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.
PAAIX and PAUIX have actually had it wrong for several years, not just 2013. It's just now starting to catch-up with them. I honestly hope Mr. Arnott has read Colin Powell's book. The one that advises: "Avoid having your ego so close to your position that when your position falls, your ego goes with it." I do support his all asset strategy, but not some of the tactical moves derived from PIMCO/Research Associates' predictions of imminent US economic demise.
I agree with a good deal of what Arnott has had to say (especially on things like demographics - I don't believe he has ever said that the US is facing an "imminent demise" - only that there are a number of structural issues that aren't being addressed and will cause problems if not; if he ever said that the "US was "imminently going to fall apart", I missed that), but I think one can be concerned with a lot of underlying issues in the world and still find themes of interest. (Unconventional energy production, health care with a lot of people reaching retirement age, mobile, digital transactions, yadda yadda yadda.) If one agreed with Arnott's view of an increasing amount of retirees, health care/health care REITs are options. Unfortunately for him, there's no Pimco Health Care fund (and things like that are why I'd like to see Arnott do an All Asset/All Authority style fund that could use the whole universe of ETFs/funds rather than just Pimco funds...)
I think the issue with Arnott's recent issues is, to some degree, similar to Hussman (although certainly not to the same degree.) Hussman has spent the last few years more or less thinking too much. All manner of fundamental analysis, history, statistics, etc (and Hussman goes over such in every investor letter, all of which indicate XYZ) doesn't really matter when it comes to the easiest monetary policy in history (Bernanke yesterday when responding to the question of whether he's printing money: "Not literally." (It depends on what your definition of is is.) Additionally from Bernanke yesterday, "If the Fed were to tighten policy, the economy "would tank"; oddly, that comment was largely ignored by much of the financial media.
Positioning investments with the idea that issues or fundamentals will cause problems is timing and even if these managers are right about their concerns/views, that - especially in the case of Hussman - can take a lot longer than they expect. The issue that I have with Hussman in particular is that it's not as if he's making some sort of giant asymmetric bet (like betting against subprime or something) where shareholders take some down years in the hopes that a bet will eventually pay off significantly.
If Hussman is finally right, then what? They'll probably gradually gain back what has occurred over the last few years over a similarly long period of time. Arnott has - I think - a greater degree of flexibility and not exactly a high goal. Who knows, but I think that's more likely to be an instance of an off year (although I don't agree with his instance to be that short, given continued monetary policy; interesting to see the supposedly more conservative All Authority lose more than All Asset...)
I think emerging markets are still a growth story for the long-term, but it really has become a multi-speed story; look at EM's not do well for the year, but a number of EM consumer names have done very well (or at least noticeably better then EM's as a whole.)
Additionally, isn't All Asset/All Authority's goal CPI + 5 or 6%? It's had an off year this year (occasionally managers have an off year), but anyone expecting it to hit home runs on "good years" for the fund is going to be disappointed. It's a low-key, conservative balanced offering that kicks out a nice yield. It's not going to hit home runs, but consistent singles or doubles (maybe a triple on a really good year) are what one should expect.
I don't own the fund, but I have in the past and would consider it both if a space opened up and I had an interest in adding some fixed income exposure.
Thanks Hurx for posting the article on all asset & all authority. I own a good slug of all asset in my hybrid income sleeve and recently sold my position in all authority held in my specality sleeve.
I have held the position in all asset for a number of years and move in and out of all authority from time-to-time. I was disappointed that all authority was not keeping pace with other global allocation funds so I opened the sapce and I have filled its former space with another specality type holding in hopes of a rebound in Europe.
With this, I kept the larger of the two positions, all asset, and let the smaller position, all authority, go.
Thus far, the move to paly a rebound in Europe has been positive ... and, all asset has moved upward off its recent 52 week low ... a positive too.
Thanks again for posting the article... I indeed, found it to be a good read.
Rest assurred that if Arnott ends the year with a loss, there will be more than a few investors head for the exits in search of the next 'guru'. Every great manager has 1-3 year periods when their style/outlook/specific holdings are out of favor. Mr. Arnott is a smart guy, and investors might be well served by having some allocation to this alternative style of fund. Just look back to 2007-08.
Reply to @scott: Good stuff Scott, as always. His recent campaign is about the "3 D Hurricane" that the US economy faces, which is excessive debt, expanding deficit, and aging demographics. It's why he's avoided investing in US equities since 2009 I believe, missing virtually all of the bull run. What offset the loss, however, was EM, bonds, commodities. But now those areas have under-performed and so have PAAIX and PAUIX.
I've never heard Mr. Arnott say imminent demise, but he implies it with comments like:
Fed painted itself into corner with no way to unwind gracefully. Central banks cause asset bubbles too...fueled by their profligacy. Fed policies are like covering over rotting floor with wall paper. Inflation now highly likely.
And, with his allocations of anything but US equities since 2009.
