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Thursday, June 30, 2005
Bull Bear Debate
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The Market Is Speaking
Market participants can look forward to another six weeks of more of the same dialogue as the last six weeks.
Last night in my interview I said they would raise today and again in August but that the guidance would be the most important thing. I didn't know I'd be six weeks (or more?) early.
If the Fed has the same announcement in August as today the markets could have an ugly reaction, unless of course we sell off for six weeks in anticipation of a crappy announcement.
Despite all the shenanigans this has been interesting.
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The Down Side Of Foreign Investing
Most of my clients own Novartis ADRs (NVS) and I own it personally. It is a fine company doing good things and it has avoided (so far?) the problems that have plagued Merck and Pfizer.
The chart shows the three month performance of the ADRs, the ordinaries in Switzerland and the US dollar/Swiss franc cross rate(USD/CHF). The ADRs (the red line) were only up 2% or so but the ordinary shares were up about 7%. The reason for this is the action in the green line, the cross rate. You can see that the ADRs and the ords don't diverge until the dollar starts to go up against the Swissi in mid May.
This is a great chart to clearly show how this can work for, or against, a US investor. It looks like Novartis was the right stock but the Swiss franc was the wrong currency. Next quarter or maybe the quarter after it could be the ADRs that do better.
So should you do something to mitigate this? You could fiddle with the Rydex Strengthening Dollar Fund (RYSBX) but this is not my trade. I have written about these funds, and they are interesting but layering in something like this is far from simple.
The real take away from this should just be knowing the downside of foreign investing.
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Spring Was Good To Investors
I'm not sure if they are trying to spin something or if the author really thinks 1.7% is good.
I don't think this is the best way to look at things if you are investing with any sort lengthy time horizon. The market averages 10% per year. That takes into account good, bad and flat. If you are managing your own portfolio all you need to do is stay reasonably close most of the time. I have written many times about taking steps to avoid down a lot. I think it is a sure bet there will be a couple of ugly down a lots over the next 20 years. Missing a big chunk of one of them could add a couple of hundred basis points to your average annual return and spare a lot of mental anguish.
There are three things I look at to warn down a lot may be coming; the SPX goes below its 200 DMA, the yield curve inverts or the market averages a 2% loss three months in a row. These are obviously not infallible but they are simple to understand and as I have chronicled in the past you should not go to 100% cash the instant one of them triggers.
This was the case when the SPX recently went below its 200 DMA. I tweaked accounts a little bit and was ready to take more action that thankfully was not needed.
For most folks, getting caught up in how a particular three month period went is probably not necessary. Its a little different for someone that manages other peoples money for a living. An investment manager needs to add some value more often than not. I have had a good run lately but there will be time periods where I will lag. This is true of just about every manager. This is also true of do-it-yourselfers.
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Here We Go
There will be multiple classes of shares with varying expenses.
Since just about every ETF is a type of index fund, these funds will be funds of index funds. Funds of actively managed funds are bad enough.
I have written about what I believe is an investing evolution for do-it-yourselfers in terms tools to manage their portfolios and they way in which information is accessed. Funds like these from Met Life work in direct conflict of that notion.
Although it may not always seem like it with some of the content on this site, I really believe in keeping things very simple and clean. Umpteen classes of a fund all with different fee structures and an extra layer of management fees is neither simple nor clean.
The article I linked to in the beginning of this post says that these types of funds have had mixed results. Hopefully demand for these will be weak and less of them come to market.
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Wednesday, June 29, 2005
Forest For The Trees
What makes the article post worthy was commentary from an investment manager named Herb Morgan from Efficient Market Advisors in San Diego.
Mr. Morgan said he see no "compelling evidence for the inclusion of emerging markets in a portfolio, partly due to the risk." Well the risk involved may not be appropriate for his clients but the chart to the left is reasonably compelling.
The article also cited this from Mr. Morgan (but not as a direct quote); he uses the broader iShares MSCI EAFE fund, which invests in developed international companies. In addition, Morgan noted that the annual expense ratio for the emerging markets ETF, at 0.75%, is more than twice the EAFE fund, which charges 0.35%.
I took that as one reason why he prefers EFA over EEM. In the last two years EEM is up 80% and EFA is up a little over 40%. For the last twelve months EEM is up about 35% and EFA is up 10%. For the last three months EEM is up 6% or 7% and EFA is down 1% or so (I just eyeballed these numbers by looking at the Yahoo charts page). I'm thinking the extra 40 basis points should not be an obstacle to buying the fund.
More importantly it is not clear to me that anyone should compare developed to developing for purposes of fund selection. Emerging is always more expensive and the two asset classes don't seem to have a tight correlation.
A lot of people get quoted for various investment stories. Questioning what you read is a great way to learn.
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CNBC Asia Tonight
- The Fed is probably the most important thing right now. They have a history of going too far and the decisions they make over the next couple of meetings will make or break whether they do go too far.
- Earnings season is about to start and as I said on the show before the last earnings season I think earnings will come in just fine but they will not be the key driver short term for index levels.
- I think a secondary effect in the US markets this week (and probably next week too) will be rejiggering of portfolios for quarter end and so any trades done for that purpose may be unwound after the holiday.
- If I was not clear, the Fed will announce 25 basis points on Thursday. As I say every appearance that I make around Fed day that while I don't know how they will word the announcement the board will figure a way to have as little impact on capital markets as possible.
- I give much less weight to a great consumer confidence number than to the various production and capacity data points, GDP, LEI, the slope of the yield curve and jobs numbers. I would add though that despite the GDP print on Wednesday it is not moving the market underscoring my first point, the importance of the Fed.
- Energy will continue to be a big focus. The consensus that oil will find a home below $50, I believe, is incorrect. It could go there on a trade of course but we are seeing a change in the dynamics of the demand side of the equation from China and India (soon we will include Viet Nam and Pakistan in this discussion). This will continue to put upward pressure on the price.
- I continue to favor energy, utilities, certain areas of healthcare and foreign equities.
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Reader Questions
Here is the first one;
Do you see EWA to be a reasonable buy at its current level?
Well I suppose that depends on the time frame the reader is interested in. I wrote before, about this, that sometimes I get a feel for a good entry point and I don't have a feeling either way right now in terms of a trade. Sorry, but that is an honest answer. I would have no qualms whatsoever in buying EWA today for a client (for whom an individual Aussie stock was not appropriate) right now as an investment. Long time readers know I am a big believer in in some expousre to commodity based stock markets. The goal here is a type of diversification that doesn't come as easily by owning the EMU countries.
One of my favorite technical analysts is Bill McLaren. He comments almost every week about Australia on CNBC Asia. You can click here to read his latest comments about the ASX 200. And again for disclosure I own EWA.
Here is the other question;
what is your opinion of EWS (iShares Singapore)?
I should have said that both of these questions were left on my post about Tim Middleton's ETF portfolio where I reference EWA. There is some correlation between the two, which surprised me but Singapore is more of a technology manufacturing economy and Oz is more of a natural resource play. And if you click here to look at the chart you will see that Oz has wildly outperformed due to the move in commodity prices.
In his column the other day Michael Kahn, from Barron's, wrote that the historical precedent for what energy is doing these days is that technology won't lead the market. He said tech can go up but it won't lead. If that turns out to be correct that should mean that Singapore should continue to lag.
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Tuesday, June 28, 2005
Luck? Skill? Who Cares?
I was in the office today and toward the end of the day I looked at how a few accounts had done so far, with two days to go in the quarter. It looks like I will have had a great quarter. The SPX is up 21 points since the close on March 31. I calculate that to be about 1.7%. I looked at about 10 accounts and was pleasantly surprised.
I should probably note that I do not fixate on account balances. I have partners that can do that if they want, I tend to focus on other things.
Of the accounts I looked at, the worst one was up 1.8% for the quarter and the best one was up 4.1%. I would say the mean was around 3.2% or 3.3%. No two accounts are exactly the same due to tolerance for volatility and other circumstances. While I am pleased with the results, the thing that stands out to me is that because of the ongoing caution toward the market, most accounts have 10%-15% in cash. One thing that just about every investment manager talks about is beating the market with less risk than the overall market. I will add while the market may get crushed in the next two days, for all I know, it seems unlikely that I would lose a lot of the spread gained thus far.
