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... as it will be called on to do sometime between May and July -- assuming a tactical approach to investing, how would you want to change your fund composition ahead of time?
Note: this is NOT a political question, so political answers are not necessary!
this is OT and should be designated as such, and not as fund discussion. thanks. if they don't raise the debt ceiling, we'll all die.... well, kidding of course. stick with your asset allocation - the world will survive that too.
My views are viewed as rather extreme, but my issue is this: I continue to believe that if there is a "tipping point" someday with the debt situation, it will be external in nature. We're already monetizing debt, I wouldn't be surprised if there was a point where buyers of our debt walk away.
The next part could be thought of as political, but when this question comes up, given what it involves, it's difficult to not discuss the political realm at least somewhat.
I look at the political high schoolery (yes, that is a new phrase I just made up) that went on just to avert the govt shutdown the other day and I wonder why anyone would want to invest in the US. Not only are there the known issues, but you have two political sides so concerned with playing political games that they barely handle the NOW. If they can barely handle the NOW, why would I think they can handle the larger future issues? It's the Peter Schiff line of, "People think they're just going to do something to fix the problem down the road - they're not. If they can't make the difficult decisions today, why would anyone think they could make twice as difficult decisions down the road?
Quite honestly, I don't believe the issues of debt in this country will be solved on a voluntary basis at all, and have invested accordingly. I view the political circus/ridiculousness from both sides (which has only gotten worse in recent years) that surrounds these decisions as only having the effect of eroding confidence from foreign creditors. In terms of the dollar/US debt, I believe it's largely a matter of "first one out loses least" in terms of foreign creditors. We're not the only one in the debt situation, but the attitude of printing money as a replacement for fiscal responsibility is upsetting, and again - no one wants to approach the problem and make the difficult choices with the budget (the few that do have people acting like they're evil for wanting to take drastic fiscal measures), so why would I believe that it will be done when no one has really demonstrated that they want to make the effort?
I doubt that the debt ceiling won't be raised. It's the psychology of money that I think really is dangerous; when the term billions is no longer shocking, what effect has that had? I think the path that we're headed down is a dismaying one, and it's absolutely unsustainable. The longer we stay on this path, however, the worse the end result is.
So, if the debt ceiling isn't passed I don't believe I'll be changing my investments - I think that it'll only be further erosion of confidence from foreign creditors (and raising the debt ceiling isn't helping either, but it kicks the can down the road one...more...time.)
Anonymous Guest 5:10 PM, the original question IS about mutual funds. Please read it again. Thanks.
Thanks in addition for the "stick with your asset allocation" thought, but also please notice the question was prefaced with the phrase "assuming a tactical approach ...."
If you feel we're facing a time of uncertainty, you need to get defensive. That historically meant healthy and consumer staples, underweight equities to bonds and whatnot.
Today, I don't really see that as sufficient - largely because of the potential problems we're facing. And, just for the record, I see the chances of some sort of financial meltdown as being in the 15-25% range. However, while very low, the consequences of some sort of meltdown are sufficiently severe that taking some precautions is prudent.
Now, in this environment of a dollar that's losing value - you want to minimize your exposure to US bonds, particularly longer term. Stick with corporates and international including emerging mkts. You want to own stocks in solid companies that pay a dividend. You want to minimize your exposure to the dollar - you can buy foreign currency ETFs like FXA or FXC. For internation exposure, you want to be with countries that have natural resources and hopefully a better banking system. Canada and Australia jump out but there are others. I am of course extremely bullish on gold and silver and I also like Perm Port PRPFX.
Pay down your debt, get some ready cash available but this might include precious metals, swiss francs, etc.
My thought starting this thread was that a tipping point's coming that will change these low volatility times - could be the debt ceiling or the debate around it or concessions made to pass a new ceiling, the end of QE, corporate profits taking a dive etc. I guess I'm not entirely convinced that the economy heating up and wilder inflation ahead is a foregone conclusion; there are enough countervailing elements at play (high unemployment, little prospect of real improvement, household debt, you know the drill) that I think there's a non-zero chance of a replay of 1937.