My bad if I overstated his position. I feel when you get it right, like he does much of the time with the all asset approach and with RA's fundamental-based indexing, you deserve attendant praise. Outstanding long term performance.
But when you get it wrong, like PAAIX and PAUIX have more recently, you will be subject to criticism. You can blame the market, but at the end of the day, better if you own up to it and tactically adjust your model...not just stubbornly campaign about economic policy, which is what I fear Mr. Arnott has done lately.
Okay so PAUDX is supposed to have low relation with S&P 500
PAUDX and PGMDX together form another 7% of my IRA. I think El Erian has received his own grief lately.
LCORX and GLBLX form together form another 7% of my IRA. And Leuthold even does not manage the funds any more. Am I glad his funds are only matching 50% of the return
Reply to @scott: "I don't own the fund, but I have in the past and would consider it both if a space opened up and I had an interest in adding some fixed income exposure."
Your comment might lead one to believe that fixed income is an objective but it is not. From the prospectus:
"The Fund seeks maximum real return, consistent with preservation of real capital and prudent investment management"
Reply to @Charles: I definitely don't disagree that someone who manages money can be open to criticism if they underperform their intended benchmarks (and All Asset/All Authority's benchmark is not exactly that big a benchmark - which is why I've said no one should exactly expect home runs from it, either.)
"Fed policies are like covering over rotting floor with wall paper."
I believe Fed policies gave the US government time/breathing room/etc to address any number of issues. Meanwhile, we have a congress who is one of the least productive ever - http://www.washingtonpost.com/blogs/the-fix/wp/2013/07/17/the-least-productive-congress-ever/.) If we've learned anything from 2008, it's not very apparent, and two, it would seem many people have forgotten 2008. There's a level of complacency that's not enormous, but certainly rather concerning.
Arnott's statement is rather serious, but I'll say it this way: I believe the government was given time to make real progress over the last few years on a number of things. It hasn't done much and that's being generous. Maybe I'm wrong, but I sense a tad bit of upset on Bernanke's part at times at this, as well.
The market can keep going up for a while longer and problems can keep being papered over/ignored. Betting that various issues will become large enough to have to be faced is a bet and then time horizons start coming into play. The time horizon of the average investor is next-to-nothing. Arnott is betting on his view. Bruce Berkowitz is asking investors to believe that there is still value in Sears after what Eddie Lampert has done in recent years.
Both views are specific and are not going to happen overnight. Will they be proven entirely wrong? Maybe, but I don't think either has a short-term outlook in their view. I don't know what time frame either is looking at, certainly, but neither appear short-term and Berkowitz has seemed increasingly upset at shareholders who are short-term.
Lampert has treated shareholders of his hedge fund who have a short-term look not exactly well, distributing them shares of Orchard Supply (and look what happened to that) and other stocks when his fund had redemptions because shareholders were upset about the path that Sears is on. (http://www.bloomberg.com/news/2013-06-13/lampert-clients-exit-fund-with-393-million-of-autonation.html) (With Sears struggling, clients have been pulling money out of ESL Partners. Gross assets declined 24 percent to $5.1 billion at end of 2012 from a year earlier, and the number of investors in the fund dropped to 164 from 250, filings show. )
Arnott has a view. He may change that view, I don't know. But he is asking you to go along with his view, just as many managers who have had a specific view (on everything from EM to whatever) have done in the past. If you don't agree and/or aren't willing to go for the longer-term (and people aren't these days, whether it be Arnott or Berkowitz), then sell.
The laughable thing is when managers think people are going to go along with a longer-term bet. They aren't, especially today as people's investment views are shorter and shorter. Financial media is the biggest example of this "what's working RIGHT NOW" mentality.
"not just stubbornly campaign about economic policy, which is what I fear Mr. Arnott has done lately."
Oy. Not everything is political. Whether Arnott's views on the issues will eventually play out or not who knows. However, the view that anyone who believes that there are actual underlying problems with the country that will have to be addressed are "just being political" is a label that allows people's views to be easily dismissed and really insures that there will not be progress in this country as politics divides people more and more, while what we need is to be united.
This isn't directed at Charles, but the idea that anyone who has a concern about the country is only doing so from a political standpoint and not looking at it from a historical, fundamental, statistical or other standpoint is dismaying.
We have the one of the least productive congresses in history and it's because they have the excuse that the other side doesn't want to work with them. It's an excuse, it's nonsense and it's embarrassing. It's also clear that they are clear to coast getting absolutely nothing done while the Fed does what it does - as senator Schumer said, "Get to work, Mr. Chairman."
Even if there is an element of politics in someone's view, we are getting to the point in this country with the national discourse where I would not be surprised to walk down the street and hear this conversation: "The sky is blue." "No it's not, you're just being political."
That said:
"Central banks cause asset bubbles too...fueled by their profligacy."
Yep. Not saying that we are currently in a bubble, but does anyone not believe that central banks have caused bubbles in the near and far past?
"Fed painted itself into corner with no way to unwind gracefully."
