Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
The one major aspect which could still provide an equity boost may be a true and final settlement of how much of a hair cut the private holders of Greek debt are willing to settle upon. Hedge funds are involved with the private side, of which; I am sure you are aware; and one has to suspect that they are not going away without a big fight.
This agreement (Greek debt) may help some traders/machines with a relief rally in equities; but I don't feel it would be long lived. Debt/bonds are being issued every which way; which is just more debt. I still don't like the overall picture. All of this makes for strained thinking about where monies are really going to travel; with one attempting to provide some form of balance with the investments.
Not changing any holdings at this time, and will remain with feet on both sides of the investments fence.
Reply to @catch22: I definitely think the Greek situation will not end well - and possibly not end well for anyone involved. However, I suppose at this point I can't see as to how this should come as a surprise to any market participants. This has become what I call "Groundhog Day" finance - problems that just keep appearing and keep getting kicked down the road, despite the math telling the truth about Greece and other Euro neighbors. I fully expect new programs and interventions, etc brought together to meet any other appearances of the mathematical reality these countries are truly facing. If Greece gets X, other countries in a similar shape will want X too, as well.
If not, then, well, we'll live in interesting(er?) times, but the sun will still rise tomorrow. There's far too much of the "if this isn't done, it will be armageddon" statements being offered - I don't think things are always necessarily so black and white.
As for hedge funds, I think that may turn into a bigger battle - David Einhorn's Greenlight Capital, which does have short positions in Euro bonds - had the largest fine London's FSA has ever given out - put against it for insider trading in 2009 last week. That's not to say that Einhorn wasn't guilty (although he says he isn't), but that I think you may see various regulatory agencies trying more aggressively to turn something up on larger, more high profile hedge funds. With the tools that hedge funds have these days, larger ones have become increasingly powerful and it'll be interesting to see how far that is allowed to go.
I do think there's the possibility of a real bubble in yield, but with things the way they are, that could go on and become considerably more significant over the next few years. Some people have said MLPs are overvalued, for example, and they may very well be, but given that CDs yield an impressive 0.00000001%, then it would not surprise me to see them continue to see inflows.
I still lean towards inflation being the end result of this time period and agree with this:
"One of the reporters asked, ‘Do you worry that inflation may get out of control?’ The Chairman (Bernanke) responded, ‘We’re targeting 2% inflation.’ Of course, I don’t believe that. My belief is they are targeting something like 4% or 5%.
When they hit 4% or 5% and, in effect, (they will) spook people into spending money or getting into riskier assets. They want to stampede people into lending and spending again to get the velocity up and get the economy going. That’s the plan. It’s a game of expectations, it’s a game of psychological manipulation. One of the ways to do that is to set expectations low and then deliver a much higher inflation number.
So when the reporter asked him if inflation could get away from him, Bernanke said, ‘Yes.’ His exact words were, ‘Inflation may move away from desired levels.’ To me that was code for saying it will move away from desired levels.”"
Additionally, in regards to stocks being at least a decent portion of one's holdings: I do share Marc Faber's view to some degree: "Look at the history, for example, of Germany, for the last 100 years. They had World War I. They had the hyper-inflation in World War II. The bond-holders got wiped out three times. If you owned Siemens, and you still own Siemens today, it was not a fantastic investment, but at least you still have something. You were not wiped out. I think that in equities you will be better off because you have an ownership in a company, than by being the lenders to companies, and the lenders, especially, to governments.
In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive. Is the price of wheat high, or is it low? Inflation-adjusted, it is extremely low. In nominal terms, it is relatively high. I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms. In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms, it could be down below the lows of March 6, 2009. "
As for inflation, the most odd/interesting tale is that of Kyle Bass and nickels. The hedge fund manager has bought 20 million nickels because he believes the value of the underlying metal is more than the face value and will go up when less of the underlying metal is used in the coin. http://www.cnbc.com/id/44788851/Kyle_Bass_s_Nickel_Collection
I recently started mid-sized positions in Loews (L) and Icahn Enterprises (IEP) with a long-term view on each, and added to DGS etf and AQR Risk Parity (AQRNX)
Hi Scott: nope, basically just watching from sideline.... probably will tank soon. maybe consider buying [especially gold or commodities] if they take another 15-20% corrections from here bought couple of muni bonds 2 wks ago still 80/20 in tsp/401K
Some points made by the most recent (Date: Friday, January 27, 2012) Don Coxe Conference call:
Based on The Fed's most recent call...low interest rates, lots of liquidity, kicking the can down the road...there will be low return on high quality bonds which should force investors into equities and real estate (home mortgages)...all of this should be bullish of gold, silver and copper.
