OUR SEPTEMBER RESULTS

Our weighted average return in September was +0.60%, bringing our year-to-date return to +13.97%.

Equity markets continued to generate strong returns is September and bond prices weakened due to the continued prospect of higher rates in the US.

Last month, we mentioned that the energy sector looked oversold. We increased our energy exposure and benefited from a continued price recovery in energy stocks.

Our investments in base metal equities did not fare so well, but volatility is part of the price of admission in this sector and we have already seen a nice recovery in October.

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Big Picture Charts

Here is a link to Scott Grannis’s blog where he’s highlighted some interesting charts:
LINK: Big Picture Charts

The numbers are staggering.

One part that I would like you to pay particular attention to is not only long-term average equity returns, but long term-average equity returns after inflation.

If you do not put your money to work, inflation will gladly eat away at it bit by (not so little…) bit.

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OUR AUGUST 2017 RESULTS

Our weighted average return in August was +1.28%, bringing our year-to-date return to +13.29%.

Going into August, we had reduced our positions in the technology sector. We did so because we had managed to make extraordinary profits in the sector this year, and decided to focus our efforts on less crowded trades.

As such, we continued to increase our positions in base metals miners. We find this sector attractive because it is wildly under-owned and has a minute weighting in the S&P 500 index (0.1%). As a new generation of investors dreams of start-up ‘unicorns’ and ‘mining’ virtual currency, we have been taking a decidedly ‘old school’ approach and buying quality mining companies that have emerged from cyclical lows with stronger balance sheets and are poised to benefit from global economic growth.

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Bitcoin, Bitcoin and Bitcoin

Last night JPMorgan Chase CEO Jamie Dimon took a shot at bitcoin, saying the cryptocurrency “is a fraud.”

Here’s the article: JPMorgan CEO Jamie Dimon says bitcoin is a ‘fraud’ that will eventually blow up

In the same time, people from the tech world are saying that “Bankers’ mistrust of bitcoin is still the greatest argument for it.”

Link: Bankers’ mistrust of bitcoin is still the greatest argument for it

Furthermore, Financial Times is posting graphs with a bubble forming pattern overlaying the Bitcoin price

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Gold as a Part of Portfolio

From time to time we get a request from our clients and potential clients regarding investments in gold.

In our view gold isn’t the best investment as it isn’t generating any return. Yes, it’s been able to sustain it’s purchasing power though in very long time periods, we’re talking about decades and centuries.

Furthermore, gold is quite volatile and thus investor may lose some part of their investment. Gold’s performance has varied year by year. Picture below shows that gold had a real drawdown that lasted 32 years. Are you willing to hold an asset that is underperforming other asset classes and losing money by itself?

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Because You Know I’m All About That Base, ‘Bout That Base, Base Metals…

People tend to get preoccupied with things that are shiny. Investors often fall prey to the same instinct – especially those that are obsessed with gold. Such people are often referred to as ‘Gold Bugs’.

This years, Gold Bugs have been excited to point out that gold has outperformed the S&P 500 index year-to-date:

Congratulations! However, there is a far more interesting metals trade going on at the moment: base metals.

After a slow start to the year, base metals such as copper (sometimes referred to as “Dr.Copper”), zinc, and nickel have seen their prices appreciate significantly:

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Keeping up with Lithium demand becomes more challenging

Electric vehicles have been in the spotlight lately, which creates an opportunity as well as a problem for the producers of the metal that the batteries of electric vehicles are made off – lithium. A mineral for which, as long as the demand for electric vehicles continues to increase and an economically viable alternative is not found, the demand is also going to increase respectively. The prices of lithium carbonate have more than doubled in the last two years.

Currently, 67% of global lithium reserves are located in Chile and Argentina, even though Australia is the biggest lithium producer.

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Tesla Sells Junk (bonds), Malls Love Apple, Watching TV Has Become Stressful, and Facebook Will Now Take Your Order…

We have an amazing team here at BlueOrange. Kaspars is on a well deserved vacation, and Krista and our summer intern Renārs do a great job keeping everything in order, while also providing thoughtful and fresh insights into making us a little bit better every day.

Here are some links that they found interesting this week:

Tesla manages to raise $1.8b through junk bonds yielding 5.3%
Earlier this month, Tesla came out with a statement saying that the money required to fund the projected production ramp of its recently released Model 3 is going to be raised through a bond offering. At first, the electric carmaker wanted to raise $1.5 billion, a number that, due to high demand, was later increased to $1.8 billion.

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