Bernanke yesterday: "If we were to tighten, the economy would tank." I'm not going to say that the Fed cannot exit, but I don't think it will be as soon as Bernanke is acting and it will be considerably more difficult than Bernanke is acting like. Additionally, while Fed economic forecasts remain optimistic, we also get the view that "the economy will tank if we tighten policy." Meanwhile, Fed forecasts vs reality have not exactly correlated well recently (http://www.economonitor.com/blog/2013/06/feds-economic-projections-myth-vs-reality-jun-2013/, http://www.streettalklive.com/images/stories/1dailyxchange/Fed-Revisions-GDP-061913.PNG), which makes one wonder how much longer this monetary policy will be present. Even if QE was tampered, it is clear that the Fed would be out trying to calm the markets and QE would return if there was a more significant downturn. With monetary policy being what it is, we have a GDP of 1.8 and a market that throws a temper tantrum any time there is a hint that monetary policy won't be as easy.
All that said:
I do think that even if someone is not pleased with underlying problems in the world, there are still long-term themes that need to be addressed, as I discussed with the obesity in EM theme in the emerging markets thread today. Or any number of other themes.
Reply to @VintageFreak: Sorry about PGMDX. I think that fund has been a real disappointment unfortunately, and I question what level of involvement El-Erian really has with it.
As for All Asset All Authority, I did look on the Pimco website and it does actually note that the fund intends to offer "solid real returns" (?), but that the secondary benchmark is actually CPI + 6.5% "over a full market cycle."
Reply to @Charles: I think there are a lot of things that are positive, and especially a number of particular themes (and not just EM.) I like unconventional energy, infrastructure, electronic transactions (not from a currency standpoint, but from the idea that how we pay for things will change significantly over the next decade or so; I continue to think that we are in the "7th inning of money as we know it" and would not be surprised if transactions are entirely digital - card, phone, something else that may come along - in a decade or two), healthcare, EM consumer (although I think some of those names have run too far), mobile/"the internet of everything" (beyond just mobile connecting people, I think an increasing amount of machines will be interconnected in the daily world - including things as minor as random household appliances)/machine-to-machine and finally, agriculture/food/nutrition.
As for nutrition, I think you're starting to see it pop up in things like the earnings for Coke earlier this week - sales of soda are weakening while still/ "value added" drinks are doing better. Junk food/fast food is still going to sell, but I think you're starting to see people turn bit-by-bit. Emerging market consumers are starting to see more and more health problems as they move up.
I think "fitness tech" is going to be a big thing going forward as well, and while it's a little expensive now, you can look at something like Nike, which has become increasingly tech focused, with things like shoes that can beam information to your phone. Fitness apps have become increasingly popular and I think they're going to be practically their own industry soon enough. Nike was awarded "The Most Innovative Company" in 2013 by Fast Company (http://www.fastcompany.com/most-innovative-companies/2013/nike)
Lastly, I agree with Spielberg and Lucas in their view that moviegoing will change significantly and more and more entertainment will be at home. I don't care for MSFT, but otherwise, have an interest in the infrastructure of getting more and more entertainment at the home entertainment center (or phone) than going to the theater. Along those same lines, baseball is seeing declining attendance (http://www.northjersey.com/sports/pro_sports/baseball/All-Stars_return_to_NYC_finds_national_pastime_in_decline.html) and while that may be something baseball-specific, I think you're going to see an increasing amount of sports watched at home rather than pay a ton to go to games. Concert tickets got nuts too, although I think you're going to see more and more changes there - whether or not you like his music, Kid Rock's cheaper tour (http://www.phoenixnewtimes.com/2013-07-18/music/kid-rock-cuts-ticket-prices-all-summer-long/) has been successful - rather than getting paid big up-front, Rock instead is getting a cut of the backend. (http://business.time.com/2013/06/26/kid-rocks-20-concert-ticket-plan-good-for-fans-bad-for-scalpers/.) You also saw this with comedian Louis CK's tour last year (http://business.time.com/2012/06/28/how-louis-c-k-is-changing-the-way-we-pay-for-entertainment/). Entertainment overall is going to change - the way we view it, how we get it, cost, etc. Companies who go with the evolution and/or who are able to spot the trends, I think, will do well. I think John Malone's Liberty Media conglomerate (LMCA) is an appealing, if rather volatile, way to play some of these long-term trends - but that's gone up quite a bit.
I also like productive assets (apartments and other real estate sectors such as the triple net REITs, oil wells, infrastructure and other such things.) Lastly, I like oil companies, which continue to be - I think - reasonably cheap. All of these things are, to me, comfortable long-term themes that I believe will either play out over time or continue to have significant demand.
The combination of themes I like and significant yield makes for a very comfortable set of holdings. These are the places that I want to be and I'm getting paid to wait. I am less and less bothered by the noise of the day-to-day and am trying to be better and better about having a longer-term perspective. I may believe that there are significant problems that need to be addressed, but if I had to pick themes with an "over the horizon" view for the next 5-10 years, the above is where I want to be and I will continue to reinvest nice divs. I don't want to be in fixed income.
