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  Currency, Carry and Entropy Things ain’t what they used to be or How currencies are not stores of value   One of the standard attributes that money is claimed to have is that it acts as a store of value. “Store of value” tells you that it is the current holder’s intent to keep the currency for a while before exchanging it and that during that time before the exchange, the currency is expected to hold its purchasing power. Money, however, has a “particular requirement “that is the proverbial fly in the ointment. That characteristic has interesting and not so often mentioned consequences on how to view the “store of value “attribute of money. Gold bugs like to mention how gold has maintained its value over time and how that value has never gone to zero or completely disappeared, like many fiat currencies have done. This may be true, but it is a grossly incomplete statement of affairs. What is always missing in that observation is the storage cost, the negative carry, that c

Finally the day has come that your Ivy League (please note that the spell checker capitalized that, not me) education and hard work are paying off: Congratulations, you were just appointed Global CIO.   You are now responsible for investing all of the world’s financial assets and, given your history as a highly educated CIO, steeped in finance and highly experienced managing other pools of capital your goal is to create a diversified portfolio with uncorrelated assets. On the first day of work you decided to use a three step process in setting up the portfolio 1) see what you have, 2) determine what you want to have and 3) make changes to create the desired portfolio. The first thing you do is send your star analyst to give you a rundown of what is in the portfolio you inherited. S/he starts out with collating and aggregating the portfolio which consists of stocks, bonds, and a number of derivatives such as futures, options and credit default swaps as well as a number of hedg