As a Barry says; oops. So, does this matter? And if it does matter how much does it matter? There would seem to be implications for asset allocation modeling. This comes at a time where after a horrible ten years for returns many people are questioning owning stocks at all. Perhaps this is a building block for what Dr. Hussman has in mind for the revulsion of equities.
If we take this at face value, the data was bad and the results are skewed it does not change that the fact the most of the time stocks go up and that after 30 years of owning a bond all you have is your principal (unless you never spent an interest payment). Also no different is that occasionally stocks go down a lot, they often provide some warning (I heed the S&P 500's breaching of its 200 DMA). When trouble seems likely, regardless of the reason, then you need to reduce exposure.
I also don't think that any flaws in the data changes the importance of foreign exposure. Growth rates and other indicators of health have not be "normal" in the US for a few years and seem unlikely to be normal anytime soon. Growth rates and other indicators from other countries have been healthier for a while and seem likely to be healthier for a while still.
In various pockets of the investment world (certain themes and countries) money is being spent now and will continue to be spent regardless of the validity of any book or any data and while buying those ideas for your portfolio will guarantee nothing there is a tailwind effect that you capture with this sort of thing.
In a more theoretical sense that a building block like stocks for the long run could be coming under fire is fascinating. A long running theme here has been the evolution of everything (asset allocation, investment products and big picture ideas) is happening and success in the future likely means remaining in touch with how the world is evolving and implementing this evolution into your portfolio. Fifteen years ago what was the typical allocation for foreign stocks (rhetorical question)? How crucial have foreign stocks been to returns in this decade for US based investors?
While I am not really a contrarian or innovative thinker I do have enough interest in these concepts to have explored them where possible and implement them into client portfolios. Looking forward this will still matter but not necessarily in the same way has over the course of this decade. I'm not smart enough to know what that will be but it will be and I will try to find it, blog about it and implement it.
Yesterday we went back into downtown Portland in the late morning to the Old Town Street Fair for some touristy milling and shuffling. Joellyn got a bracelet and I got a wallet made out of duct tape. You can see it here, the artist has a website. Apparently duct tape comes in all sorts of colors and there are even specialty tapes made with designs screened on. The one I got is mostly back and brown with a cowboy theme. It cost me $20 and takes her about ten minutes to make. The thought I had was about creating a little income stream as part of a post retirement financial plan doing some sort of craft you've always enjoyed. We went by the Voodoo Doughnut shop four times, BTW, and resisted the temptation. Moderation is good.The picture is from where we stayed down in Newport on Thursday night. We were right on the water, the entire back wall was glass (window or sliding door) and that was our sunset.
7 comments:
I subscribe to WSJ and was initially taken aback by Zweig's column. But after some reflecting, given the financial scandals that we experience on almost a weekly basis, what do you suppose was happening in the early 19th century with little to no regulation and almost complete lack of transparency? I'm not really sure anything useful can be taken from the article.
I am still troubled to some degree with too much foreign exposure and the unstable political environment we see around the globe. People speak of investing in China as if they were simply buying shares at the NYSE. The Rio Tinto saga during the past week should give everyone reason for pause. No doubt the potential is immense in China, but it is a communist country and the state does come first. I just would advise everyone not to be too pollyanish. Nationalization in Venezuela, coup in Honduras, real threat of annihilation of Isreal etc. There's a reason emerging markets have a risk premium, there is no free lunch. Stay diversified and don't bash the good ole USA too much.
The economic bubble was and is like a national and international Ponzi scheme (because it was based on the artificial and manipulation) created by government and politicians meddling, They don't have a clue about business or economics,don't have monetary/budget limits and care more about their special interests. Some meddling was due to good intentions, but the results were horrible for even the original people they were trying to help.
Anon 6:09 captures the problem I think -- 'bad data' is endemic historically and in locale (e.g., the numbers coming out of China are suspect and quite probably falsified) -- and whether the problem is one of historical incomparability, government misbehavior aided and abetted by corporations or corporate misbehavior aided and abetted by government does not appear to be the central issue.
The truth is an appropriate methodology can compensate for lacking or suspect information or at least highlight weak areas (and we do not know what Siegel's response to Zweig would be in this regard) but, as Hugh Hendry intimates in the video Roger posted July 1, this alone may not be sufficient: There is a need for systematic skepticism; not simply doubt but knowledgeable inquiry that includes a willingness to question "respectable" sources and our own assumptions.
OT: Loved the duct tape wallets (Portland is a very cool city, try Pok Pok restaurant if you have time) -- glad you had a chance to hang out in Newport a bit too.
really a great trip, we loved the scenery, the weather, all of it.
off to a wedding related barbecue unless it rains.
http://seekingalpha.com/article/148220-time-for-income-time-for-bonds?
Interesting! As a retiree, I am considerinmg an ALL fixed income portfolio for the near term.
Very nicely said RW, as usual. Lies, damned lies, and statistics comes to mind too.
Be sure to stop by Powell's Books in Portland. It is a _gigantic_ new/used book store.
Post a Comment