I don't believe the entire market run is artificial, but I believe that the easiest monetary policy in history is a significant part of it (market with and without QE: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Fed vs S&P.jpg) and I would like for more of it to be organic/real than I think is. I am, however, fascinated by the cheerleading over GDP readings that are disappointing at best. I also believe that this monetary policy has created an addictive/"bad is good because it means more easy monetary policy" mentality.
Reply to @scott: Thanks. Think is I don't try to second guess my active fund managers. I mean what's the point. Research the manager and leave him to it. However, I was curious and read the article posted.
At the risk of Yours Truly ANALysing the commentary, he seems to be makingg case of how things were in 2006 vs 2013 using a table, where he points to similarities, and why he is taking a similar stance. Then he alludes to why it will result in similar conclusion - people leaving his funds just when his performance went up, yada, yada, yada. The one thing that strikes me is Bernanke was having a little trouble with his printer in 2006, while in 2013 he has refurbished it. Falling bond yields served Arnott well post the financial crisis. Which cartoon thinks that's going to happen after 2013?
So I like to think I'm not stupid, but I will stick with PAUDX for the time being. I think now we have to start trusting PIMCOs competence in Equity investing since Bonds ain't it anymore.
Yes, some things, like "bad is good because it means more easy monetary policy," are just counter-intuitive. Up to us I guess whether we accept them or not.
Hey, break, break.
Been looking more closely at KMP, thanks to you, as well as HES, CHK, MPO, NOV. For the same reasons you highlight above and have discussed previously.
Currently, I hold AA, X, STLD, CRH, COP, SU, GE...and financials ORI, BRK, BCS, BAC.
BTU and CLF finally seem to have stopped descending, just now crossing 50 day threshold.
And, XRX appeals to be. Though, like you, I remain wary of tech.
Beautiful morning here in central coast. Have just finished 1st cup of coffee and heading out for morning walk.
Thanks man for sharing your insights with all of us on the board.
Reply to @Charles: I like certain technology. I really like point-of-sale (credit card machines at retail stores) technology. You have an industry whether there's two large players that dominate the industry (Ingenico and Verifone) and a couple of smaller players (NCR and Square; Groupon is also doing a payments device, but Ingenico is providing the hardware and software; Ingenico has also worked with Paypal.). Verifone has had significant problems, leaving Ingenico with an even larger share of an industry that is everywhere. I'm not sure there are many other industries that are so ubiquitous where only a couple of players around the world have been allowed to become so dominant. Whether or not that dominance will change with the introduction of new players is anyone's guess, but the dominant companies have been given a giant head start over a rather long period.
You also have changes going on (more mobile devices repurposed as checkout machines with cashiers walking around stores, the US having to upgrade to EMV chip credit cards leading to machine upgrades being required, etc.) I could be completely wrong, but that's an example of a theme where I can be concerned with the bigger global picture and think the theme is a compelling one for the long-term, especially as more and more transactions are digital (Whole Foods stores no longer accept checks - http://www.newsobserver.com/2011/10/20/1580885/no-checks-at-the-checkout.html)
There are some other tech companies that I like quite a bit (Google and a number of other names), some I don't, some I've been wrong on and I am more than happy to continue to be wrong on (Microsoft, which I would consider if Ballmer ever left - Ballmer is clearly smart, but I don't like a number of things he's done and I really dislike the way that he presents himself and the company.)
I don't think GE handled things entirely well 2008 (we're not going to lower the dividend, a few days later a different story), but the GE of today is improving and a great play on a number of significant long-term themes. I'd like to see GE Capital be spun-off and was happy to see them spin-off NBC/Universal (or, as I like to call it, "Bad/Good"), which I think have a better home with Comcast.
I definitely like Kinder Morgan a great deal (I think it's a remarkable collection of assets - an energy superhighway - that no one can come along and duplicate, especially as regulations increase), but note that KMP does result in a K-1. KMR is a way to participate in KMP without a K-1, but it has continually traded at a discount to KMP and some places do not allow DRIP for KMR.) Parent KMI is also a very good choice.
I think the basic materials/materials names (X, STLD and others) will likely pay off over time for those who have a mid-to-long term positive view and time horizon; they are certainly cheap at this point. Other companies, like BHP and FCX are also down significantly and pay nice dividends; whether or not they can turn things around depends on one's larger picture view, but they continue to pay shareholders to wait.
COP I thought was cheap and a number of the other major oil companies are not only reasonably priced, but you get paid to wait - Shell paying around 5.5%, Chevron around 3.3%, etc.)
XRX has done a reasonably good job trying to reposition itself, but I think it will take time and success is not certain as it competes with a number of larger players already in some of these sectors.
Reply to @scott: "Maybe I'm wrong, but I sense a tad bit of upset on Bernanke's part at times at this, as well."
If you are wrong on this, then I am too.
"I'm not going to say that the Fed cannot exit, but I don't think it will be as soon as Bernanke is acting and it will be considerably more difficult than Bernanke is acting like. Additionally, while Fed economic forecasts remain optimistic, we also get the view that "the economy will tank if we tighten policy."
"Meanwhile, Fed forecasts vs reality have not exactly correlated well recently... which makes one wonder how much longer this monetary policy will be present."
"We have the one of the least productive congresses in history and it's because they have the excuse that the other side doesn't want to work with them. It's an excuse, it's nonsense."
Exactly. And we're depending on this congress to smoothly confirm whoever the president proposes to replace Bernanke? The markets may very well continue to advance in the coming weeks. But if there's not a smooth Fed transition, then???
No reputable economist agrees with much of anything Arnott has to say on macro, which is almost entirely ideological. However, his AA (not AA-AA, which the linked article is about) is a decent mashup of the various Pimco credit strategies, with a small equity kicker thrown in, so. IMHO, it's not a bad place to be right now for anyone who wants to play a rebound in the Pimco strategies that've been creamed in the recent "all asset" meltdown.
Personally speaking I think the author is inaccurate in his assessment. I do not like the limitations of the Pimco universe either. One of the author's biggest inaccuracies is that they failed recently in a pocket of inflation. We had a period of falling inflation expectations, not rising inflation when this fund was struggling this year. Maybe he was looking at actual inflation vs. inflation expectations when writing this. I don’t think the author understands the fund intimately enough to be evaluating it based on this article.
Reply to @Hrux: what happened recently wasn't "a pocket of inflation", it was increase in real interest rates. it is an important distinction for understanding the recent asset move. jr
Reply to @fundalarm: I agree with you. My comments regarding the pocket of inflation were to state the author was wet behind the ears and his credibility for the entire article is in question.
Reply to @Old_Joe: Well, you have a congress that I think knows the value of the markets heading higher. I don't think all of the move in the market has been artificial, but I do think that the visual of the market heading higher takes pressure off of them to do anything. The market is not the economy, but it is to those who need it to point to it as an indicator.
If congress turns Bernanke's replacement situation into a disaster, then you buy, because if it's Yellen, it's more of this monetary policy. If it's Summers (oy), then it's more of this monetary policy, etc.
Comments
I think the issue with Arnott's recent issues is, to some degree, similar to Hussman (although certainly not to the same degree.) Hussman has spent the last few years more or less thinking too much. All manner of fundamental analysis, history, statistics, etc (and Hussman goes over such in every investor letter, all of which indicate XYZ) doesn't really matter when it comes to the easiest monetary policy in history (Bernanke yesterday when responding to the question of whether he's printing money: "Not literally." (It depends on what your definition of is is.) Additionally from Bernanke yesterday, "If the Fed were to tighten policy, the economy "would tank"; oddly, that comment was largely ignored by much of the financial media.
Positioning investments with the idea that issues or fundamentals will cause problems is timing and even if these managers are right about their concerns/views, that - especially in the case of Hussman - can take a lot longer than they expect. The issue that I have with Hussman in particular is that it's not as if he's making some sort of giant asymmetric bet (like betting against subprime or something) where shareholders take some down years in the hopes that a bet will eventually pay off significantly.
If Hussman is finally right, then what? They'll probably gradually gain back what has occurred over the last few years over a similarly long period of time. Arnott has - I think - a greater degree of flexibility and not exactly a high goal. Who knows, but I think that's more likely to be an instance of an off year (although I don't agree with his instance to be that short, given continued monetary policy; interesting to see the supposedly more conservative All Authority lose more than All Asset...)
I think emerging markets are still a growth story for the long-term, but it really has become a multi-speed story; look at EM's not do well for the year, but a number of EM consumer names have done very well (or at least noticeably better then EM's as a whole.)
Additionally, isn't All Asset/All Authority's goal CPI + 5 or 6%? It's had an off year this year (occasionally managers have an off year), but anyone expecting it to hit home runs on "good years" for the fund is going to be disappointed. It's a low-key, conservative balanced offering that kicks out a nice yield. It's not going to hit home runs, but consistent singles or doubles (maybe a triple on a really good year) are what one should expect.
I don't own the fund, but I have in the past and would consider it both if a space opened up and I had an interest in adding some fixed income exposure.
I have held the position in all asset for a number of years and move in and out of all authority from time-to-time. I was disappointed that all authority was not keeping pace with other global allocation funds so I opened the sapce and I have filled its former space with another specality type holding in hopes of a rebound in Europe.
With this, I kept the larger of the two positions, all asset, and let the smaller position, all authority, go.
Thus far, the move to paly a rebound in Europe has been positive ... and, all asset has moved upward off its recent 52 week low ... a positive too.
Thanks again for posting the article... I indeed, found it to be a good read.
Skeeter
I've never heard Mr. Arnott say imminent demise, but he implies it with comments like: And, with his allocations of anything but US equities since 2009.