The point is not to pat myself on the back but to analyze what went right to try to repeat next quarter. Most of the themes in client accounts are things I have written about so will not be unfamiliar to long time readers.
I have been underweight tech for a long time. That was not a good call for the quarter. As of the close on the 28th, tech had outperformed slightly. I have been overweight energy which has been correct for a long time and a couple of names here added a lot or return. I have been underweight financials which was a bad call but I got lucky with some good stock picking in this group with an Australian and an Irish bank.
I have been overweight utilities which was a jackpot. The worst utility clients own was up 5% and the best one was up 12%. Telecom was inline with the SPX but my picks stunk this quarter, but the dividends for them made up for some of the poor performance. I had the most luck in the consumer area. One was a moon shot and another was up better than 5%.
Industrials had a couple that worked and a couple that didn't, ditto materials. The other thing that generally worked well was emerging markets. By and large most of my foreign exposure had a good quarter, I have almost no EMU and zero Japan.
Another thing that probably helped a lot was dividends. With the current portfolio composition dividends help every quarter.
Most of the weightings, sector and country decisions are things I have been writing about all along. Most of the themes I look at tend to be longer term than trying to play Apple for its earnings number.
One thing I have written before is that I try to get more themes right than wrong. I got plenty wrong this quarter but I don't think the wrongs outweighed the corrects. That is important.
Not much will change just because the calendar will turn to July in a couple of days. I may add one more energy name and maybe a tech name soon too but beyond that there is not much visibility for change.
I would conclude by saying that patience is something that usually pays off for me. I don't act rashly. I have a plan that I constantly review in case change is needed, but I don't let three or four bad days cause me to turn things inside out.
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Problematic ETF Portfolio
Tim Middleton from MSN posted his ETF Portfolio update for the quarter. He said that his position in EFA held back the performance so he is going to reduce his foreign exposure. Aside from whether or not he is looking in the rear view mirror to manage the portfolio I think the biggest problem he had was being too broad.
This chart overlays EFA (all developed foreign) vs iShares Australia (EWA) that I have probably written too much about. Also working for my clients was Ireland and Norway (but those were individual stocks).
I think EFA was held back by Japan and a weak Euro, but I may be wrong abut that. Also in the second quarter EFA paid no dividends but a blend of different products to comprise the foreign component could easily pay 50-75 basis points in a quarter.
The point here is to recognize that being too broad can work against you. I had a question the other day about just owning SPY and EFA and I said it would probably allow you to capture most of what is going on. Well that may be so, but a little extra lifting and the results could have been much better in the foreign component.
Disclosure: I own EWA personally.
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Blackrock Global Opportunities Equity Trust
I was able to track down the prospectus from Yahoo Finance. You can click here to download it. You have to register but it is free.
The summary of the fund is very difficult to digest. The fund is global that is clear. There is no mention of a target of how much of the fund will be in foreign stocks. It can own up to 25% in emerging markets, though. It can also put 20% into various types of debt.
The managers will sell call options on a portion of the common stocks. The prospectus also said that the managers would be writing (selling) covered puts to a lesser extent. Technically a covered put is sold against short stock. The trade is vaguely similar to long stock short call. You are short a stock and you sell the obligation to buy the stock thus closing the existing the position.
I tend to over react to mistakes like that but it makes me wonder about the decisions being made at the fund. I realize it is the lawyers and not the managers but it wouldn't be a pet peeve if I didn't over react.
My initial reaction to the other global call writing CEF, IGD, was negative too. But as time moved on a little and I learned more about I have become open to the idea of switching to that one. There is no trade there now just the possibility of one.
I tend to explore a lot more trades than I make. To me this is a part of my job and I find it interesting.
For all the positive commentary I have written about these funds I will say that I think broader is better. In an attempt to differentiate some of the new ones are too narrow. I want the manager to not have to own mid caps when other areas might be a better place to be. The global ones are intriguing because they are not limited to just the US.
I continue to believe that these types of products will roll out in other countries and they will eventually be available to US investors.
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Monday, June 27, 2005
How Much Damage Can Oil Do?
Here's my opinion. I think this will be more about perception and a shaving of profit margins anywhere around the current price. I don't think a 15% increase in the price from here is a deathblow to the consumer by any means. It costs me $27 to fill up my 4Runner and I have to fill it twice a week because I drive to Phoenix twice a week. A 15% price increase at the pump from here would cost me $8.10 per week. How much would it cost you and would that change much in your financial life? While it does matter for some folks there are plenty of people that can absorb an increase just fine.
Living out west I have no frame of reference for home heating oil. We have propane and our annual cost (I live on a mountain that gets a lot of snow) is between $600 and $700 a year. A 25% increase in the price from here would merely be a nuisance for the month I have to pay the bill but not change my consumption habits. I can't say the same if I lived back east and needed to cough up an extra $1000 for heating oil.
I think oil creates more of a problem for public companies. It seems easy to figure that companies that have heavy energy demand usage will have problems with profit margins or having to reduce earnings guidance. I think that either the perception or the reality of this development could be a sizable negative for stocks but I do not yet have a feel for the time line for this to occur. Will it be evident with 2Q earnings? 3Q? Another time?
Also compounding this effect for certain stocks could that oil has gone up with the dollar so other countries are feeling this last leg up much more than they felt oil going from $40 to $50.
I certainly don't have all the answers but I remain overweight energy and would not rule out adding a little more to the sector soon.
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MSP Prospectus
He found the company that is the sub-advisor and I was able to find the prospectus. You can click here for it if you have any interest.
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Option CEFs in B-Week
The Businessweek dated July 4 has an article (I don't know if I utilized my subscription to access the article) about closed end funds that sell call options to create income. I have written about this product numerous times because I think it can be useful in a properly diversified portfolio.
These types of funds have many detractors. The negative take on these is that they can go down a lot if the market drops a lot and that they can not go up a lot if the market goes up a lot. I first started writing about these last October. I think my take on these is unique, I have never read an article that shared the same opinion that I have. I do not expect these funds to keep up with a roaring bull market but I also do not expect them to drop nearly as much in a nasty selloff either. I think of these as more of a fixed income vehicle (but by no means should this be your only fixed income product). In their short history they have been less volatile than stocks and less interest sensitive than bond funds which is what I have been saying about these all along.
Most clients have exposure to this product but like anything else I own portfolio performance for won't be made or broken on this one tool.
The article takes a generally negative slant toward these funds which is fine. The thing I find weird is the author's use of the word bubble to describe the popularity and amount of issuance. People are not getting rich with these, there is no mania involved and a bad outcome for these, I think, won't be financial ruin but might be that too many funds selling options will depress premiums.
I am not saying this will absolutely happen but there is visibility. It makes sense to know the downside of what you own.
As I look at the list from B-week there are a lot of funds I am not familiar with and some of them are so new that there is not much info available. For example the Madison Strategic Sector Fund(MSP) doesn't have any info on Yahoo Finance and even the Claymore Securities site (that is the fund sponsor) has no information either. ETFconnect had no mention of call options in its description which I found odd. It just said high income.
One fund that caught my eye was the Blackrock Global Opportunities Equity Trust (BOE). This is a very new fund, I couldn't find any info at Blackrock's website and the description at ETFconnect was very confusing. As I can find more information on this one I will pass it on, but it is the global aspect that interests me.
The one on the list above that stuck out as surprising (in a negative way) to me was the Dow 30 Premium & Dividend Fund (DPD). It will only own stocks in the Dow 30. The strikes me as a very narrow universe to be limited to.
One thing the article mentioned was that a lot of these new funds still trade a premium to NAV because they are so new. You are probably better to wait on these.
While I wish there were less of these funds being issued I think this continues to be an evolving product. Most of these funds are benchmarked to the CBOE Buy Write Index (BXM). What I'd like to see next is a CEF that captures the Australian Buy Write Index. I also think this would be handy for other foreign markets too.