Expanding liquidity should help the solvency in US but it is still questionable for Europe in the short term where there is still plenty of solvency risk. Financial heroine (liquidity) may make it difficult to know which companies (especially banks) are sound and which are just "high" on cheap liquidity. Lots of cash, borrowed or earned, should spur corporate buyouts, take overs, and mergers.
Due to low interest rates, the servicing debt (14T Federal debt, pension funds, personal debt, etc.) will be good for individuals, cities, states, federal gov't who will be rolling over their debt in the next few years.
The 100 year drought in Texas has impacted cattle (meat prices) which will remain high. Any substitute for this protein will do well.
Global European companies have been hurt by the downturn in Europe and research in these companies could payoff handsomely.
I'm considering adding to Tocqueville Gold (TGLDX) for the reasons stated above as well as my thoughts below.
Europe gets all of the headlines but one can argue that China is what really drives the markets. Even The Economist magazine just added a weekly section devoted to China! I don't expect that news to rocket the markets skywards, but it does show how important China has become from an economic, political and to a lesser extent from a military standpoint. The UK, USA and now China are the only countries in The Economist which have sections devoted exclusively to their happenings.
China's markets tanked last year as the gov't. tightened money supply. China's already decreased the reserve requirements for state-owned banks this year and will likely continue easing. Therefore with China on the mend and the Fed signaling no interest rate increases for at least another 2+ years, the miners could benefit.
Oil is a commodity that could also be set for higher prices due to the USA, UK, Canada and the EU (I think that China and Russia are also on board but I'm not sure) banning the import of Iranian oil. Alternative sources of supply obviously exist but prices will likely go higher as Iranian oil spigots are forced to substantially slow down in 3 months. USO is a possible beneficiary as is National Oil Varco (NOV), a company that seems to have a near monopoly on all kinds of oil drilling equipment. T. Rowe Price New Era? I dunno... FWIW : )
Coxe Commodity Strategy (CXCMF.PK) is an option if you want to invest with him. I haven't looked into it at all, but it came up when searching for him.
You may already know this, but the institutional class of the A-Q-R fund (expense ratio 0.95%, no 12b- fee) is available for purchase in retirement accounts at Fidelity with no minimum but an initial $75 transaction fee. This is the only brokerage that I could find that offers this class for less than the prospectus $5M minimum. In this space, we own this class/fund and the Invesco offering.
Speaking of boats and bonds.......well, Bond in particular. I know you recall in some of the James Bond movies that many times an escape "from the big explosion or whatever" at the end; was in place. This house hopes to avoid any severe damage when the end of the bond movie is apparent.
I enjoyed your comparison regarding the bonds boat. Nothing like a keen mind with a sense of humor to keep one on a good pathway of thought.
Hi there Mr. Tart- re the Iranian oil "embargo", from what I read China is just salivating at the chance to pick up what Iran has to offer for a real lowball price. I guess that could be construed as "cooperation", to the extent that Iranian oil income is decreased. Actually, that may not be all bad, as that takes China out of the competition for the remaining production that the rest of us will have to fight over.
Russia? Don't think that they import much energy at all, do they?
Reply to @Derf: Don't you just love that photo with the ship laying on it's side right next to the lighthouse? I guess the captain didn't know that lighthouses usually indicate major dangerous areas.
Reply to @Old_Joe: China/India are more than happy to buy oil from Iran and apparently India has offered to pay for oil with gold.
"For every action there is a reaction. In other words the US likes to think we severely damaged Iran by forcing them out of the dollar system. But Iran is saying, in effect, ‘Keep your dollars. We have another payment system, it’s called gold.’
There’s a lot of gold in India and they are willing to exchange that for oil. You don’t need a banking system and you don’t need dollars. So I think the US, by throwing its weight around, may find because they’ve weakened the dollar so badly that people don’t just stand there and take it. So what happened this week was full scale financial war. We’ve cut Iran out of the dollar system and caused hyperinflation in Iran and they’ve responded.