My bad if I overstated his position. I feel when you get it right, like he does much of the time with the all asset approach and with RA's fundamental-based indexing, you deserve attendant praise. Outstanding long term performance.
But when you get it wrong, like PAAIX and PAUIX have more recently, you will be subject to criticism. You can blame the market, but at the end of the day, better if you own up to it and tactically adjust your model...not just stubbornly campaign about economic policy, which is what I fear Mr. Arnott has done lately.
PAUDX and PGMDX together form another 7% of my IRA. I think El Erian has received his own grief lately.
LCORX and GLBLX form together form another 7% of my IRA. And Leuthold even does not manage the funds any more. Am I glad his funds are only matching 50% of the return
"I don't own the fund, but I have in the past and would consider it both if a space opened up and I had an interest in adding some fixed income exposure."
Your comment might lead one to believe that fixed income is an objective but it is not.
From the prospectus:
"The Fund seeks maximum real return, consistent with preservation of real capital and prudent investment management"
"Fed policies are like covering over rotting floor with wall paper."
I believe Fed policies gave the US government time/breathing room/etc to address any number of issues. Meanwhile, we have a congress who is one of the least productive ever - http://www.washingtonpost.com/blogs/the-fix/wp/2013/07/17/the-least-productive-congress-ever/.) If we've learned anything from 2008, it's not very apparent, and two, it would seem many people have forgotten 2008. There's a level of complacency that's not enormous, but certainly rather concerning.
Arnott's statement is rather serious, but I'll say it this way: I believe the government was given time to make real progress over the last few years on a number of things. It hasn't done much and that's being generous. Maybe I'm wrong, but I sense a tad bit of upset on Bernanke's part at times at this, as well.
The market can keep going up for a while longer and problems can keep being papered over/ignored. Betting that various issues will become large enough to have to be faced is a bet and then time horizons start coming into play. The time horizon of the average investor is next-to-nothing. Arnott is betting on his view. Bruce Berkowitz is asking investors to believe that there is still value in Sears after what Eddie Lampert has done in recent years.
Both views are specific and are not going to happen overnight. Will they be proven entirely wrong? Maybe, but I don't think either has a short-term outlook in their view. I don't know what time frame either is looking at, certainly, but neither appear short-term and Berkowitz has seemed increasingly upset at shareholders who are short-term.
Lampert has treated shareholders of his hedge fund who have a short-term look not exactly well, distributing them shares of Orchard Supply (and look what happened to that) and other stocks when his fund had redemptions because shareholders were upset about the path that Sears is on. (http://www.bloomberg.com/news/2013-06-13/lampert-clients-exit-fund-with-393-million-of-autonation.html) (With Sears struggling, clients have been pulling money out of ESL Partners. Gross assets declined 24 percent to $5.1 billion at end of 2012 from a year earlier, and the number of investors in the fund dropped to 164 from 250, filings show. )
Arnott has a view. He may change that view, I don't know. But he is asking you to go along with his view, just as many managers who have had a specific view (on everything from EM to whatever) have done in the past. If you don't agree and/or aren't willing to go for the longer-term (and people aren't these days, whether it be Arnott or Berkowitz), then sell.
The laughable thing is when managers think people are going to go along with a longer-term bet. They aren't, especially today as people's investment views are shorter and shorter. Financial media is the biggest example of this "what's working RIGHT NOW" mentality.
"not just stubbornly campaign about economic policy, which is what I fear Mr. Arnott has done lately."
Oy. Not everything is political. Whether Arnott's views on the issues will eventually play out or not who knows. However, the view that anyone who believes that there are actual underlying problems with the country that will have to be addressed are "just being political" is a label that allows people's views to be easily dismissed and really insures that there will not be progress in this country as politics divides people more and more, while what we need is to be united.
This isn't directed at Charles, but the idea that anyone who has a concern about the country is only doing so from a political standpoint and not looking at it from a historical, fundamental, statistical or other standpoint is dismaying.
We have the one of the least productive congresses in history and it's because they have the excuse that the other side doesn't want to work with them. It's an excuse, it's nonsense and it's embarrassing. It's also clear that they are clear to coast getting absolutely nothing done while the Fed does what it does - as senator Schumer said, "Get to work, Mr. Chairman."
Even if there is an element of politics in someone's view, we are getting to the point in this country with the national discourse where I would not be surprised to walk down the street and hear this conversation: "The sky is blue." "No it's not, you're just being political."
That said:
"Central banks cause asset bubbles too...fueled by their profligacy."
Yep. Not saying that we are currently in a bubble, but does anyone not believe that central banks have caused bubbles in the near and far past?
"Fed painted itself into corner with no way to unwind gracefully."
