Fund

Viglione & Partners Assurance Group (VPAG) is an options writing investment fund. We engage in providing market insurance across a diverse set of asset classes. All too often, specialized investment groups operate in secrecy, locking up investor capital for indefinite periods of time. VPAG is dedicated to transparency and liquidity. We hold no secrets, publish our strategies, and make our performance well known.

In an effort to provide transparency, we post weekly portfolio performance figures:

The Fund is up 6.4% for the year coming off a high of 26.5% mid-June. For comparison, the stock market (S&P 500) is up 7.8% over the same period.

Stock markets had a terrible start to the year, but have since recovered remarkably. To contrast, VPAG started off extremely well, and has oscillated with high volatility throughout the year. For most of the year The Fund outperformed U.S. stocks, but that position has reversed in the month of August. We have had four consecutive negative weeks, compared to the stock market which has been up for each of those. Our most recent figures put us at a 1.4% disadvantage to equity market returns for 2009.

The simple explanation for our reversion to the general level of stock market performance has been a series of losing short bets against the market. We have had relatively favorable success in our options writing business, with a few key exceptions. The big 9.2% loss in the week ending 7/24 was due almost exclusively to a single bad contract exercise. Adding to this we have been steadily losing money shorting various aspects of the stock market.

We continue to remain extremely pessimistic on the U.S. economy, and consider this year’s stock market inflation to be a consequenc of broader monetary base inflation. To date, markets have reflated roughly $2.7 trillion since their trough last year. Coincidentally, the Federal Reserve has created and pumped into the economy (via Wall Street) roughly $2.3 trillion. This is no coincidence. Banks, investment banks, and their hedge funds have been funnelling newly created Fed money into equity markets, propping them up well beyond reason given the state of corporate earnings. This behavior has consequences. Foremost, the consequences to our Fund are that we have been on the losing side of a manipulated market. Worse, the long-term consequences to our economy will be devastating. Fed funds will soon dry up and with it Wall Street’s new stock bubble will burst harder than it did in 2008.

I’ll repeat what I wrote last month:

Our real economy is a wreck and we are most likely in a state of Depression. To think that politicians can borrow, print, and spend tens of trillions of dollars and magically engineer Utopia is insane. No one in the history of mankind has become rich by spending. Ignore the charlatan economists working for government and leftist academia. Think about your own life. What if your income dropped 50% one year, say from $80K to $40K salary. Would you cut spending to live within your new means, or would you borrow $500K and go on a lunatic spending spree? You’d feel damn good for the first year or two, but how will you feel when you have to start paying back all that principal and interest? America is currently enjoying the fruits of moronic foreign investors and foreign governments lending us trillions. We are in the midst of a spending orgy that is soon to expire.

Real prosperity is attained by living within your means, saving, and investing in productive activities. Politicians and their economic sycophants are lying to you every single day. They want you to believe that their pillage of our savings and our future income will be intelligently “invested” in assets that are more productive than the borrowing and currency dilution costs. Hogwash! They are spending our money on present day consumption and special interest vanities.

Despite losing ground from earlier gains we feel as though we are well positioned to exploit the real state of the economy and insulate our investors from the inevitable negative consequences of bad government. We may continue to experience short term losses on short positions, but this newly inflated bubble will burst just like all the previous ones engineered by the geniuses of the Federal Reserve. They cannot play God with our economy and win in the long term. We will gain from their hubris.

God save America!

The portfolio’s composition as of 7/17/09: