A few random observation from this past week;
My not very original idea about Fox Business Channel marking a top seems to be right on track. Although since the channel had been in the works for years I'm not sure whether they really are marking a top, if that is how the market plays out from here. Speaking of, I think it was Adam who mentioned Cody Willard's show from a bar. I was without TV until yesterday so I did not know what he meant until I saw a minute of Cody and Rebeca Gomez (is it Gomez?) hosting a show from a bar. I had hearty chuckle over that one.
Speaking of without TV; I feel like I am missing information without stock market television but the three days I did not have it (it got installed yesterday just after the close) I was able to work through my usual reading a whole lot faster. The reason I find stock market TV useful is the reporting of information that might be moving the market. People (me included) jump on CNBC personalities for coming to the wrong conclusion or asking the wrong questions, but I don't really care about their opinions. They will likely report something long before I find it on the Internet so it is background 90% of the time.
In our short time, so far, in Hilo we see that a lot of people are leaving after a year or two of being here, maybe a little longer. Our plan is to be here two weeks per quarter. Hawaii seems like a place where there can be too much of a good thing. Something that can probably apply to other parts of life.
Like investing in emerging markets. Friday's puke down was a perfect example of what I had been talking about earlier in the week. Regardless of the reason, Friday was a panic down and emerging markets went down much more despite all those articles out there about how overweight managers are because emerging should be less immune to a US slow down.
For the time being emerging market stocks do not offer any protection from fast declines. I do believe that some emerging and frontier markets are fundamentally immune to our economic problems but getting them will require going narrower than EEM. TomK offered a well reasoned counter opinion to my thoughts on moderation. While he is correct the ride will be wilder than many can tolerate.
The hit on Friday was attributed to many things, who knows what right here but I have tried to stress that big liquidity events are unlikely to resolve themselves in six weeks as some had thought. I had several posts noting that I was surprised by the duration of the rally off the bottom. A fast snapback of some magnitude was very predictable and while I was right about that at first I was wrong about it lasting as long as it did.
However this current dip sorts itself out, I would expect another fast decline within the next couple of months. Big liquidity events are serious, not life altering, not something that hasn't happened before, not something that the market can't recover from, no, the worst case, IMO is something normal, that has happened before and that will be recovered from in a normal time period.
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27 comments:
Rodger,
Just a comment in regards to holdings in foreign markets, which I do, but more to diversify, then to hold a paricular foreign market. In are increasingly smaller world, I see less and less difference between various markets and more of need to choose the "proper" company or sector in which to invest.
Your deceision to own a home in Hawaii is an example.
Bernie
It is kind of nice to estimate the relative loss of your portfolio as compared to the market in a day like yesterday. I have been using riskgrade numbers from riskgrades.com for my risk allocation. The portfolio of my 410k account is 0.67 times as volatile(risky)as the S&P 500 index. Yesterday, the S&P 500 dropped about 2.5% and my 401k dropped about 1.2%-in line with the expectation.
My 401K dropped 1.5%
8.06% Northern Small Cap
21.21% Fid Diversify INTL
21.62% Oakmark EQ&INC I
22.79% FID Contrafund
26.32% MMKT
My MMKT Holding is high right now, and I plan on putting it to work after the next big correction.
I think that the parade of commentary about how emerging markets are a refuge is providing undue comfort to investors. Based on the country ETF's that I have on my watch list, 13 of them had declines on Friday greater than our own indices worst performer of the Russell (-3.18%). I'm excluding the oil index of more than 6% decline).
I think that the other markets will be spooked after our Friday downdraft.
Now, I wanted to share something with your readers. It has to do with money market funds in your retirement account. My money market (1) is exposed to 20% non-government backed securities (any of the crap that is floating around) and worse (2) is inflexible in that there is not a !@@#%# thing that I can do about it. I specifically called to request that it be in just plain ole cash. No can do Ma'am.