Bernanke yesterday: "If we were to tighten, the economy would tank." I'm not going to say that the Fed cannot exit, but I don't think it will be as soon as Bernanke is acting and it will be considerably more difficult than Bernanke is acting like. Additionally, while Fed economic forecasts remain optimistic, we also get the view that "the economy will tank if we tighten policy." Meanwhile, Fed forecasts vs reality have not exactly correlated well recently (http://www.economonitor.com/blog/2013/06/feds-economic-projections-myth-vs-reality-jun-2013/, http://www.streettalklive.com/images/stories/1dailyxchange/Fed-Revisions-GDP-061913.PNG), which makes one wonder how much longer this monetary policy will be present. Even if QE was tampered, it is clear that the Fed would be out trying to calm the markets and QE would return if there was a more significant downturn. With monetary policy being what it is, we have a GDP of 1.8 and a market that throws a temper tantrum any time there is a hint that monetary policy won't be as easy.
All that said:
I do think that even if someone is not pleased with underlying problems in the world, there are still long-term themes that need to be addressed, as I discussed with the obesity in EM theme in the emerging markets thread today. Or any number of other themes.
As for All Asset All Authority, I did look on the Pimco website and it does actually note that the fund intends to offer "solid real returns" (?), but that the secondary benchmark is actually CPI + 6.5% "over a full market cycle."
That is a little wonky.
Either way, Arnott discusses his views on the fund's current performance (July letter) here: http://investments.pimco.com/insights/External Documents/Arnott_on_All_Asset_July_2013_PCAAA0015.PDF
OK, how about this: "...not just stubbornly campaign about economic policy and acknowledge some positive fundamentals occurring in US today..."
No? Not even a little? Please tell me you too don't believe this entire bull is "artificial."
Enough, really, I need to get a cup of coffee!
As for nutrition, I think you're starting to see it pop up in things like the earnings for Coke earlier this week - sales of soda are weakening while still/ "value added" drinks are doing better. Junk food/fast food is still going to sell, but I think you're starting to see people turn bit-by-bit. Emerging market consumers are starting to see more and more health problems as they move up.
I think "fitness tech" is going to be a big thing going forward as well, and while it's a little expensive now, you can look at something like Nike, which has become increasingly tech focused, with things like shoes that can beam information to your phone. Fitness apps have become increasingly popular and I think they're going to be practically their own industry soon enough. Nike was awarded "The Most Innovative Company" in 2013 by Fast Company (http://www.fastcompany.com/most-innovative-companies/2013/nike)
Lastly, I agree with Spielberg and Lucas in their view that moviegoing will change significantly and more and more entertainment will be at home. I don't care for MSFT, but otherwise, have an interest in the infrastructure of getting more and more entertainment at the home entertainment center (or phone) than going to the theater. Along those same lines, baseball is seeing declining attendance (http://www.northjersey.com/sports/pro_sports/baseball/All-Stars_return_to_NYC_finds_national_pastime_in_decline.html) and while that may be something baseball-specific, I think you're going to see an increasing amount of sports watched at home rather than pay a ton to go to games. Concert tickets got nuts too, although I think you're going to see more and more changes there - whether or not you like his music, Kid Rock's cheaper tour (http://www.phoenixnewtimes.com/2013-07-18/music/kid-rock-cuts-ticket-prices-all-summer-long/) has been successful - rather than getting paid big up-front, Rock instead is getting a cut of the backend. (http://business.time.com/2013/06/26/kid-rocks-20-concert-ticket-plan-good-for-fans-bad-for-scalpers/.) You also saw this with comedian Louis CK's tour last year (http://business.time.com/2012/06/28/how-louis-c-k-is-changing-the-way-we-pay-for-entertainment/). Entertainment overall is going to change - the way we view it, how we get it, cost, etc. Companies who go with the evolution and/or who are able to spot the trends, I think, will do well. I think John Malone's Liberty Media conglomerate (LMCA) is an appealing, if rather volatile, way to play some of these long-term trends - but that's gone up quite a bit.
I also like productive assets (apartments and other real estate sectors such as the triple net REITs, oil wells, infrastructure and other such things.) Lastly, I like oil companies, which continue to be - I think - reasonably cheap. All of these things are, to me, comfortable long-term themes that I believe will either play out over time or continue to have significant demand.
The combination of themes I like and significant yield makes for a very comfortable set of holdings. These are the places that I want to be and I'm getting paid to wait. I am less and less bothered by the noise of the day-to-day and am trying to be better and better about having a longer-term perspective. I may believe that there are significant problems that need to be addressed, but if I had to pick themes with an "over the horizon" view for the next 5-10 years, the above is where I want to be and I will continue to reinvest nice divs. I don't want to be in fixed income.
I don't believe the entire market run is artificial, but I believe that the easiest monetary policy in history is a significant part of it (market with and without QE: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Fed vs S&P.jpg) and I would like for more of it to be organic/real than I think is. I am, however, fascinated by the cheerleading over GDP readings that are disappointing at best. I also believe that this monetary policy has created an addictive/"bad is good because it means more easy monetary policy" mentality.