Hi Scott- I dunno that I place much value on the obviously self-interested commentary of these gold pedlars and their predictions that this surely means an imminent return to the gold standard. Iran would naturally be looking for some payment other than dollar-denominated- after all, what would they do with a whole lot of dollars with the US trying to make sure that those dollars won't be of much use to Iran?
We can make economic life miserable for Iran by interfering with their banking system, but with gold they can buy a whole lot of stuff, particularly from China. And China most likely isn't interested in being paid in yet more US dollars either. So I see this basically as a shift of gold from India to eventually China, which in itself is pretty interesting. India giving up gold???
Reply to @Old_Joe: "I dunno that I place much value on the obviously self-interested commentary of these gold pedlars"
You mean the "self-interested" people who have been recommending it since a grand - or well before that in many notable cases - and who have been ridiculed all the way up?
Even Bill Gross in his letter today:
"Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper. "
The idea not that anyone is giving up gold, but it is simply a continued, gradual and general shift, little-by-little, away from the dollar (to gold, local currencies, whatever) in other parts of the world, which I'm sure many will continue to disregard as not remotely possible, ever - and a general (and quite possibly lasting) decline in this country, where California borrows another billion or three from Wall Street (and that's just California - who knows how many other states aren't in similar need of a few billion - on terms that are not good at all for the banks, I'm sure - from Wall Street?)
Additionally, as for California: "Lockyer in September sold $5.4 billion of short-term revenue anticipation notes that were supposed to carry the state through to the end of the fiscal year in June."
It's not June, is it? Maybe they can sell "Anticipation of Possible Revenue...Sometime" notes next.
Reply to @catch22: Love this MI winter! I can't remember a winter as pleasant as this one, since forever.
India paying for oil with gold? China salivating at cheap Iranian oil? Could happen, who knows?
With central banks the world over enacting loose monetary policies, the global asset bubble should inflate again, especially in the developing world (which we're already seeing). Fiat currencies again lose their value (if they have much value left to lose) and gold becomes more precious. Even the miners are participating in this 2012 rally. Emerging market funds and mining funds are where I'm seeing the best returns so far this year.
Scott - Tech's been good to me this year, but the only tech equity I have is Apple. It's been sweet, just wish I had bought shares back in early 2009 instead of early 2010. Still, I can't complain. Outside of Apple I also don't have anything to do with tech.
Just plodding along DCA into VTSMX,DODFX, PTTRX. Did buy a little Gafisa adr GFA as a speculative play in the Brazilian housing market and it plummeted but it is now coming back.
Comments
The one major aspect which could still provide an equity boost may be a true and final settlement of how much of a hair cut the private holders of Greek debt are willing to settle upon. Hedge funds are involved with the private side, of which; I am sure you are aware; and one has to suspect that they are not going away without a big fight.
This agreement (Greek debt) may help some traders/machines with a relief rally in equities; but I don't feel it would be long lived. Debt/bonds are being issued every which way; which is just more debt. I still don't like the overall picture. All of this makes for strained thinking about where monies are really going to travel; with one attempting to provide some form of balance with the investments.
Not changing any holdings at this time, and will remain with feet on both sides of the investments fence.
Regards,
Catch
If not, then, well, we'll live in interesting(er?) times, but the sun will still rise tomorrow. There's far too much of the "if this isn't done, it will be armageddon" statements being offered - I don't think things are always necessarily so black and white.
As for hedge funds, I think that may turn into a bigger battle - David Einhorn's Greenlight Capital, which does have short positions in Euro bonds - had the largest fine London's FSA has ever given out - put against it for insider trading in 2009 last week. That's not to say that Einhorn wasn't guilty (although he says he isn't), but that I think you may see various regulatory agencies trying more aggressively to turn something up on larger, more high profile hedge funds. With the tools that hedge funds have these days, larger ones have become increasingly powerful and it'll be interesting to see how far that is allowed to go.
I do think there's the possibility of a real bubble in yield, but with things the way they are, that could go on and become considerably more significant over the next few years. Some people have said MLPs are overvalued, for example, and they may very well be, but given that CDs yield an impressive 0.00000001%, then it would not surprise me to see them continue to see inflows.