In my case (and here's an example of what I was thinking we'd get talking about), I increased my U.S. stock allocation during the runup to 55% from the usual 40%, & have been walking that back since the first of the year, and am now hitting the accelerator on that and diversification into other currencies. For example: In the index-only 401k, I'll have only the stable value fund and some EAFE by the end of the month; I'm giving more $ to the Pimco guys & to Price's strat income fund Prsnx with its 30-plus percent foreign stake, bumping up ELD, the W'Tree local currency EM debt fund & buying the W'Tree commodity-currency ETF, plus more of that old warhorse Macsx and other lower-risk EM equities, etc. Also less stock overall, more cash.
Again, this is how I've been slowly tweaking, but I decided to speed it up due to the multiple possibilities of tipping points ahead, the debt ceiling being the most visible and contentious at this point. I thought folks might have specific investment ideas derived from thinking about these near-term possibilities.
Hi Scott- well, yeah, you would be absolutely correct if taken in a vacuum. Fortunately for us (that would also be U.S.) it isn't a vacuum, my friend, and the rest of the world ain't in such great shape either, or haven't you noticed? In a non-vacuum reality, we are still, believe it or not, one of the better bets among the "developed" (ie economically, not mentally) countries. Sad but true.
It's not necessarily viewing it in that manner. I don't disagree that other countries have very significant issues (which I've said in the past; but as noted today, China seems to see something in Spain, investing in 25B Euros worth of Spanish debt, in addition to what they did in Greece. Investment there - and I believe Asia will invest strategically in Europe to a significant degree - is investment that ain't being done here, and we kinda need them to invest here because otherwise...what? Oh yeah, print money.)
However, it's sort of like the kid who doesn't get a good grade on his report card and then says, "Well, Billy didn't either!" The fact that other countries have problems doesn't make our lousy finances any better. There's no inflation here, either.
We're the best bet among developed countries? I'm not saying don't invest here (although Bill Gross appears to be taking his money elsewhere in terms of govt debt, but that can change tomorrow), I'm simply saying it's a big world, technology is allowing for faster investment and easier access to information and there are a lot of options. People around the globe in other markets don't necessarily have to focus their investment on the US anymore.
My question on the Wisdomtree EM Currency fund is is it a static allocation? I don't believe it's a dynamic/actively managed fund, so you are just going with the tides; you would be getting EM currency exposure with the EM local debt fund, and at least with that you'd be getting a higher yield. I wouldn't suggest owning both. Some of the currency funds out there - such as the Merk and Templeton funds - are well-managed, but I don't really see the need.
I think a very diverse basket of asset classes is the only way to minimize the damage done by geo-politics.
Hard assets such as gold, commodity baskets, agribusiness, infrastructure are vital, IMO.
Holding foreign developed and emerging stocks is prudent IMO as well, although if the US has a default or debt crisis situation, there will be no equity market that can provide refuge.
Even cash and US Treasury debt is a part of my portfolio because no one can predict if and when these scenarios will happen or how they will play out.
Scott, what I'm going for as a test position is CCX, their commodity currency fund, which includes Oz, Canada, and Norway in its universe, so not just EM. It's actively managed, according to the prospectus, with a duration of 90 days or less. I want to see how it does vs. swings in commodity prices; looks like it may be a lower-volatility play on both commodities and appreciating non-U.S. $ currencies. I can see the case for saying it's superfluous - but plan to check it out and see.
I won't go quite so far on the US Treasury Debt portion (although some of my funds do have some holdings), but otherwise I really agree strongly that a very diverse basket of asset classes (and strategies; managed futures, etc) are the way to go.
In response to Mo earlier, he's absolutely correct that if we indeed have an extended bout with inflation, using debt wisely can be very, very beneficial as you're paying off your loan with cheaper dollars. That's why bond holders hate inflation - it cheapens their principal.
What you need to keep in mind is that the type of debt you play this FIFO/LIFO game is very important. What happens if they start calling the notes? Believe me, if I've loaned you $100K and I'm watching the dollar become weaker daily, I want my money NOW so I can convert it to some more durable store of value. This means that if you're using debt as an investment during times of inflation make sure it is something that's not critical to your survival like your primary residence.
I agree with Scott. It would cause many unintended consequences.