At the risk of Yours Truly ANALysing the commentary, he seems to be makingg case of how things were in 2006 vs 2013 using a table, where he points to similarities, and why he is taking a similar stance. Then he alludes to why it will result in similar conclusion - people leaving his funds just when his performance went up, yada, yada, yada. The one thing that strikes me is Bernanke was having a little trouble with his printer in 2006, while in 2013 he has refurbished it. Falling bond yields served Arnott well post the financial crisis. Which cartoon thinks that's going to happen after 2013?
So I like to think I'm not stupid, but I will stick with PAUDX for the time being. I think now we have to start trusting PIMCOs competence in Equity investing since Bonds ain't it anymore.
Yes, some things, like "bad is good because it means more easy monetary policy," are just counter-intuitive. Up to us I guess whether we accept them or not.
Hey, break, break.
Been looking more closely at KMP, thanks to you, as well as HES, CHK, MPO, NOV. For the same reasons you highlight above and have discussed previously.
Currently, I hold AA, X, STLD, CRH, COP, SU, GE...and financials ORI, BRK, BCS, BAC.
BTU and CLF finally seem to have stopped descending, just now crossing 50 day threshold.
And, XRX appeals to be. Though, like you, I remain wary of tech.
Beautiful morning here in central coast. Have just finished 1st cup of coffee and heading out for morning walk.
Thanks man for sharing your insights with all of us on the board.
You also have changes going on (more mobile devices repurposed as checkout machines with cashiers walking around stores, the US having to upgrade to EMV chip credit cards leading to machine upgrades being required, etc.) I could be completely wrong, but that's an example of a theme where I can be concerned with the bigger global picture and think the theme is a compelling one for the long-term, especially as more and more transactions are digital (Whole Foods stores no longer accept checks - http://www.newsobserver.com/2011/10/20/1580885/no-checks-at-the-checkout.html)
There are some other tech companies that I like quite a bit (Google and a number of other names), some I don't, some I've been wrong on and I am more than happy to continue to be wrong on (Microsoft, which I would consider if Ballmer ever left - Ballmer is clearly smart, but I don't like a number of things he's done and I really dislike the way that he presents himself and the company.)
I don't think GE handled things entirely well 2008 (we're not going to lower the dividend, a few days later a different story), but the GE of today is improving and a great play on a number of significant long-term themes. I'd like to see GE Capital be spun-off and was happy to see them spin-off NBC/Universal (or, as I like to call it, "Bad/Good"), which I think have a better home with Comcast.
I definitely like Kinder Morgan a great deal (I think it's a remarkable collection of assets - an energy superhighway - that no one can come along and duplicate, especially as regulations increase), but note that KMP does result in a K-1. KMR is a way to participate in KMP without a K-1, but it has continually traded at a discount to KMP and some places do not allow DRIP for KMR.) Parent KMI is also a very good choice.
I think the basic materials/materials names (X, STLD and others) will likely pay off over time for those who have a mid-to-long term positive view and time horizon; they are certainly cheap at this point. Other companies, like BHP and FCX are also down significantly and pay nice dividends; whether or not they can turn things around depends on one's larger picture view, but they continue to pay shareholders to wait.
COP I thought was cheap and a number of the other major oil companies are not only reasonably priced, but you get paid to wait - Shell paying around 5.5%, Chevron around 3.3%, etc.)
I'll also throw out that I think housing has bottomed, but the move back will be multi-speed (some areas were just overbuilt) and the enthusiasm for housing has gotten ahead of itself. I do believe that rental demand will continue, especially in major cities where rents continue to go higher than even I believed they would. Lack of space and other issues are contributing to higher rates - http://www.nbcbayarea.com/news/local/Bay-Area-Leads-Country-in-Rent-Increases-215894611.html, http://www.businessinsider.com/the-8-reasons-why-new-york-rents-are-so-ridiculously-high-2013-7
XRX has done a reasonably good job trying to reposition itself, but I think it will take time and success is not certain as it competes with a number of larger players already in some of these sectors.
Thank you for your comments and discussion.
If you are wrong on this, then I am too.
"I'm not going to say that the Fed cannot exit, but I don't think it will be as soon as Bernanke is acting and it will be considerably more difficult than Bernanke is acting like. Additionally, while Fed economic forecasts remain optimistic, we also get the view that "the economy will tank if we tighten policy."
"Meanwhile, Fed forecasts vs reality have not exactly correlated well recently... which makes one wonder how much longer this monetary policy will be present."
"We have the one of the least productive congresses in history and it's because they have the excuse that the other side doesn't want to work with them. It's an excuse, it's nonsense."
Exactly. And we're depending on this congress to smoothly confirm whoever the president proposes to replace Bernanke? The markets may very well continue to advance in the coming weeks. But if there's not a smooth Fed transition, then???
I agree with you. My comments regarding the pocket of inflation were to state the author was wet behind the ears and his credibility for the entire article is in question.
If congress turns Bernanke's replacement situation into a disaster, then you buy, because if it's Yellen, it's more of this monetary policy. If it's Summers (oy), then it's more of this monetary policy, etc.