I still lean towards inflation being the end result of this time period and agree with this:
"One of the reporters asked, ‘Do you worry that inflation may get out of control?’ The Chairman (Bernanke) responded, ‘We’re targeting 2% inflation.’ Of course, I don’t believe that. My belief is they are targeting something like 4% or 5%.
When they hit 4% or 5% and, in effect, (they will) spook people into spending money or getting into riskier assets. They want to stampede people into lending and spending again to get the velocity up and get the economy going. That’s the plan. It’s a game of expectations, it’s a game of psychological manipulation. One of the ways to do that is to set expectations low and then deliver a much higher inflation number.
So when the reporter asked him if inflation could get away from him, Bernanke said, ‘Yes.’ His exact words were, ‘Inflation may move away from desired levels.’ To me that was code for saying it will move away from desired levels.”"
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/27_Rickards__Gold_May_Super_Spike_as_We_See_the_End_of_the_Dollar.html
---
Additionally, in regards to stocks being at least a decent portion of one's holdings: I do share Marc Faber's view to some degree: "Look at the history, for example, of Germany, for the last 100 years. They had World War I. They had the hyper-inflation in World War II. The bond-holders got wiped out three times. If you owned Siemens, and you still own Siemens today, it was not a fantastic investment, but at least you still have something. You were not wiped out. I think that in equities you will be better off because you have an ownership in a company, than by being the lenders to companies, and the lenders, especially, to governments.
In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive. Is the price of wheat high, or is it low? Inflation-adjusted, it is extremely low. In nominal terms, it is relatively high. I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms.
In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms, it could be down below the lows of March 6, 2009. "
As for inflation, the most odd/interesting tale is that of Kyle Bass and nickels. The hedge fund manager has bought 20 million nickels because he believes the value of the underlying metal is more than the face value and will go up when less of the underlying metal is used in the coin.
http://www.cnbc.com/id/44788851/Kyle_Bass_s_Nickel_Collection
I recently started mid-sized positions in Loews (L) and Icahn Enterprises (IEP) with a long-term view on each, and added to DGS etf and AQR Risk Parity (AQRNX)
nope, basically just watching from sideline.... probably will tank soon. maybe consider buying [especially gold or commodities] if they take another 15-20% corrections from here
bought couple of muni bonds 2 wks ago
still 80/20 in tsp/401K
http://www.uptilt.com/content/6433/cost of waiting.pdf
Based on The Fed's most recent call...low interest rates, lots of liquidity, kicking the can down the road...there will be low return on high quality bonds which should force investors into equities and real estate (home mortgages)...all of this should be bullish of gold, silver and copper.
Expanding liquidity should help the solvency in US but it is still questionable for Europe in the short term where there is still plenty of solvency risk. Financial heroine (liquidity) may make it difficult to know which companies (especially banks) are sound and which are just "high" on cheap liquidity. Lots of cash, borrowed or earned, should spur corporate buyouts, take overs, and mergers.
Due to low interest rates, the servicing debt (14T Federal debt, pension funds, personal debt, etc.) will be good for individuals, cities, states, federal gov't who will be rolling over their debt in the next few years.
The 100 year drought in Texas has impacted cattle (meat prices) which will remain high. Any substitute for this protein will do well.
Global European companies have been hurt by the downturn in Europe and research in these companies could payoff handsomely.
Don Coxe Conference Call:
http://www.bellwebcasting.ca/audience/lobby/index.asp?eventid=70081727&lang=english&stage=&rndkey=&referral=9576836&sLoginVisible=
Europe gets all of the headlines but one can argue that China is what really drives the markets. Even The Economist magazine just added a weekly section devoted to China! I don't expect that news to rocket the markets skywards, but it does show how important China has become from an economic, political and to a lesser extent from a military standpoint. The UK, USA and now China are the only countries in The Economist which have sections devoted exclusively to their happenings.
China's markets tanked last year as the gov't. tightened money supply. China's already decreased the reserve requirements for state-owned banks this year and will likely continue easing. Therefore with China on the mend and the Fed signaling no interest rate increases for at least another 2+ years, the miners could benefit.
