The following MSN article by Jon Markman about the Royal Bank of Scotland’s Bob Janjuah (Chief Market Strategist) “speaks for itself.” Read it. Like Markman, we are hopeful, but we in no way rule out Janjuah’s analysis. http://tinyurl.com/msnjanjuah
Posted by George Peacock on November 12, 2009
Posted by George Peacock on November 2, 2009
Well, we were right in our last post. Gains were short-lived and we have now sold 4 of the 6 positions that were choppy and uncertain. We sold 60 shares of FXI (China) @ $42.60; 70 shares IEV (Europe) @ $37.90; 50 shares JKE (US Large Growth) @ $53.38; and, 50 JKF (US Large Value) @ $51.57.
In short, our belief is that investors in aggregate are still uncertain of the direction of the various stock, bond, currency, and commodity markets around the globe. There appears to be great concern about the direction as evidenced by the strength of gold. And the basic overall trade seems to be a belief in continued dollar weakness.
Our portfolio remains widely diversified and we will continue to reduce our exposure to those asset classes within the portfolio that show weakness.
Posted by George Peacock on October 30, 2009
Today we bought shares of EWZ (Brazil), 36 shares @$70.59; FXI (China), 60 shares @ $42.35; IEV (Europe), 70 shares @ $38.37; IYE (Energy), 77 shares @ $33.12; JKE (US Large Growth), 50 shares @ $54.29; and JKF (US Large Value), 50 shares @ $52.15.
Comment: We brought each from 1/2 allocation to their neutral allocation of 5% of the overall portfolio. Currently, our belief and bias is that most assets classes are both weak and overbought. Although we are moving back to a neutral position, we would not be at all surprised to return to a half allocation in short order. But as the renowned british economist John Maynard Keynes said, “The market can be wrong longer than you can remain solvent.” So we continue to take short-term cues from market behavior, fickle as it is. Our primary goal is to avoid significant and/or sharp declines in the asset classes we own on your behalf.
Posted by George Peacock on October 29, 2009
Read the short exchange below. It’s a quote taken from Greenspan’s testimony to Waxman followed by a brief Buffet quote that we should all heed and to commit to memory. The most interesting sentences to us are: “Now in his case, the model breaking contributed to (some say it caused) the most costly meltdown in history. What if there was a flaw in the model that you base your investment decisions on? Would you be shocked? What would the implications be for you and your family?”
I Found a Flaw in My Model
REP. HENRY WAXMAN (D-Calif.): And my question for you is simple: Were you wrong?
ALAN GREENSPAN: And what I’m saying to you is, yes, I found a flaw….a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?
ALAN GREENSPAN: That is–precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
The part that worries me the most about what former Fed Chairman Greenspan told to Congress was the part about the “model” not working. This is one of the brightest economists ever. This is the guy that President Bush called a “rock star.” What he is saying here is that after 40 years of “considerable evidence,” the model broke. Now in his case, the model breaking contributed to (some say it caused) the most costly meltdown in history. What if there was a flaw in the model that you base your investment decisions on? Would you be shocked? What would the implications be for you and your family?
Warren Buffett reminds us: Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood…these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.
Posted by George Peacock on October 29, 2009
Tomorrow morning at the open, we will reduce the following asset classes to 1/2 their neutral position: Brazil, China, Emerging Markets, and Europe.
We are watching the Gold, Energy, and US Large Growth asset classes as they have faltered as well.
Posted by George Peacock on October 29, 2009
Just a quick update for the Purchasing Power Portfolio. We are at 1/2 neutral allocation for 6 of our asset classes. Tomorrow at the open, we will sell 5 additional asset classes to 1/2 neutral, so that 11 of 16 asset classes will be underweighted due to weakness. Just as we have seen broad strength in the global asset rebound, we are currently seeing broad weakness. Correlations seem to remain near 1.
In other news, we are adding an asset class to further diversify our “cash section.”
Currently, our 25% cash section comprises 15% in U.S Government inflation-protected bonds and 10% in an actively-managed government currency mutual fund, MERKX. Effective tomorrow, October 29, we will reduce the US Government inflation-protected bonds to 10% and add a 5% position of WIP, an international government inflation-protected bond ETF. Information about the ETF can be found here: https://www.spdrs.com/library-content/public/ETF-WIP_20090930_133848.pdf.
Posted by George Peacock on October 28, 2009
Today we are cutting four asset classes back to 1/2 of their neutral allocation. We sold 43 shares of IWM (Russell 2000 Index) @ $52.57; 111 shares of PIN (India) @ $20.18; 48 shares of VPL (Vanguard Pacific) @ $50.96; 182 shares of PBJ (Food) @ $13.90; and 49 shares of JKF (US Large Value) @ $52.12. Brazil, Europe, and general Emerging Markets all are weak at the moment, as well, though we are maintaing their neutral weight (5% of portfolio in each case). With 8 of our 16 assets classes showing meaningful current weakness, we see an overall global market that looks tired and may be either catching its breath or going into oxygen debt. US TIPS (inflation-protected, government-backed bonds) are showing the greatest strength at the moment.