In my brokerage account, I can have plain ole cash. In contrast, my retirement account, IT HAS TO DEFAULT TO something that I do not want this mish mash wich could leave me with a hit to principal. Kind of defeats the whole purpose of having "cash".
Now I don't write this to be a wild-eyed person saying the end is near. I write it to hightlight that we have less control than we think over our money. That I cannot MANAGE the exposure of MY ASSETS is deeply, deeply disconcerting to me.
I agree with you Roger that emerging market holdings are no hedge against a fall in any stock market. In fact I would argue that they fall more than less volatile markets.
And when the China bubble takes another hit this sector will get crushed. That's why it's good not to go too long on these kinds of rising stars. I currently have an 8% allocation to emerging markets.
Leisa.
You can always purchase a money market fund with your 'cash' holdings that is 100% in US treasuries such as DUSXX.
http://tinyurl.com/46gky
It seemed like the market, esp the QQQQ, needed a breather after such a good run up from those Augus lows. Hoping it's just a moderate sideways consolidation in a longer term bullish scenario.
Anon: Thanks for the DUSXX recommendation. I was going to research my alternatives this weekend. This certainly helps along that way.
Leisa,
That's one reason the spreads between most debt instruments and treasuries keep increasing: Everyone is buying treasury or, at most, US agency backed paper because they're unwilling to accept the risk of having asset-backed paper in their cash equivalent mix.
The ABS confidence crisis will probably abate but a lot more 'big boys' are going to have to step up to the plate and it appears they know it. Calculated Risk (at http://tinyurl.com/29zsuq) just reported that it looks like Pimco and Fidelity investments may join the original big banks supporting the so-called "SIV Super Fund." I looked at the public desription of how that fund is supposed to work but can't see why it would work as advertised so either I am short the necessary brain cells (always a possibility) or the fund has more to do with market psychology and providing banks with a means to avoid more damage to their balance sheets than it does with direct rescue of bad credits.
Of one thing I am fairly certain and that is the sharp customers at PIMCO and Fidelity are not merely interested in confidence building (although I'm sure they're not insensitive to it either) but see an opportunity to do some deep drilling for first dibs on some well-discounted ABS so I have established a modest position and will add to it if that opinion is confirmed; yields are high enough to pay for my patience and if the spreads contract as strongly as I think they might then capital appreciation will be, well, appreciable.
In line with the DUSXX recommendation there are a lot of very good exclusively treasury-based money market funds that have the appropriate fundamental policies in place (mangagment can't change the asset type w/o shareholder approval): My old favorite is CPFXX, I've used it for ages, but I also use VMPXX (Vanguard's low fees really help w/ more conservative funds).
OT: You still playing the junior golds?
RW: I need to fortify my understanding of the SIV. Thanks so much for your posting--it makes me want to learn more. I'm not surprised by the need for a SF. The thought that I posited on line was that there would be a problem when the 30 days (or was that 90 days?) that the repo window was extended (as opposed to overnight). Once the requisite time expired how were the window transactants going to come up with the necessary liquidity to re-buy those loans? Apparently my suspicion that they could not is coming to be. Personally, I would have rather been a baseless paranoid than a somewhat on the mark paranoid.
My nefarious thesis was that having this "stuff" handed over to the window gave an opportunity for our HBB 'friends' to take a look at the goods and figure out a way to make money on it--oh, and to restore public confidence, of course. I'm pretty sure that the Superfund is indeed the product of that activity, and I feel that my paranoia was amply rewarded!
This entire mess has been woefully under, if not fraudently, reported by the media (Roger, I do not consider you media). Best to do one's own due diligence, but it does make one's head hurt.
Re junior miners: I have positions (fractional positions as a % of portfolio, they scare me in general!) in EGO, WGDFF and KRY. WGDFF was a nice near double and I appropriately curbed my holding. EGO has been a nice 50% return. I, too, culled back on that position. KRY--moral failing on my part, but it looked like it was holding support, and I seem more up reward than down risk. All positions are "house" money which always lends a sense of comfort in a holding.