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Sunday, June 26, 2005
Front Month Oil
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Asian Squawk Box
Today he called the US economy, currency and stock market all doomed. He feels the US debt load and the way the Fed has increased the money supply (as measured by MZM) has accelerated the time table for this to occur.
I do not believe in such a dire outcome but, what will work if Mr. Saxena is correct? Commodities, foreign currency, foreign stocks and foreign bonds would be a good start to the list.
As a matter of philosophy I don't think it is smart to completely rule out a particular outcome just because you don't believe it will happen.
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The Big Picture For The Week of June 26, 2005
Some of the feedback reveals that there really is a lack of ETF content that goes beyond an ETF is a basket of stocks that trades through out the day.
There were a couple of emails (or maybe they were comments, it all goes to my email address) asking for my opinion or suggestion for an all ETF portfolio. This is tough one.
First and foremost, if you go through the archives you will see that I have never been a fan of just using ETFs. They are a tool that I clearly think highly of but I also think that for most folks a blend of several types of products is the best way to go. I am talking in general terms here because one size does not fit all.
They biggest drawback I see (this is something I have written many times before) is a lack of dividends. Take utilities for example. In client accounts I own a few different utilities and most of the ones I own for clients yield in the mid to high fours. The three ETFs for this sector yield around 3%. If the people that are calling for below average equity returns for the next few years turn out to be right, an extra 100 or 150 basis points could matter a lot.
I wrote the other day that I use sector ETFs for the accounts where I use ETFs at all (this is a small percentage of our firms accounts). Because of my interest in a heavy foreign weighting I use the global ETFs from iShares for energy and healthcare. I don't use ETFs for anyone for telecom and I prefer stock for utilities but that does not always work out.
I don't think I can suggest an all ETF portfolio because I really don't believe it is the best possible thing an investor can do for themselves. Below is a list, by SPX sector, of how I would construct the equity portion of a portfolio where individual stocks only is not ideal for whatever reason.
Financials: domestic ETF and a foreign bank
Tech: domestic ETF and a high beta name or two
Healthcare: global ETF and a specialty stock
Consumer: staples ETF and discretionary stock
Industrial: ETF and a foreign stock
Energy: global ETF and one stock
Materials: either an ETF or a stock depending on the client
Telecom: no ETF, only stocks
Utilities: my preference here is stock but that does not always work
I always add a stock to financials for yield, foreign exposure and as a way to reduce beta. I also add a stock for consumer discretionary for proper diversification. Energy is another important area, to me, to add a stock. Health, industrial and tech are less important to add a stock than the first three sectors in this paragraph.
For emerging markets I use both ETFs and closed end funds, depending on the client. I do what I can to make use of what is available. This is also why I like to spend time learning about, and writing about, new products and encouraging people to learn more for themselves. A closed end country fund may not be for you but there is no reason to learn about them, as an example. Same thing applies to all of the new products that are coming soon.
One comment referenced a simple two ETF allocation of 58% SPY and 42% EFA by Fisher. I'm not sure if that comment was referring to my old boss Ken Fisher or someone else but like any all ETF portfolio you will read about 58% SPY 42% EFA has pluses and minuses. If simple is a top priority, which is fine, you could easily blend together two or three broad based ETFs, be reasonably diversified and capture most of what is going on in the stock market.
What I have laid out above is my approach with ETFs but this is absolutely a subjective thing and just because I believe in one way doesn't make it right for anyone else.
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Saturday, June 25, 2005
Thanks, I Think?
The Electronic Trader column had a quick profile about David Jackson's ETF Investor site that included this: and he tends to call too often on blogger Roger Nusbaum (randomroger.blogspot.com). Still, Jackson has an eye for good editorial and data on the ETF market.
I suppose there are two ways to take that. Either there is too much of my stuff and I stink or hopefully it speaks to there not being enough good ETF content out there? For now I'll choose to believe it was not a rip:-p
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Friday, June 24, 2005
Structured Products
One thing lead to another and I found myself at the Structured Products page at the Amex web site. There was an incredibly long list of different issues. Conceptually these sound great. For example there is an ELK for Yahoo (it expires next week do not buy it!). It was issued last June at $10 with a 10% yield and it looks like it will mature at $10, but again I do not know all the particulars. The point is that the idea, taking a bigger picture look, of maybe getting 25% of a stock's upside over a 5 or 10 year period plus some sort of apples to apples treasury equivalent yield as well sound good to me. Obviously if the stock went down this type of hybrid would drop too.
The role for something like this would be to reduce beta but have the chance for a good, not great, total return, relatively speaking. Also obvious is that this type of product would get left way behind in a 2003 type rally and this type of product would not be a substitute for equities.
I did not look at every issue on the list but I did not find any that looked good. Does anyone know of any of these products that they think are worth looking at? I know quite a bit about principal protected notes that are tied to a broad based index. I am not a fan of those at all but if you know of any that are linked to a common stock or a sector that has a decent yield and matures further out than one year please let me know.
At this point I am just exploring the concept. I have not made any judgment about this (except the principal protected notes I described above).
Also I could not work this in earlier but Yahoo is a client and personal holding.
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Rough Morning
The capital markets might be smoldering a bit too. Oil at $60ish, the ten year bond headed to 3.90%, a lot of equity markets and individual stocks that were working are now unwinding. This is a natural ebb and flow but for now I guess we have more ebb than flow.
We have earnings season coming around the corner. If I recall correctly the estimate for earnings growth is about 7% after surprises maybe that means 9%? I will be curious to see the reaction by the market to a quarter of single digit growth, whether it is this quarter or another one.
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Thursday, June 23, 2005
Multi Nationals
He made the point in response to a question about China and mentioned Caterpillar (CAT) by name as an example. BTW CAT is a core holding for most clients and has been for a couple of years. One of the reasons I bought the stock is they sell a lot of tractors to China. But you are not capturing China. In fact if you click here you will see that over the last two years the correlation between Shanghai and CAT looks perfectly negative. In that time CAT is up 70% and Shanghai is down 30%. Hey this was Ted's example not mine.
For my example I would take Australia. I write about the country all the time. They are selling all sorts of stuff to China. The correlation between Oz and Shanghai looks negative too. In the last two years; Oz up 40% Shanghai down about 30%.
Too many people listen to this nonsense and believe it. Don't be one of them.
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I Repeat
I wrote this last week about a debate on hedge funds. I repeat the sentiment about the debate between Larry Kudlow and Richard D'Amato discussing CNOOC trying to buy Unocal, which I wrote about this morning.
Like any issue there are two sides. Mr. D'Amato was against it and Mr. Kudlow was in favor of it and Tyler tried to moderate. The negative argument is more complex than the pro argument. Kudlow never let really let D'Amato finish a thought. One thing that came across from D'Amato is that we have an oil deficit and we are selling the other side of that trade to the Chinese government if the deal goes through. That does not sound so great to me but I don't know because Kudlow never let him finish and Kudlow's replies were not directly on Mr. D'Amato's point.
I think poor Tyler was in over his head.
Since Kudlow was so loud and not on point I am inclined to fade his opinion on this.
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Chart Work
I thought I would have the chance to write about this later. Looking at the SPX for the last year and based on the way the SPX has traded in a freakishly narrow range for the last five days it would appear that the 1215 level is very important. I'm not sure if this latest run will make for a triple top or not but this is clearly a formidable level. I would suspect that if the market could get above and successfully hold it could make for very solid support. I suppose the margin for error on this thought is very subjective but I would think 1206 is beyond the margin or error. We'll see if this holds any water.
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The libertarian in me would like to believe that CNOOC should be able to be in the game bidding for UCL and it either wins or it doesn't.
But a US company can not bid in similar manner for a Chinese company. Also the Chinese government owns some portion of CNOOC so UCL is being bid on by the Chinese government, so to speak.