So far the new congress' attempt to control debt is like trying to amputate the leg it needs a long term rehab.
Business community will probably would not let this happen despite strong Tea party influence to get it amputated.
Anyway, if they do actually fail at first to increase the dept ceiling, I expect a sell-off. I expect this to would trigger a call to arms from all interested parties and increase the pressure on representatives. It may be wise to buy some if the sell-off occurs.
If inflation is going higher, the companies that issues high yield debt will not call any of those notes as older debt is lower interest than newer debt. So, there is no incentive for them.
Are you referring to Mortgage debt. They cannot call a fixed interest loan (which will be friendly to homeowners) but holder of variable rate mortgages will benefit the note holders as the rates adjust up as long as those mortgages does not default (variable rate mortgages will be very bad for a high inflation era).
Having said that failure to raise debt limit is more likely to cause deflation and potentially a depression. I do not think business community would allow the representatives go along with it.
I have benefited from the periodic links you have posted with regard to all of these dynamics. I believe the web site pragmatic capitalist is the particular site. Would you mind linking some of your recommended reads from this site.
Maybe it would be considered off topic but well worth posting for others there.
Are you concerned about PRPFX having 35% of it's assets in the U.S dollar?
Scott and Annonymous Clacy (or anyone else),
What do you think of a fund like RYFOX? I already have HDCCX, am thinking of dumping GRSPX, and possibly replacing it with another alternative like fund with diverse assets. RYOFX is a fund of funds from Rydex with managed futures, long-short, etc. It looks interesting, but has not really permormed all that well. Maybe it will outperform if things head south. I was also considering NCHPX, although it has a high ER.
I don't like RYFOX. I think what Rydex is doing in terms of offering alternative assets to the retail investor is great, but I question whether some of the products are either not nimble enough or too basic. Their alternative stock funds (market neutral, etc) are just not that good. Some of their latest generation things are starting to look better (the Event Driven/Distressed fund is looking okay, and I'm interested in the new Managed Futures fund, which will apparently have some degree of active management), but I don't like their products across the board enough and would not recommend RYFOX. The only Rydex fund I have right now is RYLFX (Long/Short Commodities), and even that is a supporting player.
Greenspring (GRSPX) has run into a rough time lately, but it's a good fund over the long-term. It is a stock/bond allocation fund though, and replacing it with an alternative fund is likely going to be a replacing apples-with-oranges situation.
NCHPX is working with great funds, but performance is really either cold or lukewarm. Others may have better suggestions, but I don't know if I've ever found a really great fund of alternative funds.
Scott, thanks for your input. I agree with you on RYFOX. It is unfortunate that such a fund with diverse alternative strategies that is available to the retail investor has disappointing returns. I might look into their managed futures fund. Would this be too similar to HDCCX, which long and shorts commodities, and holds financial commodities (which I am assuming means currencies)? Interesting though is it looks like Rydex will not short energy, whereas I believe Highbridge will.
I have been dissapointed with GRSPX. I may be replacing apples to oranges as you say, but I would be using that money for the function of downside protection not correlated to the markets (which GRSPX did in 2008, but it seems recently it does not fare any better than a fund like FPACX or even PRWCX on some down days...it's small and mid-cap exposure should have made up at least a little bit for it's lower equity allocation since small and midcaps have outperfromed this year), with better upside performance than GRSPX (yes, I'm wishing for a perfect world). Just looking for a fund that might offer protection and possibly nimble and opportunistic in different asset classes if/when the debt goes out of hand.
I agree, with all those great funds, I would think NCHPX should be performing better. Still, I'm seriously considering it.
Sorry if this went a little off topic from original post.
HDCCX is a long-biased commodity fund that is actively managed, and unique in that it is actively managed (most such funds are passively managed.) HDCCX can short, but again, it is long-biased. RYMFX is a trend-following fund that follows a set of commodities and a set of financial assets (a group of developed market currencies and US treasuries.) and goes long or short based upon the trend each month. If there is not a consistent trend, then these funds will underperform; RYMFX did very well in 2008, but not in 2009 or 2010. My view, however, is that, these days, a month is a long time in very active financial and commodity markets, and rebalancing only once per month may just not be nimble enough over the long haul. Managed Futures will have good or not so good years, but I just wonder if a passively managed fund with rebalancing once per month can keep up over the longer-term. Again, Rydex has announced a sort of "second generation" of this fund, which is not available yet. Hopefully this will be an improvement.
