, and used the proceeds to double the fund's holdings of the DPK ETF.
Thus I moved a little bit away from both the front-month oil futures (OIL) and the US Large Cap 3x Bear hedge (BGZ), and heavily emphasized the Developed Markets 3x Bear hedge (DPK). DPK has worked very well in the Fund over the last week, returning somewhere around 20%, but it had been a very small part of the Fund.
DPK is heavily invested in short European, Japanese, and other developed markets. I think that these shares are going to take a beating as the Greek contagion spreads.
Indeed I see this as the beginning of a series of sovereign debt crises that could well end up with the dissolution of the European economic union and, potentially and eventually, the death of the dollar.
Margaret Thatcher once said that socialism works fine until you run out of other people's money. Greece ran out, and is trying to get more from Germany. Eventually Germany's tolerance or their funds will run out too. At the top of the chain is the US. It will probably take a little while, but with 0bama, we are falling down the sovereign debt well too.
But Europe will go first.
I wrote about all of this in an email to a group of friends about 3-4 years ago, when I had never even heard of Barack Hussein 0bama. I will post it when I get a chance.