Sorry to be so long winded. I'm still angry over the cash default of my retirement accounts. These are brokerage accts which I trade, so the default means something. Otherwise, I have to pay transaction fees--special ones in addition to the trade fee if it goes outside the broker family of funds.
Yesterday near the close, I bought a chunk of Citigroup. I have always included dividend yield as an "overweight" consideration for my portflios. Even a current dog like Citigroup has a stable yield which provides a floor in a market correction (eventually, new management at the top could assist this stock to rise later).
Relying solely on a worldwide value or growth strategy - or worse, believing oneself infallible for being lucky in one or two emerging markets - without dividend consideration for a portion of the proverbial nest egg
could cause some damage. I especially like quality MLPs now.
And, of course, sifting through carnage to find the oversold security.
Leisa, I've been working KRY and WGDFF, much happier with the latter than the former, but like you it's house money now and I'm willing to push the play a bit further. It looks like investors are losing confidence in UXG which is understandable and it has retraced albeit not to the level I originally purchased it; regardless I remain willing to bet on track record and there are few better than management's in this case and so it runs, for now.
Some very good discussions of the M-LEC ('super fund') and SIV problems at Accrued Interest (see http://accruedint.blogspot.com/); he's been discussing the asset backed problem for several weeks so I'd recommend reading the top post for context and then maybe scrolling down to the October 04, 2007 post titled "This is madness" and working your way back up to get the full flavor of just how bad things got in debt-instrument land. If you haven't read his blog before, he's a bond trader and clearly very level-headed so the "This is madness" post is actually in media res, relatively alarmed in tone (for him).
My MMKT Fund is FRTXX
The expense fee is .38% which seems high to manage such a thing
I checked my timing model this morning and it has dropped to +1.0 signaling 70% long and 30% cash allocation. The Value Line Composite index has plunged below both it's 75 and 200 day moving average and 2 of the 4 sentiment models I watch are declining from mildly over-optimistic levels.
I'm not one to make predictions or even guess where the market might be headed, but if it turns out we reached an intermediate peak two weeks ago, I'm not very confident of heading higher over the next 6 months. I say this because the way sentiment oscillators behave in bear markets vs. bull markets. In bear markets, sentiment oscillators usually indicate much higher levels of over-optimism at intermediate peaks. This time, the oscillators barely touched over-optimistic levels. That is typical bear market behavior.
btw I agree with Roger that Emerging Markets are no shelter from declines in U.S. equities. I can't imagine anyone thinking otherwise.
Okay, I got a chuckle out of the ticker FRTXX! Now I will fall out of my chair if there is a BRPXX mutual fund!My juvenile mind. You, too, my friend have exposure--probably more than I do. At least FDRXX sayws 80% Gov't securities. FRTXX does not. Here's what yours says.
Description of Principal Security Types
Money market securities are high-quality, short-term securities that pay a fixed, variable, or floating interest rate. Securities are often specifically structured so that they are eligible investments for a money market fund. For example, in order to satisfy the maturity restrictions for a money market fund, some money market securities have demand or put features, which have the effect of shortening the security's maturity. Money market securities include bank certificates of deposit, bankers' acceptances, bank time deposits, notes, commercial paper, and U.S. Government securities.
-----------------------------
T, you are a brave man. C fell to it's lowest level since July 2003. If it falls much further, there is going to be very little "support" underneath it. OF course the flip side is who is left to sell?
Leisa,
Meet BRPXX: Blackrock Liq Fd Fed Fd Bear Stearns Priv Client
ROFL!
I like USB with about a 5% yield right now. It has not dropped as much as the other financials either.
Buying C now long term is not a bad move either. If it drops another couple of dollars you can always buy more and average out your purchase cost. In a year or two it will be back up over $50.00 while you get a bond like rate off the dividend.
I personally don't own any financials yet, but I am chomping at the bit to buy up this sector. I like CS, BAC, USB & UBS. I will probably buy in either late this year or early next year and hold these for a while.