I have not told you anything you don't already know about this. Given the totality of the situation I lean to no, but that no comes with very little conviction. Fortunately I can do my job just fine without having completely made up my mind. You too can continue to manage your portfolio without knowing how you feel about the situation. This is true with a lot of news, and that could be the most important thing to take from the story.
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Low Rent District
He was joking but the point is interesting in trying to decipher what may be next. The German ten year bund is yielding below 3.2%, Swiss ten year government bonds yield 1.96% and Japanese Government bonds yield less than 1.5%. So what does that say about ten year treasury yields at 4%? How about UK gilts even higher or Aussie ten years up over 5%.
Sweden's Riksbank made news for lowering rates to an all time low. The Swedish ten years yield a little over 3%. The French ten year yields around 3.25%.
This creates a one sided argument for US rates to go much lower, which ties into what Nicole Elliott has been predicting for a long time; much lower treasury rates.
There are, of course, plenty of reasons to argue why our rates will go higher and that the lower yielding bonds that need to adjust. That line of thought assumes that the US is still the tail that wags the dog. I think any forward looking analysis would have to question that notion. If the planet is heading into a world economic slowdown (or if we are already there) it is not the US that is providing leadership, it has been (I think) Europe that has lead the US and the rest of the world to a slowdown and so it may be that Europe will lead us out.
To clarify my opinion on one thing, I view the slope of the US yield as an indication of slowdown. This will be right or wrong but to me this is a clear warning from the bond market.
One theory I have written about for Europe providing leadership (if that is in fact what is happening) is there is visibility for the Euro to share the role as world reserve currency with the US dollar. This makes the US less important than it has been and Europe more important than it has been.
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Wednesday, June 22, 2005
AUS/ USD Cross Rate
This article quotes a currency analyst as saying the Australian dollar will appreciate to $0.85 with in 12 months (it is just under $0.78 now).
The article is a good, short explanation of the bullish case for the Aussie. It will either be right or not but if you don't know much about this it is a good starting point.
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I'm Getting Sleeeepy
As a money manager I am happy with dull days and an inching higher of most stocks. As a guy who needs to mind the store, watch stock market TV and stay close to the internet I have to say I am a little bored.
I have been able to watch big chunks of the College World Series which has been very exciting (it is every year).
I would be thrilled if, by Labor Day, the SPX was 3% or 4% higher with this continued smooth path. Of course by then I may be on medication for narcolepsy.
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Currency Comment
Roger... I see it. It takes a few months for a Fed rate hike to take affect in the market. Sooner or later, all these Fed hikes are going to work their way in to the marketplace. We're probably going to see another soft patch. Add in the price of oil, and the economy isn't set up for strong growth. I've been putting a few things up on my blog about this. We're more likely to see the Fed move to the downside until the beginning of the year. I just feel that Al should be pausing to see the effects, instead of just plugging ahead.
If you don't know David he has an excellent blog over at Disamally.com. The other day I wrote a post about what I read. David's blog is one of the ten or so that I read regularly.
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Back Below
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Minutes Move Markets
Today's news about the UK has stocks higher and the pound (aka cable) lower. This trend could mean the dollar heads higher, even from here. The weird part about this, as I mentioned last week, is that commodities are moving higher with the dollar. This means the commodities are moving higher in real terms and becoming more expensive for foreign countries. This will be important to watch and might be a reason to cut back on European exposure.
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Tuesday, June 21, 2005
Maybe There's Another Way?
While I believe that new investors need to see this kind of commentary to learn about the downside to sector funds, how about some content about a constructive way to use them beside speculating on a sector?
For my job, I do use ETFs in certain situations. A common circumstance where I would use ETFs came up just yesterday for a new client. The client is about my age has just under $200,000 in a couple of retirement accounts that we are able to access and where the retirement plan allows for stocks, ETFs and anything else offered by the brokerage firm that administers the plan. The asset allocation is 80% stocks and 20% bonds. So that leaves $160,000 to go to equities. This type of amount usually calls for a blend of stocks and ETFs.
I try to use ETFs to replicate, as best I can, the all equity portfolio I have for most clients. I do use sector ETFs in this strategy. For example I am underweight the financial sector. Its weight in the SPX is about 20%. The weight I have for clients is closer to 15%. So one way to go would be to put 15% of the equity portion of the portfolio into one of the financial sector ETFs. Remember though I am trying to get as close to replicating the full equity portfolio. Long time readers know that in the financial sector I own a lot of foreign banks that have high yields and low betas. So maybe instead of 15% into one ETF I will put 10% of the equity portion into the financial ETF and 5% into one of the foreign bank stocks that everyone else owns.
To take it a little further lets say I want to add the EWA I have written about to this account. EWA has about 28% financial exposure so that needs to factor in too. I might want 4% to go to EWA. That means another 1% (from EWA) is added the financial weighting so I need to shave either the financial ETF or the individual stock by 1% to adjust for the financial weight coming from EWA.
So now maybe it looks like 10% in the financial sector ETF, 4% in the individual foreign bank stock and 25% (ish) of the EWA holding counting toward the financials weighting of the entire account.
This, or something like it, gets done for each sector. I am very unlikely to use an ETF for the telecom sector. I rely on this area for a lot of yield, much more than can be had from an ETF. Depending on the volatility tolerance of the client I will, for a given sector use just an ETF, a blend of stock and ETFs or just stock.
In doing this I will have 20-25 transactions to implement an account as opposed to 45. I expect these smaller accounts to lag a little but over time there will be given periods where these accounts will out perform.
After re-reading this post I can see where it might be tough to follow so feel free to email with questions.
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A New Covered Call CEF
The prospectus didn't download successfully but I did take a look at a press release on Merrill's web site. The press release says the fund will own dividend paying stocks and sell call options on equity indexes. The indexes are not specified.
Technically buying stocks and selling index options is not a covered strategy yet the manager is quoted in the release talking about covered calls. This probably means nothing but it caught my eye.
I was not able to see anything that makes me think the fund is different from the others.
On a related note I found this article from last week about all covered call CEFs.
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A Cut In Fed Funds
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Currency OEFs
There is an article by Tim Middleton at MSN this morning that talks about these two but also mentions two new (to me anyway) currency funds from Rydex; Rydex Strengthening Dollar (RYSBX) and Rydex Weakening Dollar (RYWBX). The Rydex funds are leveraged to double the effect. So if the dollar falls by 5% you could expect RYWBX to fall about 10% (there is usually a tracking error that makes exactly double unlikely).
If someone feels they need this type of product I would go with the Rydex because it is a more efficient hedge.
I think these are great in that they represent innovation. I don't have plans to use these now but that may change.
What I would like to see next is these funds in ETF form. I would also like to see currency OEFs/ETFs that measure the US dollar vs the commodity currencies (Aus, NZ, South Africa, Canada, Norway and maybe a couple of others) and one that measures the dollar against emerging market currencies too.
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What Are They Really Looking At?
The reports don't focus on what I would expect them to focus on. There is a lot devoted to expense ratio comparison. This seems more like a detail for the end of the report than any type of real analysis. I looked at reports for two health ETFs; IYH and IXJ (subscription required). The analysts does not seem favorably disposed to either one yet there are no alternatives given as far as better performing OEFs or any other health care investment.
An approach that I think would be more useful would be an analysis of the sector itself. Maybe some process about why a sector should be overweight or underweight in a portfolio based on some historical precedent along with current events interpretation for some forward looking analysis. This could also be applied to the style ETFs and the cap size as well.
For the country ETFs, I have to think someone could study the goings on in the various countries represented and offer an opinion.
The other thing that I'd like to see is how good of a proxy an ETF is for its underlying index. Obviously this doesn't do much for an S+P 500 ETF but is, for example, iShares Spain a good proxy for the IBEX?
I try to offer the type of analysis I am saying Morningstar lacks but it would be nice to see more work like this from a two heads standpoint.
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Monday, June 20, 2005
Foreign Dividend ETF In The Works?
While I am giddy, this is just a product. The make up will be good or it won't but I think demand for the idea will be big and I expect other providers to follow suit.
