Watching the TV news and reading the papers can be instructive for timing purposes. One can learn when to enter a trade on a low-risk basis and when to exit. It is a way of discerning the pulse of the market and its temperature. As we write this on Tuesday, November 16, we take note of two items in the Wall Street Journal today, one front page above the fold and the other featured in the ‘What’s News’ column on the left.
The first is the main headline in bold large type “Inflation Anxiety Drives Gold Near Highest Level in Months”. At the end of September, gold hit a low of $1721, and as of the close this past Monday gold was quoted at $1866, a rise of 8.4% in 48 days. At the time of this writing, gold was down 14 points on the day post headline (a bit of sell the news). This recent uptrend in gold was below the radar until gold was featured as an inflation hedge on the front page of the Wall Street Journal. This is not to say that gold will suffer a major sell-off and that it cannot work higher over time. What it does say is that the trend is now plainly obvious to the most casual observer, and that anyone with a short-term investment horizon that could have owned gold, had gone long at some point in the trend and that short-term demand most likely had been satisfied. And so, we suspect that gold will consolidate/correct for a period of time before resuming the uptrend.

The second item is the story on B1 about the board of directors of the California Public Employee Retirement System (aka Calpers) the nation’s largest pension fund having voted in the affirmative to authorize the use of borrowed money and alternative assets to meet its investment return target of 7%. Since January of 2020, the fund has grown from $380 billion in assets to $495 billion today powered by the effect of QE and the ensuing bull market in public equities. (30% growth both from investment returns and cash infusions)
Pensions have a mix of assets generally, i.e. fixed income, and publicly traded equities. And some pensions have investments out on the risk curve with alternative investments ranging from hedge funds to commodities (such as timberland) to private equity.

What we note here is that Calpers is taking on additional risk after a long bull market, and it is changing its investment mix and style. Whether this is a prudent adjustment for Calpers remains is to be seen, but the fact that Calpers has long struggled to outperform is no secret.

Some years back Calpers was under the management of a highly compensated and sophisticated team of portfolio managers that appeared to have been doing things correctly. Sadly, for the retirees and taxpayers of California, that team was replaced as a decision was made to bring salaries more in line with the norm of civil service. The fund has underperformed ever since. And so Calpers steps out on the risk curve by borrowing money and re-entering alternative investments, at a time when the Fed is in place to end QE and raise interest rates. What could go wrong?
Trade well and stay safe.

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