I personally like FPACX in terms of a US-based allocation fund more, as that's a bit more flexible in that it can take in some distressed assets and can short lightly to hedge.
Comments
The next part could be thought of as political, but when this question comes up, given what it involves, it's difficult to not discuss the political realm at least somewhat.
I look at the political high schoolery (yes, that is a new phrase I just made up) that went on just to avert the govt shutdown the other day and I wonder why anyone would want to invest in the US. Not only are there the known issues, but you have two political sides so concerned with playing political games that they barely handle the NOW. If they can barely handle the NOW, why would I think they can handle the larger future issues? It's the Peter Schiff line of, "People think they're just going to do something to fix the problem down the road - they're not. If they can't make the difficult decisions today, why would anyone think they could make twice as difficult decisions down the road?
Quite honestly, I don't believe the issues of debt in this country will be solved on a voluntary basis at all, and have invested accordingly. I view the political circus/ridiculousness from both sides (which has only gotten worse in recent years) that surrounds these decisions as only having the effect of eroding confidence from foreign creditors. In terms of the dollar/US debt, I believe it's largely a matter of "first one out loses least" in terms of foreign creditors. We're not the only one in the debt situation, but the attitude of printing money as a replacement for fiscal responsibility is upsetting, and again - no one wants to approach the problem and make the difficult choices with the budget (the few that do have people acting like they're evil for wanting to take drastic fiscal measures), so why would I believe that it will be done when no one has really demonstrated that they want to make the effort?
I doubt that the debt ceiling won't be raised. It's the psychology of money that I think really is dangerous; when the term billions is no longer shocking, what effect has that had? I think the path that we're headed down is a dismaying one, and it's absolutely unsustainable. The longer we stay on this path, however, the worse the end result is.
Thanks in addition for the "stick with your asset allocation" thought, but also please notice the question was prefaced with the phrase "assuming a tactical approach ...."
Cheers,
AJ
If you feel we're facing a time of uncertainty, you need to get defensive. That historically meant healthy and consumer staples, underweight equities to bonds and whatnot.
Today, I don't really see that as sufficient - largely because of the potential problems we're facing. And, just for the record, I see the chances of some sort of financial meltdown as being in the 15-25% range. However, while very low, the consequences of some sort of meltdown are sufficiently severe that taking some precautions is prudent.
Now, in this environment of a dollar that's losing value - you want to minimize your exposure to US bonds, particularly longer term. Stick with corporates and international including emerging mkts. You want to own stocks in solid companies that pay a dividend. You want to minimize your exposure to the dollar - you can buy foreign currency ETFs like FXA or FXC. For internation exposure, you want to be with countries that have natural resources and hopefully a better banking system. Canada and Australia jump out but there are others. I am of course extremely bullish on gold and silver and I also like Perm Port PRPFX.
Pay down your debt, get some ready cash available but this might include precious metals, swiss francs, etc.
peace,
rono
In my case (and here's an example of what I was thinking we'd get talking about), I increased my U.S. stock allocation during the runup to 55% from the usual 40%, & have been walking that back since the first of the year, and am now hitting the accelerator on that and diversification into other currencies. For example: In the index-only 401k, I'll have only the stable value fund and some EAFE by the end of the month; I'm giving more $ to the Pimco guys & to Price's strat income fund Prsnx with its 30-plus percent foreign stake, bumping up ELD, the W'Tree local currency EM debt fund & buying the W'Tree commodity-currency ETF, plus more of that old warhorse Macsx and other lower-risk EM equities, etc. Also less stock overall, more cash.
Again, this is how I've been slowly tweaking, but I decided to speed it up due to the multiple possibilities of tipping points ahead, the debt ceiling being the most visible and contentious at this point. I thought folks might have specific investment ideas derived from thinking about these near-term possibilities.