Rodger and everyone:
I am not sure if anyone of you know about this, but, I saw a great website www.iraaa.org
I think you should check it out, it opened up a new way of investing money through IRAs. Thanks, Sean
Have fun in HighLow, Roger, which is what the market continues to do back here. Just a couple of comments.
1. I was down about 2% yesterday with a mix of
70% equities (15 %foreign, 10%EM, 45% domestic)
15% cash, 10% bonds, 5% GLD. Had I kept my
SKF (financial double short) my losses would have
beed mitigated. i will definitely buy SDS or SKF the next time the market has a strong runup. Lesson learned about keeping at least a 3-4% short ETF to buffer volatility. Anyone buying
financials right now has a stronger stomach than I.
2. Roger thanks for your link to Bespoke. Great site. A couple of days ago they were negative financials and strong on consumer staples and discretionaries going forward. Sure enough, since their comments, financials have been tanking and consumer staples have done very well relatively. Just look at Coca Cola and the upcoming Olympics.
3. Lastly, i am doing well with LSBRX which has a
nearly 6% dividend, and is just about even with the Dow this year (including dividends) with much less risk. Mix of T-bills, foreign bonds, and debt instruments. BEGBX is a mainly foreign bond fund that is also doing quite well this year.
Have a good trip back, I miss your Saturday ramblings. Scoot
The market as a whole has been trading as we are near a top for a while. I think that so far EM has clearly lagged and it is the next area to get wacked. Say all you want about the U.S. not being as big a part of the world economy, this is probably true but it is still a big part.
My two cents on the miners I currently hold:
BAJFF, CGR, CDE, EGO, GPXM, GSS, IPBXF, OZN, PMU, SFEG, SLW.
sold in 2007: 1/3 SLW (last week), GG (last month early), NTO (July, early), KRSGF (March), AAUK (twice, too early)
I currently have about 50/50 domestic vs. intl. As for emerging markets (and international for that matter), I don't have a clue as to which companies, countries, or sectors to buy. I'm just as clueless on what percentage of emerging markets to hold. I believe most investors are in a similar boat. So, for international, I prefer to let the experts do my investing for me. Funds to consider include Dodge & Cox International, Oakmark Intl, Julius Baer Intl. In my opinion, those managers know what they are doing and are much closer to the action than I am. Make sense?
All markets suffer in downturns - -be they emerged or emerging. History shows that.
This world is now one huge interlinked market-place.
What's happening now may not be a correction, but the begining of a worldwide bear market, and some bear markets take years to bottom and a years to recover (eg.2000 to 2003 + recovery time).
What I am saying is that every asset class - worldwide - is overpriced because of excess liquidity; but that bubble has now been stabbed through subprime.
Take your money off the table before its too late. Huge bargains will arise after the bear - - that's if you have the will to sell at the top and the courage to buy at the bottom. Most people don't.
You may feel deprived in the short term, but better off to miss a few dollars on the upside rather than suffer possible losses of 50% or more that can happen overnight.
Most people who deal with "other peoples money" will not give nor take this advice. They work to differnt strategy. They need to show that they are actively investing at all times no matter what.
Best wishes
Baron Robert.
The reason most non-Hawaiians leave Hilo after a year or two is (1) the rain and (2) Hilo was (still is?) a very insular community. You would have done better had you gone to the dry side of the island.
joe, our full time home is nose-bleed dry, despite the altitude. very wet is exactly what we wanted for a get away place.
Climate diversification...LOL:-)
where is your third home going to be? Enjoy paradise Roger!
Alot of people leave Hilo because there is little employement...some
leave because they get tired of
driving in a circle;-)
for real climate diversification it would have to be Reykjavik.
as far as people moving on from here, I hear on all of those points but those issues are true about the other islands too (except I don't know about Oahu, never been outside the airport). Hilo feels a tad more transitional.
I think maybe because it is more affordable people are more willing to come try it.
We absolutely love it but we don't feel the pressure to make it here.
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