In the first quarter, we made several significant moves. We sold out of all direct emerging market positions—specifically emerging market infrastructure and Brazil—and initiated a short position in gold. We will explain our rationale below.
On January 8, in an internal investment memo we wrote:
After enjoying gains of nearly 100% in just over one calendar year, we decided that the time was right to sell our position in emerging market infrastructure (PXR). As we wrote in our 4th Quarter 2009 letter to investors, this is a move we have been considering for quite some time. Our growing concern is that China is in the midst of an unsustainable capital spending and infrastructure bubble. While we cannot know when this bubble will burst, we believe the safe and easy money has already been made. Holding this position at this point would constitute chasing returns, which is something we consider dangerous. In our view, it makes sense to take some money “off the table” so that we will be in position to move quickly should new opportunities present themselves.
