GRN and DBV: Indicative, But of What?

The first chart compares the CBOE Put Write Index [PUT] and the S&P 500 index for about as far back as BigCharts can go with PUT.

It looks like it has generally done what it is supposed to. That looks like a pretty good bear market result .

Um, so why isn't this some sort of fund yet?

The second chart compared the iPath Carbon ETN (GRN) in blue, the S&P 500 in red and Climate Exchange PLC [CXCHF] which I own personally.

I wrote about GRN for TheStreet.com a few weeks ago and my conclusion was that it is a way in to a new market that seems compelling, should march to its own beat, but will be very volatile.

So far, that seems to have been the case (volatile and doing its own thing) but I am surprised it is down so much in such a short time. In addition to not having much correlation to the S&P 500 it almost looks like it has a negative correlation to the exchange where carbon credits are traded. Maybe when the index moves down, people think volume is increasing which, if true, would be good for the exchange.

The volume for the fund has been very low. In addition to being surprised by the initial decline, I am surprised there has not been more interest, volume-wise. This space is obviously new, and while I think there is something here one way or another, I don't have a strong opinion of what that is just yet.

It's been a while since I mentioned the DB G-10 Currency Harvest Fund (DBV) which I own in a couple of places. The fund is currently long the Norwegian krone [NOK], the Aussie [AUD] and the NZ Dollar [NZD]. It is short the yen [JPY], swissie [CHF] and the greenback.

Since the SPX peaked in October, DBV is down about 6% compared to 19% for the stock market. YTD it is down 2% versus a little over 13% for SPX. The way the stock market cycle and economic cycle have each ended, the carry trade was kind of a proxy for the health (or lack thereof) of market speculation. Yen rallies have derailed stocks more than once in the last couple of years.

I would say that DBV has really just been in a holding pattern throughout all of this, which is actually has made it a pretty good place to hide out until the next bull starts.

It is said that the stock market is a leading indicator for the economy (meaning stocks roll over before a recession starts and turn up before the recovery starts). I will be curious to see if DBV turns up before the economy as well, or before the stock market does. Some people think of the bond market as being smarter than the stock market, so is the carry trade smarter than stocks too?

Comments

[User 86999:]

Whenever I see DBV or DBC or any of those grantor trusts, partnerships, a chilling creepy feeling runs through my spine. Why? Because of the taxing nightmare associated with these funds/etns. They generate K-1, which can actually show humongous income, which is completely unrelated to your actual gains/loss from the buying/selling of the fund; hence causing you to lose money at tax time even if you did make some from the purchase/sale of that fund. I have not seen any good treatment of the taxation issue related to these types of funds. I wonder if someone else has seen any.

2008 Aug 05 09:28 AM