FYI:
Regards,
Ted
http://blogs.wsj.com/moneybeat/2014/05/09/just-how-dumb-are-investors/tab/print/

OTCRX came crashing out of the gate. I'm watching it.
AZDDX. Sorry. 5 managers. Not a cent invested in fund by anyone. Not happening.

This is where a little bit of understanding of technicals would be useful. You can get a better perspective of the big picture than hoping every wiggle means something. There is also a lot of technical trading going on that makes these a self-fulfilling prophecy.

Technically, small caps are very broken. They are below the 200 day SMA and bouncing along the lower bounds of the channel in a strong downward trend. You can have several bounce backs up to the 20 day SMA (2%) without changing the trend as has happened all of April. It has to break through that and perhaps even the 50 day SMA (about 6%) before technical trading snowballs it the other way.
Technically, biotechs have a much better chance of recovering sooner than small caps.
Risk off and momentum trades from too much money floating around is what this current market is all about and may continue through the summer.
Sit tight or momentum trade, only two options.

FYI:
Regards,
Ted
http://www.marketwatch.com/story/small-caps-slide-reflects-a-market-in-trouble-2014-05-09/print?guid=8B0B0924-D702-11E3-9095-00212803FAD6

@hank
My original reply was to your past tense statement/question.
This new consideration is a whole different beast, eh? Looking forward.
Kindly lay-out for us mere mortals where the 10 year Treasury will be on the following dates:
July 4, 2014
October 1, 2014
December 31, 2014
June 1. 2015
December 31, 2015
June 1. 2016
December 31 2016
I suspect the 10 year rate to not change much from the 2.6% area currently in place. While I have reports in Michigan from folks I know about increased spending in some construction areas, 30% higher than 2013; I still feel the Fed will have to be very helpful with rates for a few more years. Gotta keep rates low to attempt to help folks with mortgage and auto loans. 'Course, low rates will continue to destroy monies and purchasing power for the many who will not gamble in the equity or bond markets. This large group will maintain their CD's.
A Catch-22 does exist for many economies. Low rates being in place from central bank actions to "help" one group(s) of folks, while causing damage to another group of folks who have saved money, are conservative with their money and will continue to have their monies damaged from inflation. Tax revenue is lower, too; in line with the poor yield from CD related investments.
Well, there surely is much more related to this broad area, eh?
The big/easiest money has likely been made from most bonds since 2008, but too many economic weak areas remain. I feel yields will remain low for a variety of reasons.
TIPs bonds funds or etfs may continue to offer a decent and somewhat conservative return from earlier this year and going forward. As always, one has to be flexible and pay attention.
Gotta get outside work finished before the storms arrrive.
Take care,
Catch

FYI;
Regards,
Ted
http://www.bespokeinvest.com/thinkbig/2014/5/8/tortoise-catching-up-to-the-hare.html?printerFriendly=true

FYI:
Regards,
Ted
http://www.usatoday.com/story/money/columnist/waggoner/2014/05/08/investing-high-yields-are-gone/8861649/

Reply to @cman:
Managers can do much to reduce risk to their shareholders through: (A) their own high quality independent credit research (B) holding offsetting debt like long term Treasuries and high quality corporates (C ) Keeping ample cash reserves to meet redemptions (D) Restricting "hot money" flows in and out of the fund or closing completely when warranted.
So ... your fund is only as good as your manager. Let's hope you gave a good one.

there is really not much managers of illiquid asset classes in the open-end funds can do. once the outflows start, they have to raise cash for the daily liquidity funds by selling loans (hi-yield, mortgages, blah-blah securities) into a declining market causing further declines. the thinner the trading volume (on all credit instruments and micro caps) the more the price is affected by the flows. there was a blip last year after the tapergate when the loans lost 5-6 percent in one month -- mostly due to the outflows. the less liquid hedge funds or close-end funds will also be affected as security pricing impacts the entire asset class, but because they won't need to sell at the fire sale prices (i assume they maintain enough assets to cover their leverage, which is not always the case) they might even pick up some good stuff on the cheap. the mark-to-market will be brutal, but the recovery will be much swifter than that of the mutual funds who will realize their losses.
i am enjoying the high yield party just as the next gal. i just know that the question is not how or if this ends, but only 'when'. the amount of money that has flown into credit instruments has no precendent in history. the narrow exit door will lead to the bloodshed. personally, i still prefer high yield bonds and non-agency MBS to the overpriced and floored loans.
best, fa
ps i like how ted [with hot biotech] silenced catch's weekly bond updates -- your typical hare and turtle story..

http://blogs.marketwatch.com/thetell/2014/05/08/nouriel-roubini-were-at-the-very-beginning-of-a-credit-bubble/
I agree, conceptually. There are many who are in junk bond funds who do not understand they come with a risk. Generally, at times they can perform like stocks - if the company's expectations are not good, there is concern about them paying the interest and default.

