This will be difficult to articulate but I'll do my best. The Fed news yesterday caused panicked reactions in just about every market; stocks up, yield down, commodities up and the greenback down. There is a path laid for some sort of something down the road with regard to inflation, interest rate shocks and higher input (think resource) prices. Unless of course the Fed does a good job being proactive in moving rates back up and shutting down of the various facilities put into place during the crisis, ahem.
That being said my plan is to increase exposure to a couple of things in the next couple of weeks including equities, corporates and one or two other things. Earlier this week I added another absolute return fund for many clients bringing most clients to two, totaling a mid-single digit weight. I'll stress that I'm talking about a slight increase and then when I am done I would still have a generally defensive position, just less so.
From the big picture standpoint we are 14 months and 40 or so percent from the peak. The way these things tend to work is that really big declines and time fixes a lot of problems and of course people tend not to believe a bottom can be in until long past the actual bottom. I still believe in the idea of a stumble along the bottom without going meaningfully lower than we have already been. If this turns out to be correct then there is much less risk in adding exposure here. That is not to say they have to rally and then stay up, just that there is less risk after a 40% drop.
I've been on this jag for a while, done a couple of things along the way and plan to add a little more. My concerns about inflation and higher rates will influence the actions taken as I do believe these will become bigger obstacles over the next year or two.
In the picture (taken yesterday) Tater is about to catch a snowball.
15 comments:
Doesn't look like a carry through today. So much for that, but look at the treasuries. Holy s*#t!!!
And the TIP is doing well considering there's hardly any inflation and none on the foreseeable future???
I think we will re-test the November lows next year and if we don't break through that resistance to the down side then maybe that's the bottom. I will dip my toe in the waters at that time.
"Tater is about to catch a snowball."
Looks more like Tater throwing the snowball :)
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Sunny and 80 in Florida
Someone has to live here, might as well be me. See you poolside!
While a prognosticator's hat and a dunce hat look remarkably the same (one has moons and stars and the other just a big red "D") I'll put one on nonetheless.
Here's what I wrote in 08/07 about this 11/06 article: "I found an article from Barron's (11.13.06) that I had printed out. It was Sandra Ward's interview with Richard Arvedlund (Cyprus Capital Management). The title of the interview was called, "Recession: The Stage is Set". In the interview, he felt that the preconditions for a recession were set because of the state of the housing market. Specifically, he stated that "Whenever housing starts and permits drop by the rates o decline that have been exhibited--10-20%--it has always preceded a recession." He also notes that when housing leads the downturn (which happened in the late 70's and late 80's), it typically tends to last longer than people dream. He states that the average cycle is 3-4 years."
I believe that we will have a bump along bottom--probably much longer than most believe.
If we are in a consumer led recession, we are just seeing the effects on (un)employment. I believe that it will worsen, and the consumer will tighten even more.
I'd like to be wrong, but the media for the most part has sugar coated the entire unfolding of all of "this" until it could do so no longer. While I see some acknowledgment of the scope of the issues, I still see "hand patting" that it will be over soon.
I don't think that it will be soon, and we do not have any recent US market experience that coincides with a consumer-led recession coupled with a liquidity burst.
Roger,I agree with your outlook on inflation...at some point in the future. But as you've said in the past, just because something should happen doesn't mean that it will.
Meanwhile, buyers are piling into debt and seers attribute that to fear of deflation. All the charts are parabolic.
I'm confused and likely to make exactly the wrong move if I pull the trigger on anything.
I you want to see something eery read Chris Dialynas Trouble Ahead--Trouble Behind (http://tinyurl.com/dialynas).
If you read it and find that it was not useful or relevant, then I will buy you a drink. Pages 19/20 have this conclusion
He closes with his discussion of "The Debt Trap and Risk of Global Confrontation" ---He states: "The 'risk managing' Fed responds to the financial crisis by purchasing the bonds offered in the market' further increasing money supply.. . . The Greenspan/Bernanke helicopter is precisely what the foreign debt holders are hoping for--a bid to take them out of their position.. . . Thus, the likely outcome to the gid wanted' by foreign hlders of debt would be the following: (1) rapid increase in U. S. interest rates; (2) Rapid depreciation of the U. S. dollar; (3) Fall in the stock market; (4) Rapid reduction in global trade; (5) Probable global reconfiguration of alliances away from the U.S.. . .". I'm sure I mentioned this article here a couple of years ago.
Mish has an enlightening post up today, in which he concludes, "Remember that the Fed cannot change the direction of a trend, the Fed can only juice it. The trend is for lower yields as deflation sets in. The Fed has only reinforced that trend." The whole post is a quick, worthwhile read.
Roger,
Slightly off topic here. I would appreciate your opinion on which vehicle to select for a managed futures strategy, RYMFX or LSC? The latter has a lower expense ratio and is more tax efficient but has more counter party risk due to its ETN structure.
I have read that Mebane Faber favors LSC as well. Please advise. thxs
The strategy is very similar if not identical. I think it all boils down to one is cash with swaps and the like and the other is a debt obligation of a finance company.
Good Evening Mr. Nusbaum,
I am a recent new avid reader of yur blog and green faucet and am very interested to hear more about what you are doing with alternative investments. Other than TIPS, RYMFX, Nakoma and Dover, are there any other investment products that you use and/or are considering for absolute type return?
Roger- thanks for your managed futures reply. In review of RYMFX and LSC's recent performance it appears that LSC is outperforming RYMFX by a decent margin. Is this cause for concern or for one to switch to LSC?
anon 9:45, those funds are it although i do not consider TIP to be an absolute or alternative product. many clients own two, no one owns all three, of the funds. the weightings are small.
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