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Daniel Moser

 
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  • Reducing Market Risk Becoming Paramount [View article]
    Monsieur alphaman,

    Owning a home to live in is not the same thing as investing in a piece of machinery that is used in the production of a product - at least from my perspective. If I run out to buy a house there will be one real cash flow stream and it will be negative and it will be dolled out every month and it will last for 15-30 years (mortgage payment). Eventually I will sell the property and recover a lump sum payment of my equity (assuming the value of the house is unchanged) and perhaps if the house was worth a bit more than I paid (inflation adjusted) I might even realize some degree of capital gains. Thus it is far easier for me to conclude that owning a house is much more similar to a "savings vehicle" in that eventually you can recover your equity vs. renting where you will recover no equity.

    If I buy a house to rent out...AND manage to locate some tenants who are willing to rent it at a price that provides a return to me above my all-in costs on this house...sure it is a productive asset from my vantage point. But I feel pretty confident when I say that the VAST majority of people tangled up the housing downturn were not buying property at the time to rent it out. They were led to believe they had found a savings vehicle that yielded a risk free return that was greater than the actual risk free rate of return, took on a ton of leverage, and got destroyed.

    If, as a society, that money was allocated into actual "productive" assets i.e. manufacturing, new services, etc. the U.S. most likely would have never had this financial crisis/recession. BUT the 2003-2007 growth period probably would have been more shallow as well.

    Thanks for reading and thanks for the comments.
    Feb 17, 2011. 12:22 PM | Likes Like |Link to Comment
  • PIMCO Datapoints of the Day [View article]
    Yeah...this is a rather egregious misrepresentation of Bill Gross's market views. Bill Gross is no doubt concerned about inflation as he runs one of, if not the, largest bond houses in the world. BUT, I wouldn't put him in the camp of Ron Paul and starting making over zelous claims about his inflationary fears.

    The following is from his latest investment outlook:

    Instead of accepting historical durational risk and the prospect of a barbershop quartet of possible haircuts, bondholders should recognize that yield or “spread” comes in different varieties. Maturity extension is just one of them, yet if yields are too low based on historical example, an investor should analyze other yields or other “spreads” which are not. That is what we call “safe spread” – the recognition that credit spreads, or emerging market returns, or currencies with positive and high real interest rates are more attractive than those old-fashioned gilts and Treasury bonds offering 2–3%. Those are markets that need to be “exorcised” from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint. It is still possible to produce 4–5% returns from a conservatively positioned bond portfolio – you just have to do it with a different mix of global assets.

    There you have it. Gross is navigating his bond fund to what he sees as the best opportunity given a specified level of risk. He is not freaking out because inflation might be on the horizon.
    Feb 15, 2011. 12:03 PM | 2 Likes Like |Link to Comment
  • Chinese Monetary Policy Doesn't Spell the End for Copper [View article]
    I appreciate both the comments. First in addressing the comment about never ending upward prices...copper might retrace 50 cents back to $4/lb which would totally suck in the short term as a mining shareholder...but $4.00/lb is still a hell of a price for copper. With a cash cost of production far below $4.00, copper mining companies will fare just fine.

    With respect to the Yuan: U.S. Consumers will be dramatically impacted by an appreciating Yuan, there is almost no doubt about that in my mind. While exporting might get some degree of "boost" it is difficult to believe that there will be a total revolution in the American economy. I have encountered one report that argued the wage differential and cost of production is SO FAR slanted in China's favor that the yuan would have to appreciate by an insane amount before American labor would be remotely close to competitive.

    My overall point was not that America will prosper if/when China allows their currency to re-value closer to fair value...but rather I believe Chinese growth and inflation will not come crashing down based on interest rate hikes alone (in China).

    Thanks for reading.
    Feb 9, 2011. 05:45 PM | 1 Like Like |Link to Comment
  • Target Retirement Date Lifecycle Funds: Ignorance Is Never Bliss [View article]
    My apologies for grammar errors and poor spelling. Apparently you can only edit comments once.
    Jan 20, 2011. 10:26 AM | Likes Like |Link to Comment
  • Target Retirement Date Lifecycle Funds: Ignorance Is Never Bliss [View article]
    Mr. Brunks

    I agree with you about the marketability of lifecycle funds. They "appear" to provide the peace of mind that DC plan participants with less knowledge of personal financial management. However, calling lifecyle managed funds "professionally managed" (in terms of efforts expended on asset allocation) is a bit misleading. If I didn't know any better, I would read a statement like that and conclude that every 24 months, an investment commitee at the asset management company meets and concludes that the asset allocation mix within these funds should be changed based on the economic fundamentals at the time. I just cannot believe that is the case in practice.

    In my estimation the allocation mix within these funds is governed (and quite frankly investment process) by a mathematical formula that goes something like this: 120 - age = allocation to stocks w/ the remainder to be put into fixed income. *Because we are a fund company we don't really compare index funds to find what we determine to be the best....we just allocate to the funds that WE have available in-house. That is probably a bit too simplistic since I am sure some of the funds closer to the target retirement date mix in different types of bond funds. Nontheless, I feel confident that whatever the actual formula is being utilized by the fund companies...it is quite similar in nature.