Reply to @Catch22:
Great to hear, Catch!
Kindly lay-out for us mere mortals where the 10 year Treasury will be on the following dates:
July 4, 2014
October 1, 2014
December 31, 2014
June 1. 2015
December 31, 2015
June 1. 2016
December 31 2016
Thanks so much. :)

The author points out what has been long known. When a loan is designed to allow early payment by borrowers they will do so as long as rates are trending down and they can refinance at lower and lower rates. This negatively impacts the level of income lenders receive. This "pre-payment risk" is acknowledged by GNMA funds in their prospectuses, as mortgage holders are notorious for refinancing at lower rates. I'd imagine floating rate funds also so warn.
The beauty of the floating rate funds is that the lender (in case you the fund owner) is not locked-in to a fixed rate. While you suffer as rates fall, you should do much better when rates rise. In the later case, traditional bond holders suffer as investors flee to higher paying instruments and sell previously issued bonds at discount - driving down bond values for everyone.
If there's anyone here who's consistently called the interest rate picture accurately over the past 3 years please come forward, My sense is even the experts are mystified. Where's that great "bond bust" so widely predicted for 2-3 years now? The ten-year has bumped up from its bottom below 1.5% couple years ago to only around 2.6% today. A "bust" by no means. NBR reports that 30 year mortgages are at a one-year low today at just a bit over 4%.
Bottom line? Floaters are one type of insurance against a rising rate environment if and when it comes. Like all fixed income investments, they have their attributes and liabilities. But, don't expect anyone to stand on the corner and ring a bell on the exact day rates begin a sharp irreversible trend upward. (Just my overly-wordy two cents:-)

Hey, one other interesting metric.
FAIRX during last two market cycles Apr '00 - Sep '07 and Oct '07 - Present (thru 1Q14):

Despite the volatility since 2007, it remains in top quintile of risk adjusted return. Can also see a lot more volatility in this cycle versus previous cycle.
Liking full cycles numbers more and more these days...hoping to add them soon to Risk Profile search tool.
And here is M* performance plot, current cycle:

Versus 3 year plot:

Unless you are one of those investors who believes the price of things doesn't matter, it would probably be a good idea to do a "re-check" on the price of your holdings, esp. the MOMO stuff.
http://www.zerohedge.com/news/2014-05-08/what-pe-ishares-biotech-etf-it-depends-whether-you-read-fine-print

365 brand is designed to make WF a one stop destination for groceries and is low margin. The last recession seems to have changed consumer behavior in the upper middle and upwardly mobile class that frequent WF. It is becoming much more common for people to visit two or more places for their grocery and produce needs. Trader Joe's where available is benefitting. I see far less filled cart shoppers in WF than before the recession.
The other change seems to be the traffic decline in their highest margin item, prepared foods.
Interesting changes. Not sure how much of it is permanent and whether WF can continue with its current structure or has to reinvent itself over the next few years like Starbucks is struggling to do.
They definitely had a good thing going for a while.

In many areas, Sprouts Farmers Market has been taking away customers from Whole Foods as a cheaper alternative. They provide a WF like atmosphere without the high prices of WF and the grunginess of Walmart or Target even if the latter sell organic. Important for the people who typically go to WF.
But I am not sure Sprouts can survive given the small amount of traffic and almost no marketing at least in my area. It seemed like they started out strong, did an IPO and have been going downhill since then.
The problem with WF seems similar to Apple, they have saturated the premium market and have margin pressures from competition without anything new to offer. The quality of produce in my area has suffered for the prices they charge. Local weekend farmers markets have become the destination of choice for the affluent that previously went to WF for weekly produce.

It's funny you say that because I was also pondering the Apple comparison after skimming the WF conference call transcript. They talk about promoting "value" more, but I didn't get the sense they really wanted to/had an idea of how to go about it.
Whole Foods has their 365 brand, which is actually reasonable. Yet, they really don't promote it at all. Maybe I didn't see discussion of it in the transcript, but when asked about promoting value by an analyst, they went off on something about salmon. Yet, they have all of these 365 value items - tons of them throughout the store.
There is a farmers market nearby that is amazing - significantly better produce than I'm seeing at WF or other such stores, and it's much cheaper - but it's only 4 months out of the year. I was getting so much at the farmer's market last year that I hurt my back/shoulder a couple times.
I do think that there's an increasing amount of competition, both nationally and regionally. I actually like Fresh Market a great deal - I actually think their produce is better, although it is similarly priced. The rest of Fresh Market is more reasonable and I like the look and feel of the store. Additionally, FM often shifts its products, they seem to have new things all the time and there's often good clearances on quality products.
Costco is also having a little more in the way of organic products.