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JS Online: Closed-end funds open new area of investing
This is an article about an investment manager that is using CEFs that invest in energy MLPs. I first wrote about these back in December 2004. In that article I expressed concern about sentiment doing wacky things to the premium/discount of the market price compared to the NAV. For the chart below I picked some random MLPs for a comparison. FMO, the CEF mentioned in that first article is about unch in the last six months but the individual names are a little or lot.
According to the ETFconnect profile for FMO, the fund was at a 5% premium at inception (sales charge perhaps?) and is now at a 2% discount. So a 7% swing at a time where somehow the NAV stayed flat.
So now what? Still not a fan. If you want to have exposure here I would avoid the funds, the article lists a couple of others. I would put 75% of what you have earmarked for this group into something like KMP (client holding) which is relatively tame and 25% of the allocation into any of the hot potatoes mentioned on the TV shows, that you have researched. There are other tame ones beside KMP. I sold the last of my hot potato MLPs during the winter. Personally it is not an area where I want to be but I think the split I proposed is a better plan, for someone who wants to take the other side of that trade from me, than an MLP CEF.
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Squawk ETF
He feels the market is headed toward more ETF use by investors. The byproduct of the conversation was that ETFs are a good thing but not that many retail investors know much about them. While it seems hard to believe that people don't know about these, they really don't.
Maria chimed in that stock picking is difficult as a reason for ETF use. Fair to say I write about ETFs a lot. I am a big fan but long time readers know I do not think 100% ETFs are the best possible thing for people with enough assets to own individual stocks. For most people the best portfolio is a blend that utilizes many tools.
The big thing that ETFs lack are dividends. The highest yielding ETF I can find is in the 3's. There are plenty of stocks that yield in the 4's and 5's. If there is an equity ETF that has a higher yield, please let me know.
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This is the type of move where everyone looks smart. I try not to get too caught up when markets make big moves. Long time readers know I like to remain as unemotional as possible.
Markets tend to work a certain way. Expecting a counter move after a lengthy trend is a logical conclusion.
Also the problems that confronted the market a few months ago have not gone away, although if Richard Fisher turns out to be right that would help a lot.
At some point the price of oil should matter to stocks, I would have thought $57 might have been the number, but not yet I guess.
One concern that has not been talked about a lot, recently, is the potential earnings growth slowdown. I have seen some single digit estimates for the second quarter. If that is what happens then obviously the market will be relying heavily on multiple expansion to go up, could happen but this is has not been a driver lately.
Negative post, maybe, but it makes sense to question the markets when everyone feels good.
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Sunday, June 19, 2005
The Big Picture For The Week of June 19, 2005
As we call caught up with each other the conversation came around to what I have been doing lately. They all know about the blog and have seen the site but most don't read it because they are not that into market related reading (who can blame them?).
Someone asked me about why I spend the time because it is not much of a money maker. The question misses the point entirely and teaches me that very few people really get what this is about. Hopefully if you read this site regularly you get it.
I feel very strongly that the investment part of the financial services world is badly broken. Too many people have blind faith in the wrong thing. Just because this might be true (I say might because this is opinion after all) does not mean that people will ever have to face any consequences for this. Think of it this way; if you had put 100% of your portfolio into JDSU back on January 2, 1996 at a split adjusted $1.15 and sold it all on March 6, 2000 (the highest daily close I could find) at $146.53 (split adjusted) you probably would not fully realize the risk you had taken but you took it nonetheless.
I think the conflict that exists at the brokerage office or at the bank is analogous. Doing the absolute best possible think for the client is not the top priority of these firms. That may or may not be the priority for a given sales person, who knows? Most sales people are just trying not to hurt the client. Case in point is the Morgan Stanley S+P 500 Index Fund (SPICX). Clearly this fund will not hurt anyone but it has expenses of 1.46% and yields 0.62%. C shares usually pay the broker every year, hence the high fee, and that fee structure also accounts for the low yield. More expensive and lower yield, not very compelling yet it has about $160 million of people's money. Most big firms have these funds. Not the best possible thing but not Enron either.
The point of this blog is to help people see this and to one way or another learn a little more than they previously knew. People may take what they learn here and other blogs and manage their own assets or become smarter consumers of brokerage services.
The writing helps me in several ways. Writing out some of my ideas helps me work through my thought process, I have had a chance to talk to some people in the business I would have never otherwise met, I have some very smart readers that give me all sorts of good info and share insight with the comments feature of this site, I really like the writing but the biggest thing for me is that I feel like I am helping a lot of people. This is wildly fulfilling.
And that really is the big picture.
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Friday, June 17, 2005
I Wish
You may know this site by its old name Public Mutual Fund. Site owner, Stephen has helped me with technical stuff many times. The site is an open book learning process about capital markets. There is also great news content agregated there as well. Check out his holdings pages too. He has pie charts and performance info of his various accounts.
Aside from the content being interesting I think he is out in front of what investment blogs will look like.
Given how far ahead, technologically, Open Portfolio is of any blog I have seen I don't feel like a jerk making a suggestion. I'd be curious to see a sector breakdown like might be available in Morningstar's X-ray vs the S+P 500. I would have no idea how to do this but then I am quite the Luddite.
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I looked at the option chain and the premium is quite low. A December (furthest month) 65 (highest) strike was bid at $0.85. That seems very low for 2 points away and six months. Before I looked I was hoping to get $0.55 or $0.60 for a 67 or 68 strike out six months. While the strikes are $1 increments they stop at 65 for December.
Clearly something like DVY is going to have low premiums also I would expect that with VIX at 11.48, premiums in general would be low. Whether my expectations were stupid or not the fact is I can't get close to what I had in mind so no trade. Chasing option premium is usually a bad idea.
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What I Read
Daily Reads
In Play from Briefing.com via Yahoo Finance
The Street.com-the free parts
Barron's Online exclusives (subscription required)
WSJ.com (subscription required)
Marketwatch.com but I find there is less to read here than there used to be
Bloomberg.com US stuff early in the day and Asian stuff late in the afternoon
MSN.com I check every day but only read three or four things a week
NY Times hey its the Times
Morningstar I almost never agree but I am seeing process, not sure what content is subscription
New Zealand Herald very easy way to keep tabs on Oz and NZ
Yahoo Finance Investing Ideas I check every day but don't read much of it
Reuters this is at the top of My Yahoo page, the synopsis of the headlines is my main use
Norway Post this is new to me, I don't know when the stories change so I just look every day
I have news searches on My Yahoo for ETFs, CEFs and emerging market. This brings articles from all over that I would never find.
I get a daily email from BMI Group with content about eastern and central Europe.
I read what I think is about ten other blogs. I won't list them because I am bound to leave one or two out and offend someone.
Weekly Reads
Barron's I have been reading Barron's for almost 20 years, this is one to pay up for
Nicole Elliott's weekly commentary I refer to her all the time on the blog
John Hussman's weekly commentary he is very smart and I can learn a lot
Index Universe this is a lot of ETF stuff and I can't get a feel for new article frequency
ETFzone I would say I check this a couple of times per week
I know have left stuff out but this captures the routine.
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No No No!
I hate these types of things. As the fund moves closer to the target date it will change the fund mix to own less equities. Part of the research has been predicting what markets will do over the long term by studying what markets have done in the past. I wonder if they have researched how times products like this have failed to achieve their intended purpose?
Some of this is repeat of past posts. If you are 71 years old and both your parents are alive and 98 years old how much equity exposure do you think you need? In that type of scenario can you afford to be only 40% equities and have the SPX go up 26% in a year? If you are 51, regardless of your life expectancy, can you afford (either in dollar terms or in emotional terms) afford to watch you equity portion drop by one third and do absolutely nothing?
Stay away from static products like this, please!
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Little Things
Oil is above $57. Obviously oil gets a lot of our attention. I have written a lot about what I think oil will do. I have also written that I thought $50-$55 was a no man's land with regard to affecting stock prices. I am surprised that $57 is not a head wind for stocks.
You may not have noticed but gold is around $440. I am surprised that gold is not a problem for stocks right now either.