OJ
However, it's sort of like the kid who doesn't get a good grade on his report card and then says, "Well, Billy didn't either!" The fact that other countries have problems doesn't make our lousy finances any better. There's no inflation here, either.
We're the best bet among developed countries? I'm not saying don't invest here (although Bill Gross appears to be taking his money elsewhere in terms of govt debt, but that can change tomorrow), I'm simply saying it's a big world, technology is allowing for faster investment and easier access to information and there are a lot of options. People around the globe in other markets don't necessarily have to focus their investment on the US anymore.
Hard assets such as gold, commodity baskets, agribusiness, infrastructure are vital, IMO.
Holding foreign developed and emerging stocks is prudent IMO as well, although if the US has a default or debt crisis situation, there will be no equity market that can provide refuge.
Even cash and US Treasury debt is a part of my portfolio because no one can predict if and when these scenarios will happen or how they will play out.
In response to Mo earlier, he's absolutely correct that if we indeed have an extended bout with inflation, using debt wisely can be very, very beneficial as you're paying off your loan with cheaper dollars. That's why bond holders hate inflation - it cheapens their principal.
What you need to keep in mind is that the type of debt you play this FIFO/LIFO game is very important. What happens if they start calling the notes? Believe me, if I've loaned you $100K and I'm watching the dollar become weaker daily, I want my money NOW so I can convert it to some more durable store of value. This means that if you're using debt as an investment during times of inflation make sure it is something that's not critical to your survival like your primary residence.
peace,
rono
So far the new congress' attempt to control debt is like trying to amputate the leg it needs a long term rehab.
Business community will probably would not let this happen despite strong Tea party influence to get it amputated.
Anyway, if they do actually fail at first to increase the dept ceiling, I expect a sell-off. I expect this to would trigger a call to arms from all interested parties and increase the pressure on representatives. It may be wise to buy some if the sell-off occurs.
Are you referring to Mortgage debt. They cannot call a fixed interest loan (which will be friendly to homeowners) but holder of variable rate mortgages will benefit the note holders as the rates adjust up as long as those mortgages does not default (variable rate mortgages will be very bad for a high inflation era).
Having said that failure to raise debt limit is more likely to cause deflation and potentially a depression. I do not think business community would allow the representatives go along with it.
I have benefited from the periodic links you have posted with regard to all of these dynamics. I believe the web site pragmatic capitalist is the particular site. Would you mind linking some of your recommended reads from this site.
Maybe it would be considered off topic but well worth posting for others there.
Thanks,
bee
bee
Are you concerned about PRPFX having 35% of it's assets in the U.S dollar?
Scott and Annonymous Clacy (or anyone else),
What do you think of a fund like RYFOX? I already have HDCCX, am thinking of dumping GRSPX, and possibly replacing it with another alternative like fund with diverse assets. RYOFX is a fund of funds from Rydex with managed futures, long-short, etc. It looks interesting, but has not really permormed all that well. Maybe it will outperform if things head south. I was also considering NCHPX, although it has a high ER.
Greenspring (GRSPX) has run into a rough time lately, but it's a good fund over the long-term. It is a stock/bond allocation fund though, and replacing it with an alternative fund is likely going to be a replacing apples-with-oranges situation.
NCHPX is working with great funds, but performance is really either cold or lukewarm. Others may have better suggestions, but I don't know if I've ever found a really great fund of alternative funds.
I have been dissapointed with GRSPX. I may be replacing apples to oranges as you say, but I would be using that money for the function of downside protection not correlated to the markets (which GRSPX did in 2008, but it seems recently it does not fare any better than a fund like FPACX or even PRWCX on some down days...it's small and mid-cap exposure should have made up at least a little bit for it's lower equity allocation since small and midcaps have outperfromed this year), with better upside performance than GRSPX (yes, I'm wishing for a perfect world). Just looking for a fund that might offer protection and possibly nimble and opportunistic in different asset classes if/when the debt goes out of hand.
I agree, with all those great funds, I would think NCHPX should be performing better.
Still, I'm seriously considering it.
Sorry if this went a little off topic from original post.
I personally like FPACX in terms of a US-based allocation fund more, as that's a bit more flexible in that it can take in some distressed assets and can short lightly to hedge.