Here's some granular data on bank loans and the games already being played with them. The extent of it was surprising to me.
http://blog.alliancebernstein.com/index.php/2014/05/06/bank-loans-is-the-yield-worth-the-chase/

http://www.mutualfundobserver.com/discuss/discussion/12630/thoughts-on-otter-creek-long-short-otcrx/p1
Nod to rsorden .After a month travelling out west, opened a new position in OTCRX after reading above post and a little home work.From the prospectus:(emphasis added)
'The Fund employs a “long/short” investment strategy to attempt to achieve capital appreciation and manage risk by purchasing stocks believed by the Advisor to be undervalued and selling short stocks believed by the Advisor to be overvalued. The objective of the Fund is to generate absolute risk-adjusted returns with a focus on long-term capital appreciation with below average
volatility by investing in opportunities both long
and short which are driven by intensive
fundamental analysis. Under normal market conditions, the net long exposure of the Fund (gross long exposures minus gross short exposures) is expected to range between -35% and +80% net long.
The Fund may also invest in investment grade fixed income securities, including up to 30% of theFund’s assets in corporate and convertible bonds as
well as debt issued by the U.S. Governmentand its agencies. Additionally, up to 30% of the Fund’s net assets may be invested in high yield (“junk bonds”).
High yield bonds are securities rated by a rating organization below its top four
long-term rating categories or unrated securities determined by the Advisor to be of equivalent quality.
The Fund may utilize leverage of no more than
30% of the Fund’s total assets as part of the
portfolio management process. From time to time, the Fund may invest a significant portion of
its assets in the securities of companies in the same sector of the market.
The Fund may also invest up to 10% of its net assets in derivatives including futures, options, swaps and forward foreign currency contracts. These instruments may be used to modify or hedge the Fund’s foreign currency contracts. These instruments may be used to modify or hedge the Fund’s
exposure to a particular investment market related risk, as well as to manage the volatility of theFund. "
http://www.ottercreekfunds.com/media/pdfs/Summary_Prospectus.pdf
Pretty much a go anywhere fund with the ability to leverage! With only $17+million in assets it has performed quite well Y T D .Can it execute the strategy as its assets increase?
Nice updated Fact Sheet.
http://www.ottercreekfunds.com/media/pdfs/OCL_Factsheet.pdf

Holy sh...

I did not realize...did not pay as much attention to after hours numbers, but in this case...wow.