It is possible that this lift is about the options expiration but I don't think so.
I have confessed numerous times that I do not understand the home builder stocks, which has kept me out of them. I still don't understand how there can be never ending demand. Every investor has weak spots and this is my biggest one, I think.
Australia is on fire and taking New Zealand with it. The ASX 200 is at an all time high.
There is clearly demand for equities in just about all markets around the world. I have been wrong about the market direction but, and this is very important philosophically, clients have not been hurt by my opinion. This is exactly what I mean when I write I could be wrong.
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Thursday, June 16, 2005
Just Shut Up
I am borrowing this from somewhere, but I don't know where. Did you see the hedge fund debate at the start of Closing Bell? They had Jason Mandel from HM Fund.com, whom I have written about before, and Andrew Weiss from Weiss Asset Management.
Mandel is a fund of hedge funds guy. He literally never let Weiss finish a sentence. He just kept interrupting and talking over Weiss. The last time I wrote about Mandel I said he looked foolish. He's two for two.
While I could be wrong I do not see the value of a fund of funds and if you are a fund of funds person you better get on the horn with CNBC and get yourself on to defend the concept because Mr. Mandel is doing a huge disservice to this slice of the industry.
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More OZ
Roger, you've written about Australia quite a bit. Can you talk a little about your thought process for buying EWA, ie why you thought it was cheap then and showing strength? Thanks,
I'm glad to try to answer the question but it may not be very helpful. First let me say that developed, commodity based countries play an important role in all client portfolios. In my opinion Australia is a very pure, simple way to capture this effect. So I expect to always have a little Aussie exposure in client accounts (that could change of course but I can't envision what would cause me to make that change).
Australia is an easy country to follow thanks to a couple of web sites and good ole' CNBC Asia.
I watch the Aussie stock and bond markets constantly. Every so often I get a feel for something where I just know that I have a good entry or exit point. I italicized the word know in that last sentence because I don't know anything but I get a gut feeling, a moment of clarity if you will.
That was the case when I bought EWA personally. I did not buy for clients because they all have ANZ already. My only down under exposure was my position in my often disclosed NZT. I felt I was underweight to where I wanted to be. Also note it was cheaper a couple of weeks before I bought. I am pleased with my timing but as always it could have been better. As I wrote last night this is not a recommendation to go buy EWA. Despite the $0.16 it has added today I would not be the least bit surprised if the next $0.50 was down. I bought it to hold but if I get 20% in two months it will make sense to at least consider selling it.
Another part of the process that might actually address the question is that bonds looked over bought. The market dynamics in Oz are much simpler. That money might rotate from bonds back to stocks seemed plausible to me.
I think I have done a poor job answering the question but it can be difficult to describe a gut feeling.
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Czech Please
There was news today that the Czech government sold 51% of Cesky Telecom to Telefonica (TEF), the big phone company of Spain. Unfortunately the deal is not big enough to make buying TEF any kind of proxy for the Czech Republic. This is an interesting country as an investment theme but for now remains difficult to access.
On a different note this chart comes from the Prague Exchange web site. Getting a chart for most foreign indices from either Yahoo Finance or Big Charts is very difficult.
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Brokerage Earnings
Goldman Sachs looks like a miss this morning, a couple of the others had good numbers. I am not a big fan of these stocks. For the time being there is going to be headline risk about ethical issues. There are plenty of banks that don't have to pay $2.2 billion in settlement awards. There are a couple of mutual fund companies that appear to be very clean. The point is that there are better ways to capture the financial sector without taking such obvious headline risk.
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Wednesday, June 15, 2005
Down Undahh
Bloomberg has two articles, here and here, about what has been going on in Australia recently. Stocks are going up and the Aussie dollar has been getting stronger too. The ten year government bond is now yielding 5.26% after being as low as 5.07% a couple of weeks ago.
The first article talks about the bank stocks drawing a lot of interest because of the high dividends they all have. I have owned Australia and New Zealand Bank (ANZ) ADRs for clients for a couple of years. I think it is a good way to maintain exposure to the country. ANZ was one of my picks on Forbes on Fox in December.
About three weeks ago I personally bought iShares Australia (EWA) at $16.87. It has moved up more than I expected in such a short time. The ASX 200 is at an all time high intra-day today. Don't take this as my recommending anyone buy this one now. I felt the market was cheap but was showing strength when I bought, giving a good entry point for a long term hold but I have no feel for which direction the next 50 cents will be.
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I am scheduled to appear on Asia Market Watch tonight, about 15 minutes into the first half hour.
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ETF Screener
I read this article this morning and was a little baffled. Morningstar has an ETF screener.
First I ran the screen for utilities, there are three ETFs, it did not include the UTH HOLDRs because it is technically a different product. The most expensive of the three was not the worst performing (I should note that all three have very similar numbers). For natural resources the cheapest was the best performer but again the most expensive was not the worst. In looking at all the domestic sectors I did not see where expenses were a determinant factor of returns.
When I plugged in Foreign value all it brought up was iShares Canada. Huh? For European stock it had 16 ETFs including what I think was all of the single country ETFs. I'm not sure what the benefit is of comparing the ETF for Spain to Italy or the Netherlands.
The point is that I don't think ETFs lend themselves to qualitative screens. If an investor wants to own a specific country it makes no sense to compare to another country ETF. It does make sense to compare to a CEF that invests in the same country though.
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Europe is a mess right now, mostly the EMU countries. My EMU exposure is limited to one name but I would not want zero exposure despite the mess.
The interview is not that deep but there is some good info about Anglo American.
On a personal note my neighbor's dog died last night and I am taking the dog to the vet for her so I'll be away for a couple of hours.
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Tuesday, June 14, 2005
What to make of demand for this group as rates move up? I could be wrong but I take that as a lack of confidence in growthier equities. The market does not necessarily need confidence but if my thought holds any water, this action might indicate the market is in control of weak holders. Conclusion? You may be tempted to add beta but don't go overboard.
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This is an interesting chart. In the last few days interest rates (as dipcted here by the ten year treasury) have been moving up yet some of the covered call CEFs have been doing well. BEP is ex-dividend today but the chart does not properly reflect it.
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Interesting Commodities
She sees gold going much higher. In the last couple of weeks the Euro and then Yen have dropped against the dollar but gold has moved higher. This is evidence, she says, of real gold buying. She says that gold is the tail wagging the dog right now. $430 is an important number. A weekly close above that and she thinks we go to $500 in the intermediate term(she did not define how long intermediate is). In Euro terms gold is at its most expensive since 1994 and in yen terms it has not been this high since 1992.
She thinks copper will go from the high it is at now, $1.60 a pound, to $2.00 per pound. She thinks copper is in a serious cyclical bull market. She also sees 25% higher prices for heating oil.
She is a technical analysts so this is all based on chart interpretation.
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But Vince Farrell still never met a $100 billion company he didn't love. Today's names were Citigroup (C), BP (client holding), GE and JP Morgan (JPM). He did shock me with Transocean (RIG) which has a cap of $17.5 billion.
The whole thing is quite amusing. RIG is the first pick that I can recall that begins to delve into his insight and process. As accomplished as he is I have to assume he knows a lot but I continue to be baffled by the never ending parade of mega caps.
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More About Ray Dalio
I manage a hair under the $120 billion that he does but I will take a crack at it anyway:-)
I disagree about the Fed not mattering. The Fed has a long track record of going too far. I don't know exactly where too far is but I think 4.00% is past that point. He says commodities will go up a lot and the dollar will go down a lot. That could be wildly bullish for foreign countries. If one of the kroners goes up vs the dollar that means commodities don't go up in real terms. That puts the other countries at a competitive advantage. I don't think he expressed his thought in this way but I think there is similar thought here.
"$100 oil in late 2006." I would say I was fairly early on the oil story. That being said, I can't envision $100 oil in that time period, assuming no terror event that takes out all of Saudi Arabia or Russia.