Posted by George Peacock on October 21, 2009
Today we sold EEM; Emerging Markets (7.77 shares @ 41.39), IYE; Energy (12.11 shares @ 35.43), EWZ; Brazil (2.33 shares at 75.52), and DBB; Commodities (36.39 shares @ 20.20). In all case we took take gains to bring each asset back to it’s neutral postion. Each showed some recent weakness/slowing. Japan remains the only asset class at the moment that we are holding at 1/2 its neutral position. There have been strong upward movements in virtually all of the 16 asset classes in the portfolio, but there are definite signs of slowing at the moment.
Posted by George Peacock on October 13, 2009
I just finished John Talbot’s “The 86 Biggest Lies on Wall Street.” It’s concise and very good. It’s a quick read and a good book to read piecemeal since each “lie” is it’s own chapter and usually only a page or two. Mr. Talbot is a former investment banker at Goldman Sachs and a visiting scholar at UCLA’s Anderson School of Management. And just for good measure, I’ll point out that his 2006 book was entitled: “Sell Now! The End of the Housing Bubble.”
I like the title. First, it’s the 86 “Biggest” lies on Wall Street, suggesting that there are more. Second, it’s interesting that the lies are the 86 Biggest “on” Wall Street, suggesting that these aren’t necessarily lies perpetrated soley by Wall Street itself — and I think that’s true. That is, these are also the lies that we tell ourselves and lies that have been around since there have been markets. Like opposing cliches (does “haste make waste” or should you “look before you leap”?), supposed axioms and investment lies creep in our parlance and ethos and, mostly without our realizing it, they stop being questioned until someone points out –usually the market itself in its own inimitable and blunt way — that the Emperor has no clothes.
In short, I recommend the book. It’ll get you thinking about some of your underlying (no pun intended) assumptions. Question everything. Socrates would be proud.
For a taste…..
Lie #29: In the long run, stocks outperform bonds if you do not object to slightly higher volatility along the way
Lie #35: The [US] stock market’s two-decade appreciation was primarily due to growth, innovation, the opening of new markets, and good corporate management.
Lie #37: Fixed-coupon [US] Treasury bonds are risk free
Lie #39: Interest rates are set by the Federal Reserve
Posted by George Peacock on October 8, 2009
As the physicist Neils Bohr said, “Prediction is difficult, especially about the future.” Here’s an article from Forbes that was printed in May of this year — not too long ago, I would argue. So how easy is it to predict the price movements of an asset? Well, here are a few quotes if you don’t want to take the time to read the entire piece.
– “On a historical basis, gold is overvalued at the dollar’s current level, says Joel Crane, vice president of global commodities research at Deutsche Bank, making it “ripe for a correction.” Crane sees gold at $920 an ounce in the third quarter [Editor's note: Crane was wrong] and at $850 an ounce in the fourth quarter, barring unexpected weakness in the U.S. dollar and/or equity markets. It’s been trading around $940 lately.”
– “Even if gold doesn’t push past $1000 in the near-term–and most analysts don’t think that it will–[Editor's note: "most analysts" were wrong] bullion is still a good buy in Deighan’s eyes since he treats investment in gold coins as an insurance policy against inflation [Deighan is right].”
– “Still, Citi analyst Alexander Hacking considers gold a crowded trade. In the short-term, he expects a pull-back to $850 an ounce and doesn’t see the possibility of an inflation-driven rally pushing gold past $1000 an ounce until late 2010 at the earliest [Editor's note: Alexander was wrong], according to a recent note.
This is not a post about the price of gold but of the difficulty of making predictions of price movements of an asset class — in this case, gold. And remember that the quotes above are published in a respected financial publication and are by the sought-after niche experts.
I find it interesting that the title of the article is “Gold Extremists.” It remains a mystery to me why those who invest in gold are consistently derided as “gold bugs” and “extremists” even when they have been correct for an entire decade. For the past ten years, the price of gold has increased 350%! Meanwhile the S&P 500 is down about 11%. How does choosing to buy gold make one an “extremist”? In my book, those investors were just plain right.
Surely, there is a time and place for many investment strategies. Here’s the whole article: http://www.forbes.com/2009/05/20/gold-bullish-forecasts-markets-commodities-currencies.html?loomia_ow=t0:s0:a41:g26:r32:c0.001427:b24557520:z0&partner=loomia. Have at it.