Wednesday, May 7, 2014
Editor's Corner
What Happens When The Fed Stops Buying And Starts Selling?
Ron Rowland
The Fed Chair Janet Yellen testified to the Joint Economic Committee on Capitol Hill today. She revealed no surprises and generally stuck to the same script that has been in use for months. While basically optimistic on the economy, she reiterated concerns about the labor market, lack of inflation, and disappointing housing activity. She believes the lackluster first quarter GDP figures were mostly weather related and sees signs that spending and production are rebounding.
The Fed’s monthly reductions of asset purchases this year have been based on its assessment the economy was strong enough to support labor market improvements. Yellen reminded everyone that this tapering operation was still adding to the Fed’s holdings, and they in turn were helping apply downward pressure on long-term interest and mortgage rates.
Last year, the market reacted negatively to the idea of the Fed tapering its monthly purchases of Treasury and mortgage-backed securities. Tapering is one thing, but what happens when the Fed starts to reduce its balance sheet? This is seldom discussed, but today Ms. Yellen stated the Fed does in fact expect to shrink its balance sheet over time.
Outright sales of mortgage-backed securities are not planned, with the possible exception of eliminating some residual holdings. Instead, balance sheet reduction will occur by not reinvesting the proceeds the Fed receives when current holdings mature. Although the Fed intends to avoid sales of mortgage-back securities, no such assurances regarding Treasury securities were offered today.
Earlier this year, with the unemployment rate hovering around 6.7%, the Fed eliminated its 6.5% line-in-the-sand regarding when it would begin considering the reduction of monetary stimulus. The reason for this change was the belief the unemployment rate didn’t fully reflect problems within the labor market. Last Friday, the Bureau of Labor Statistics released its April employment reports, and the official unemployment rate plunged a staggering 0.4% to 6.3%.
Today, Ms. Yellen again emphasized that labor markets are still far from satisfactory. People out of work for more than six months and those only able to find part time work remain at historically high levels. The declining participation rate is also a concern, as another 988,000 people left the labor force in April. For these reasons, she believes the Fed was correct in removing the 6.5% threshold.
Markets reacted favorably to all this, giving the relatively new Fed Chief an implicit seal of approval. The Dow Jones Industrial Average climbed more than 117 points, and the 10-year Treasury yield dropped back below 2.6%.
Sectors
Energy and Utilities have been swapping places for the lead the past four weeks, and Energy came out on top today. Utilities had a setback last Friday with earnings misses and downgrades among prominent constituents. The sector is bouncing strongly today and is well on its way to reclaiming the top spot from Energy. Real Estate and Consumer Staples hold down the third and fourth spots for the fourth week in a row. Telecom jumped four places after falling the same amount the prior week. Unfortunately, the group looks like it may not be able to maintain its upward momentum, making it vulnerable to downside action. Materials and Industrials have been hanging out in the middle of the rankings for more than a month now. Technology is another sector on the verge of slipping into a negative trend. The selling in biotechnology stocks seems to have subsided for now, but the Health Care sector is still struggling to regain its footing. Earnings out of the Financials haven’t been offering much hope for the group. Consumer Discretionary continues to encounter setbacks and remains mired at the bottom of the heap.
Styles
Although three pairs of style categories swapped positions, very little has changed. Large Cap Value remains at the top but seems to be settling into a mostly sideways pattern. Mid Cap Value exchanged places with Mega Cap to recapture second place after a one-week absence. Large Cap Blend, Mid Cap Blend, and Large Cap Growth continue to hold down the middle. Mid Cap Growth and Small Cap Value comprise our second pair of categories swapping places. Mid Cap Growth came out ahead this week and even managed to generate a slightly positive momentum reading. Small Cap Blend remains in a negative trend near the bottom of the rankings. Micro Cap slipped below Small Cap Growth to take over last place. Seven weeks ago, Micro Cap was at the top, but now the tables have turned.
Global
We have been commenting for many weeks about the late March surge for Latin America. Since then, it has been digesting those gains and unable to break out of its long-term downtrend, until now. Brazil and Mexico are currently providing the strength for Latin America funds. The U.K. continues to get a currency translation boost, allowing it to climb two spots to second place. Canada strengthened its grip on third place with gains in both equity prices and the Canadian dollar. Pacific ex-Japan slipped two places to fourth as stronger groups moved ahead. The next five categories are keeping the same relative rankings and nearly identical momentum readings as last week. Europe heads up this group of five, followed by Emerging Markets, EAFE, World Equity, and the U.S. Two global categories are in the red, and this week they swapped positions with China replacing Japan at the bottom.
Note:
The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.
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Capital Cities Asset Management, an affiliate of Invest With an Edge, provides investment planning and portfolio management with the knowledge to lead you down the right path and the discipline to ensure you don’t stray from it. For a complimentary consultation, call us at 800-767-2595 or email us at [email protected].
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@Maurice. Regarding what you said, "When I first was looking at FAIRX more than 10 years ago, Berkowitz had at least a third of the fund invested in Berkshire Hathaway. So if this style of investment makes you queasy, I can understand that. But Berkowitz's style hasn't changed a lot, since the fund was started. He has been consistent. Isn't that a characteristic that most of us want to see in mutual fund manager?"
+++++++++++
I think Berkowitz investing a significant amount in Berkshire Hathaway is different, because Berkshire Hathaway is more like a mutual fund than a typical individual stock, since there are so many stocks owned by Berkshire Hathaway, as well as very many wholly owned companies such as See's Candies, Nebraska Furniture, etc. So it's like owning a mutual fund run by Warren Buffett. I was in FAIRX for 11 years, and don't recall how much Berkshire Hathaway was in FAIRX, but it didn't approach the 52% that was in AIG not that long ago. The Sequoia Fund used to regularly hold large positions in Berkshire Hathaway for many years.
I'm not sure Berkowitz has been consistent. I kept tabs on him for many years; my take is that he has changed. I see the portfolio as significantly more risky than in years past, both in terms of the percentage concentration in individual names, concentration in the financial sector itself, and the riskiness of some of the individual names, such as Sears, St. Joe, Fannie and Freddie. In my opinion, investing in Sears, St. Joe, Fannie and Freddie is not consistent with having Rule Number 1, Don't Lose Money; Rule Number 2, Don't Forget Rule Number 1. No one knows what is going to happen with Fannie and Freddie. Clearly, it's quite possible to lose one's entire investment in them, if the government carries through it's plan to dissolve the companies, although I doubt that happens. My guess is that Bruce wins big time with them, but they are clearly not investments for someone whose Rule Number 1 is Don't Lose Money. Just not consistent. Probably Bruce wins with all four of those names, as well as with his ultra concentrated bet on AIG, but you don't invest this way if your first rule is don't lose money. He needs to change his talk to match his walk.