He also expressed concerns about the balance of payments. As long as a big chunk comes back in the form of bond purchases I am not that concerned about this part of it. I am concerned about how long this demand for US bonds continues, however. I have been writing about this for the life of the blog. I do not think holders of our debt will sell what they have but I am not sure how long they will buy at this pace.
He thinks 4.25% Fed Funds and a 5.5% ten year bond could cause the economy to slow. That would obviously be the goal of the Fed if they went that far but the curve having that positive of a slope would probably not be a negative.
There is a bit of a conundrum between those last two paragraphs that I am not sure how to reconcile. A positive curve means economic growth but without foreign buyers of our bonds we face huge problems. The resolution may not be that good but I doubt it will be that extreme either.
I mentioned on Saturday that Australia is his favorite equity market. The economy there may be slowing but I also like that market.
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Monday, June 13, 2005
Foreign Investing
This is an interesting article written by a Kiwi money manager about whether or not NZ residents should invest internationally.
There is a lot written for US investors about investing overseas but I don't recall reading anything from this perspective.
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Comparing Apples to Sledge Hammers
Apparently there are three REITs that are in this sub sector (if you know of more please let me know). The three are Education Realty Trust (EDR), American Campus Communities (ACC) and GMH Communities Trust (GCT). The idea intrigues me. I am not sure about investing in any of them but there is no reason not to check them out. I do not trust the info on Yahoo. The EDR numbers are way off compared to EDR's corporate site which I had to call the company to get. It is http://aoinc.com/.
ACC appears financially healthy. EDR has a great roster of properties but I can't figure out why the results aren't better. GCT has been the best performing stock (http://www.gmhcommunities.com/), has a long list of properties that is impressive and it has positive FFO's yet CNBC didn't find anyone with anything good to say about it. At this point I can say I am merely aware of the group and am interested in learning more.
The inspiration for the title for this piece comes from one of the message boards I saw where someone suggested IMPAC Mortgage Holdings (IMH) instead. I do not know if this person was trying to talk up something he owned or really didn't know the difference. A REIT that invests in mortgages is a different type of vehicle than one that invests in apartment buildings. Without getting into detail now or getting into whether one is better than the other, they are different.
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Bloomberg.com: Latin America
This is a story about Venezuela possibly offering ten year government bonds. There is no ten year debt in Venezuela and the article quotes various people saying that having some sort of yield curve that can plot all maturities would help capital markets in the country. Probably so.
Venezuela is an interesting country. It is very important because of the oil it produces and exports. It also has more than its fair share of problems (real or perceived, take your pick). One thing that surprised me is that there is a government bond that matures in 2027 and it only yields 9.14%. I would have thought something like that would yield in the teens.
For now I have no plans to invest in Venezuela but it is an interesting country, because of the oil. I would not be surprised if it became a more important investment destination in the next ten years.
I try to keep tabs on this sort of thing for the future. Everyone knows about the BRIC countries. I have been writing for a while that I think Pakistan and Viet Nam are the next to join that circle (but I do not know what the acronym would be). Maybe Venezuela after that? There is no need to have it all figured out now but it makes sense to expand what you watch.
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Bond Yields
4.10-4.25 is a fine area for the ten year to find a home. While the Fed funds rate may not stop at 3.50% as I hope it will, there is very little chance (with what we know now) that it will go above 4%. Although that would be a much narrower spread that normal the curve would still be positive in that scenario.
I have written a few times that Nicole Elliott from Mizuho (you can find a link to her site in the side bar of this page) thinks the yield on the ten year will go much lower. German and Australian ten year sovereign debt has been moving down in yield aggressively. That the US might go in the same direction is not out of the question.
The US is still mostly, but not entirely, thought of as a better bet. How long can German paper yield 80 beeps more that US debt? The point being that this could cause yet more demand for US debt or maybe not but this is a question I have.
From a big picture stand points rates are very low, have been low for quite some time and may stay lower than normal for a while to come. I have not done much to change my fixed income allocations in a long time. I am spread across many types of products and my duration is not very long at all. If the ten year finally starts to go up in yield but goes further than what anyone thinks, like maybe 6%, I expect my fixed income allocation to feel the move but not as badly as a blind devotion to a barbell that is always so popular at the wirehouses.
I would also watch out for the holdings in the lazy portfolio over at Marketwatch monitored by Paul Farrell. An OEF with a 20 year duration would get hit hard with a big yield spike. As a rule of thumb ( this is simplified) a 1% move up in yields equates to an 8% drop in price. A victim of the worst possible timing could take years to make that up.
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Bullish Scenario
He is very bullish on US equities. His logic is that yield curve spreads are so narrow with the implication being that the fed is just about done, he said 3.50% or 3.75%. The Fed finishing a hiking cycle, he says, has always meant good things for stocks. He was not asked about what sort of time frame he was expecting but based on what I know of him, I read this as about a six month call. He tends to change his mind every few months (I am not being critical but this is what leads me to believe he is shorter term in nature). To be clear he did not say, so I don't know.
There are times when the market direction is very clear to me and this is not one of those times. As a recurring theme to this site you don't always have to be correct about what the market will do. I would say I have been more that wrong than right over the last couple months in that this rally has wildly exceeded my expectations. Even so, most client accounts are not really being left behind. This is less about my skill and more about my belief in not trying to be too nimble.
I have written a lot about having an exit strategy for equities. I believe in this whole heartedly but if you do this it should be fairly low impact so you done get whipsawed every quarter. My goal for this part of my job quite un-heroic. I am simply trying to avoid most of down a lot. Living with down a little comes with the territory as far as I'm concerned.
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Sunday, June 12, 2005
The Big Picture For The Week of June 12, 2005
The most obvious one to me starts with the dollar. I have written several times that I think there is visibility for the dollar to lose some of its world reserve currency status. The next step might be that the US dollar share that role with the Euro or perhaps some yet to be created pan-Asian currency.
For as much debt as the US has, and is likely to continue to have, currency competition would likely result in much higher interest rates like we had in the late 1980's. This would not be an economic death blow by any means, but would create a couple of systemic changes.
Another point to consider is the one that Jeremy Siegel has been making recently. Essentially he believes that American baby boomers will begin to sell stocks but that an investor class that is emerging in foreign countries will be buyers for our equities. He is very encouraged by this prospect. If the first half of his theory is right it is not clear to me why the second half would be. As the world economy continues to globalize it will create more stock markets that will attract investment capital (think all of those eastern European countries with tiny hard to access markets).
I think a likely result is just that the US won't be the magnet that it is today. We have great companies that will continue to attract investment from all over but the playing field will even out some. This is not so much a scary or bad thing but one possible outcome of an economic evolution.
I have no idea if what I have written holds any water or not but I urge everyone to learn as much as they can about foreign markets and to continue trying to learn as time goes on.
Read more!
Saturday, June 11, 2005
Barron's Online - Bipolar Disorder
This is an interview with Ray Dalio, CIO of Bridgewater Associates. I do not know if this Bridgewater is affiliated with the Bridgewater that I have written about as appearing on CNBC Asia with Stephen Gollop, but some of the view are similar. You will need a subscription to read it.
He is bullish on commodities and his two favorite equity markets are Australia and Canada (commodity based economies). His biggest equity exposure is Australia.
I am big on Oz and have started to think about adding Canada. I do have exposure to Norway and New Zealand too.
Read more!
Friday, June 10, 2005
Delayed Reaction
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IGD Holdings
The country break down is (subject to rounding up or down) ;
Italy 7%
Australia 6%
Netherlands 3%
Sweden 3%
Denmark 2%
Taiwan 2%
Belgium 2%
Brazil 2%
There aren't too many ADRs from the above countries that have options available. The prospectus says that the managers can own foreign stocks from the local markets. I know that Australia does have a local options market but I do not know much about the others.
So my original idea about a heavy weighting in US may or may not be the case depending on your idea of 35%.
The prospectus makes a point of saying the fund focuses on stocks that pay dividends. A good chunk of the 10% yield of the fund comes from dividends. I view that as a positive. Eight of the top ten holdings yield 4% or better. A 3% or 3.5% dividend yield for all the holdings takes a some of reliance off of the option writing aspect of the fund.
