Sunday Morning Coffee

A few items this morning.

First up is a book review in Barron's of Peter Schiff's latest book called The Little Book of Bull Moves in Bear Markets.

According to Barron's the book has plenty financial fire and brimstone and some very specific investment advice on Canada, Norway and Australia--turns out he likes them. Me too.

A reader left a link to a new fund from PIMCO called the PIMCO Global Multi Asset Fund (PGAIX). It is a fund of funds but can own other things too. The literature says the fund integrates optimized asset allocation, relative value strategies and hedging strategies. Well that all sounds vague but vague does not have to be bad thing. Anyone interested in hiring someone (by buying a fund) for active management might very well want that manager to have a lot of flexibility. The fund just started this week so any purchase is a bet that the crew at PIMCO, lead by Mohamed El-Erian, knows what it's doing.

Speaking of El-Erian, the Harvard Management Company's 2008 report is out. From June 2007 to June 2008 the fund was up 8.6% compared to a 14% decline for the S&P 500. Obviously the S&P 500 is not a proper benchmark but it does give a sense of what was going on in the world while HMC was getting its 8.6%.

Of the $43 Billion (think about that number for a moment);

• $5 billion was in domestic equity
• $5 billion in foreign equity
• $4 billion in emerging equity
• $5 billion in private equity
• $1.8 billion in domestic bonds
• $1.3 billion in foreign bonds
• $3 billion in inflation indexed bonds
• $800 million in high yield
• $4 billion in commodities
• $2.6 billion in timberland/agricultural land
• $3.4 billion in real estate
• $8 billion in absolute return.

I rounded those numbers, look at the report of you want the specifics. It is very useful to see this sort of thing and look at the changes made year to year in order to glean a little bit of process but, as said in other posts, there is no way to truly mimic these endowments. We are not privy to their timing of changes and we do not have access to the types of investments they have access to. Real estate does not mean buying shares of a REIT ETF, timberland does not mean the CUT or WOOD ETFs and so on.

That does not mean owning those things is a bad idea or that being influenced by HMC is bad either. I've owned Plum Creek Timber (PCL) for a while based on an interview of former HMC CEO Jack Meyer many years ago. Putting close to 20% into absolute return, as HMC does, is difficult. I'm not sure there are enough reliable products to do that as opposed to the managers that HMC can access.

I think this circles back to something I have been saying for a while; take bits of process from many places and create your own process.

Wanna bum out for the day? Take ten minutes to watch this video interview of Nassim Nicholas Taleb on PBS (I found this from Barry). Taleb thinks this is the worst financial crisis since the American Revolution. He feels that the complexity that exists is too great making things too fragile. He thinks that the ripple effect of forced hedge fund selling will be disastrous. He uses the example of a super market not being able to function financially as the ultimate result of this.

The picture is the last few steps to the top of Vernal Falls in Yosemite.