Oil is a commodity that could also be set for higher prices due to the USA, UK, Canada and the EU (I think that China and Russia are also on board but I'm not sure) banning the import of Iranian oil. Alternative sources of supply obviously exist but prices will likely go higher as Iranian oil spigots are forced to substantially slow down in 3 months. USO is a possible beneficiary as is National Oil Varco (NOV), a company that seems to have a near monopoly on all kinds of oil drilling equipment. T. Rowe Price New Era? I dunno... FWIW : )
Hi Scott,
You may already know this, but the institutional class of the A-Q-R fund (expense ratio 0.95%, no 12b- fee) is available for purchase in retirement accounts at Fidelity with no minimum but an initial $75 transaction fee. This is the only brokerage that I could find that offers this class for less than the prospectus $5M minimum. In this space, we own this class/fund and the Invesco offering.
Kevin
If you feel like you've missed the boat, well...maybe you can catch the next one. Just have to wait a bit.
Speaking of boats and bonds.......well, Bond in particular. I know you recall in some of the James Bond movies that many times an escape "from the big explosion or whatever" at the end; was in place. This house hopes to avoid any severe damage when the end of the bond movie is apparent.
I enjoyed your comparison regarding the bonds boat. Nothing like a keen mind with a sense of humor to keep one on a good pathway of thought.
Not much of a MI winter so far, eh?
Take care of yourselves up that'a way.
Catch
Russia? Don't think that they import much energy at all, do they?
"For every action there is a reaction. In other words the US likes to think we severely damaged Iran by forcing them out of the dollar system. But Iran is saying, in effect, ‘Keep your dollars. We have another payment system, it’s called gold.’
There’s a lot of gold in India and they are willing to exchange that for oil. You don’t need a banking system and you don’t need dollars. So I think the US, by throwing its weight around, may find because they’ve weakened the dollar so badly that people don’t just stand there and take it. So what happened this week was full scale financial war. We’ve cut Iran out of the dollar system and caused hyperinflation in Iran and they’ve responded.
China is ready to jump into the same game. They have a banking system and it connects to the Russian banking system and Russia has a fair amount of gold. So there could be a whole network among Central Asian countries, China, Russia, India, Iran and others, who say the time has come leave the dollar system completely."
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/27_Rickards__Gold_May_Super_Spike_as_We_See_the_End_of_the_Dollar.html
We can make economic life miserable for Iran by interfering with their banking system, but with gold they can buy a whole lot of stuff, particularly from China. And China most likely isn't interested in being paid in yet more US dollars either. So I see this basically as a shift of gold from India to eventually China, which in itself is pretty interesting. India giving up gold???
You mean the "self-interested" people who have been recommending it since a grand - or well before that in many notable cases - and who have been ridiculed all the way up?
Even Bill Gross in his letter today:
"Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper. "
The idea not that anyone is giving up gold, but it is simply a continued, gradual and general shift, little-by-little, away from the dollar (to gold, local currencies, whatever) in other parts of the world, which I'm sure many will continue to disregard as not remotely possible, ever - and a general (and quite possibly lasting) decline in this country, where California borrows another billion or three from Wall Street (and that's just California - who knows how many other states aren't in similar need of a few billion - on terms that are not good at all for the banks, I'm sure - from Wall Street?)
Additionally, as for California: "Lockyer in September sold $5.4 billion of short-term revenue anticipation notes that were supposed to carry the state through to the end of the fiscal year in June."
It's not June, is it? Maybe they can sell "Anticipation of Possible Revenue...Sometime" notes next.
http://www.bloomberg.com/news/2012-02-01/california-will-borrow-up-to-1-billion-to-stave-off-impending-cash-crisis.html
As for the country, the total public debt chart in the last year:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/01/Total Debt US 2.1.jpg
India paying for oil with gold? China salivating at cheap Iranian oil? Could happen, who knows?
With central banks the world over enacting loose monetary policies, the global asset bubble should inflate again, especially in the developing world (which we're already seeing). Fiat currencies again lose their value (if they have much value left to lose) and gold becomes more precious. Even the miners are participating in this 2012 rally. Emerging market funds and mining funds are where I'm seeing the best returns so far this year.
Scott - Tech's been good to me this year, but the only tech equity I have is Apple. It's been sweet, just wish I had bought shares back in early 2009 instead of early 2010. Still, I can't complain. Outside of Apple I also don't have anything to do with tech.