IGD is a little more interesting than I first gave it credit for. I think my interest is more along the line of the portfolio construction as opposed to buying the fund but that may change. Perhaps my interest stems from the Foreign DVY I wrote about the other day.
Read more!
Jingle Heimer Schmidt
There were two ideas that seemed to be the most important. One was enhanced indexing. He did not qualify exactly what he meant but the implication is usually that the manager applies some sort of screening process to an index to weed out some laggards and hopefully add some alpha.
The other type of ETF he envisions are very narrow sub-sector funds. I am thinking this may be like the Regional Bank HOLDRs (RKH).
I don't know whether either type of product will be popular. An enhanced index ETF would have to demonstrate superior returns vs the benchmark otherwise what's the point? So there may not be any immediate need for someone to buy that type of ETF.
As for a sub sector ETF I could see that being useful for mid sized institutional investors as a way to pair long and short strategies within S+P groups. For example going long medical devices and short big pharma if that was a trade someone wanted to do.
I think a lot of the new ideas are good but I doubt there will be urgency for an individual to be the first one it. One aspect of the latest what is coming articles is that I am not immediately realizing no differentiation like with the NY and NYC ETFs or the ETFs from Morningstar. It was clear right away that those fund offered no innovation. The ideas be written about now are not that easily discarded so I am encouraged.
Read more!


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Aaaanndd...ACTION! Presenter, producer, director..this little man does it all!! 5 year old Khalil's wish came true when he took over the MTV studios in Kidzmondo and received the IPAD he had wished for! View Wishes
WHEN YOU WISH UPON A STAR... When you wish upon a star...Tamanna is never far! Christelle and Ali's wish to visit Eurodiseny did come true last week when they met their favorite Disney heroes! View Wishes
RITA'S TRIP TO CASCIA, ITALY For Rita, a trip to visit her patron saint seemed impossible; but with a little help from our friends at the General Security and at the Italian Embassy Tamanna was able to make Rita's wish come true! View Wishes
Tamanna relies solely on the generosity of caring members of the community, corporate and international donors. Contribute

subset: commoncrawl


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I'm a landscape designer and graphic artist interested in all aspects of photographing the D.C. region.
Sign in to post a Greeting.
Dottie....great photos!
One can't have just one pug ! I know the feeling :)
When is the next meeting for this group?
Kotaro will be happy to meet you. We know, you are going to love him!
Hope all is well with you and your gang. I'm going away in a couple of weeks to a convention and this'll be Pugsy and Curtis first time being boarded. But you should see the accomodations that they have at the new PetSmart animal hotel. They've got a suite with a television and beds. But most important they have each other to keep them company so I think that they'll adjust better because of each other. Look forward to seeing you on next Sunday
Hey Dottie! GREAT meeting you! call me soon, lets talk pug!
Thank you very much. It was nice to see you and your family again! I can't imagine why you couldn't keep everyone straight? ;) We had a ball! Looking forward to seeing everyone at the next meet-up in Feburay & March. Deborah
Thanks Dottie. :) Harley and Mowgli have recovered. We have tile floors at our house so when we got home they sprawled out and were able to cool down pretty quickly. Looking forward to coming back out when the weather is a little more pug friendly!
Pugs are always to come and join in the fun..
Welcome to Vienna Puggles...yes Pugs of course are welcome!! We love anything that has to do with a puggle! :)
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How Google Docs won me over
With a single new feature added to its online word processor yesterday, Google has diminished many concerns I had about taking the cloud-computing plunge a few months ago.
That feature, autocorrect in Google Docs, fixes common typos such as converting "teh" into "the." In and of itself, it's not a game-changer.
But it carried outsized importance for me because it was one of the things I missed most about Microsoft Word and because it gives me faith that Google Docs is headed in the right direction.
As if to validate my new optimism, Google today announced an improvement that's much larger than a single feature: the ability to edit Google Docs from Android phones, iPhones, and iPads. Google Spreadsheets already were editable with some mobile phone browsers.
Google Docs, which has grown considerably since Google's 2006 acquisition of Writely, consists mainly of word processor, spreadsheet, and presentation modules that compete with Microsoft Office's Word, Excel, and PowerPoint. It's become a standard-bearer for the Web applications movement and, with Google selling it in premium form along with Gmail for $50 per user per year in the form of Google Apps, Google's next billion-dollar revenue stream after advertising. … Read more


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Beacon Running, a company based in Bideford. specialising in hosting ultra marathons and organising bespoke training programmes for runners of all abillities.
Have opened entries for the inaugral running of the Bideford Bay 50km, a single stage Ultra Marathon.
It will be held on Saturday 7th September 2013 at 08:00
Entry fee for this event is £35:00
The start line will be on village square Hartland, entrants will then follow a marked course all the way to Bideford using the South West Coastal path.
This event will traverse some of the most spectacular scenery in the South West.
the route will be fully supported with well stocked aid and water stations at various intervals along it's entirety.
all finishers receive a medal,t-shirt and goody bag.
the winners and runners up prizes are being made by Bideford Pottery.
for more information and on-line entry can be found at
paper entry forms can be obtained from Bideford Amateur Athletic Club
or requested from Adrian the Race Director on 07527536817
this is an exciting event for someone looking for their next fundraising challenge or for a running step into the unknown and beyond the Marathon.
Coastline Greencliff to Cockington Cliff (aprox mile 20)
Date: Saturday, September 07, 2013
Hi there! I am really interested, but have a couple of questions and a request for advice.How tough is the route and how long will you have the stations open for?
I have done a dozen half marathons - almost always in 10 min mile pace, and have done a full marathon at inside 11 min mile pace, but have been scared off the North Devon marathon because of the toughness of the route (I am doing the half). Is this a step too far do you think? I want to run another marathon this year, and this fits the bill in terms of time of year for my training - but it is obviously a stretch. Too much do you think?
£60K Basic, £100K OTE
c£85,000 + bonus + bens
to £80k base plus bens


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Sandy swept away 9/11 mementos
With VIDEO
NEW YORK -- The letters and photos were beyond value — some of the mementos Joe Quinn still had to remember his older brother Jimmy, who died in the World Trade Center on 9/11. Now they are gone, sullied by floodwaters and charred by fires that tore through the Queens community of Breezy Point last October during Hurricane Sandy.
From photos and letters to coffin liners and actual memorials, scores of families from Breezy Point and Rockaway — two Queens beachside neighborhoods hit particularly hard by both events — lost cherished reminders of loved ones taken by one tragedy that were then swept away by another.
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Welcome, guest
Wed Jan 30, 2008
Losses in December topped off an extremely difficult year for Ahmet Okumus' Okumus Capital. In part due to wrongsided bets on retail and commercial services, the firm's equity strategies ended the year in negative territory for the first time since Okumus' founding in 1997.
The steep declines - including a loss of 26.32% for the $465.7 million Okumus Opportunity strategy and...
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Title: | An Exploratory Evaluation of the Data from the Pilot Teacher Compensation Survey: School Year 200506 |
Description: | This brief publication contains contains a discussion of the experiences with this new data collection--the methodologies employed and problems encountered in reviewing the data. Illustrative summary data from the research and development effort to collect individual salary and demographic data on public school teachers are included. Seven states participated in this effort: Arizona, Arkansas, Colorado, Florida, Iowa, Missouri, and Oklahoma. Additional examples of data from full-time public school teachers who teach at only one school were included in the analysis. Median salaries and counts for different groupings by experience, age, race, and gender are presented. |
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Cover Date: | April 2008 |
Web Release: | April 10, 2008 |
Publication #: | NCES 2008440 |
Center/Program: | NCES |
Authors: | Frank Johnson and Stephen Cornman |
Type of Product: | Research and Development Report |
Survey/Program Areas: |
Common Core of Data (CCD) |
Keywords: | |
Questions: |
For questions about the content of this Research and Development Report, please contact: Frank H. Johnson. |