    Thus, I think anyone familar with the simple rule of thumb (shown above) can create an asset allocation lifecycle investment strategy similar to these funds in about 10 minutes. I am sure the administration efforts that go into managing one of these funds are pretty complicated and take a lot of effort on the part of bank managers so I don't want to make light of that. But the actual asset allocation hardly requires thought once a formula is agreed upon which I find challenging to call "professional asset allocation".

    At this point, if you agree with my assessment of how these funds handle asset allocation...it seems to me you must concede that these funds are not actively acting as fudiciaries for their investors past the stage of fund creation.

    On the argument about diversification via investment options: looking at the funds that Seeking Alpha tagged for this article, all of the funds held within the target date funds appear to be publicly available including TIPS etfs. My only experience, which is obviously no where near a decent sample size, DC contribution plans have enough options that you can create AS MUCH diversification as target retirement date funds...particularly if you are just starting out in the working world-which is to say you will be invested +85% in equities. Now in my opinion that is not very much diversification, but that is a different story for a different time.

    These funds are not an asset class. They are an investment strategy. They generate return streams 100% correlated to their asset allocation mix. It makes zero sense that it would be otherwise. As such, the only possible diversification benefit that can be had from including these funds in a portfolio is generated through either arbitrage from the funds traded price and the underlying holding fund values OR from incorporating a target date retirement fund with a different asset allocation mix than the current portfolio's asset allocation mix - which automatically suggest that your current portfolio has the wrong asset allocation.

    In conclusion, I cannot agree with the status quo of target retirement funds that may offer "peace of mind" but virtually gauruntee that no one with more financial knowledge or fiduciary duty than the plan participant will be looking out for the plan participant's ability to retire. As a previous commentor correctly pointed out, we should all do things more frequently than what we actually do (i.e. checking the oil in your car). But in this case...I firmly believe that staying abreast of your finances is a far superior way to acheive retirement than a "set it and forget it" mentality which is what these investment vehicles represent.

    I appreciate you reading my article and your arguments.
    Jan 20, 2011. 10:19 AM | Likes Like |Link to Comment
  • Target Retirement Date Lifecycle Funds: Ignorance Is Never Bliss [View article]
    Thank you for reading and I appreciate the comments from everyone. I am still trying to figure out what "I'm still from Missouri on these animals" means, but it is an interesting saying nonetheless.

    I sympathize with the views of SRvalueinvestor. However, in my mind the lack of financial literacy, awareness, and any sort of discipline on the part of individuals places a moral imperative on the asset management industry to act as better fiduciaries for client interests rather than using them like a pack of wolves would use a heard of livestock: feeding on them because it is the easy thing to do rather than hunting or in the non-metaphorical world actually striving for excellence in service and providing reasonable absolute returns.

    Thanks again everyone.
    Jan 13, 2011. 05:55 PM | 2 Likes Like |Link to Comment
  • Target Retirement Date Lifecycle Funds: Ignorance Is Never Bliss [View article]
    An a perfect world, the fund companies would have you believe that you only need to invest in a single fund...since technically speaking they follow your entire investment lifecycle thus shifting with your theoretical risk tolerance over time. Your point about throwing off the balance of a lifecycle fund is correct in my estimation. If you are going to invest in several funds it theoretically defeats the purpose of investing in the lifecycle fund.

    Lifecycle funds are not too likely to be index fund killers namely because they themselves invest in their own companies' index funds. Take a look at any of the ishares lifecycle funds that Seeking Alpha posted at the top. Every single one of the holdings in the ishares 2040 retirement target fund is an ishares product. If anything the fund companies will likely be making incremental money off of these funds in addition to the fees charged on their ordinary index funds.

    I sincerely hope that these poorly conceptualized investments don't replace the options available in 401(k) accounts. The ability to construct a properly diversified portfolio using relative return investment funds that are all essentially 95% correlated with one another is a pretty tough task as it is. These lifecycle funds, in my estimation, bring very little to the table except a cloud of fog further masquerading the poor performance of relative return strategies.

    Thank you for reading and your comment.
    Jan 12, 2011. 09:23 AM | 1 Like Like |Link to Comment
  • Higher Oil Prices Will Stymie Reform in Russia [View article]
    I must respectfully disagree with the core argument. It is sometimes fun to hold a totally opposing view to others-particularly when others are missing a crucial perspective or argument. However, I think you might be on your own on this issue because your perspective is just off the mark.

    Russia might very well gain or lose hegemonic-like power with the rise or fall of oil prices, but in terms of their economic/political fundamentals internally...there is practically nothing compelling about the viewpoint that higher oil prices actually work against the liberalization/evolution of Russia.

    I think Ian Bremmer's simplistic J-curve model is a far better framework for explaining Russian political/economic development. I personally believe (although I am sure many will disagree) under Putin there was substantial progress for development until the global financial crisis struck. In fact, quite frankly, one of the reasons Russia (from an economic perspective) has handled the global recession so well is that during the period of high commodity prices the government was able to build up a mammoth capital base in their Sovereign Wealth Fund which has no doubt helped offset a significant amount of the fallout that would have otherwise occurred in Russia.

    Of course, there has been some retracing of political freedom/economic liberalization as of late. In my opinion, to a large extent, this is more likely a result of anxiety/nervous fear on the part of Medvedev/Putin...AND perhaps their decisions have been flat out wrong. BUT, I find it more compelling that they made these bad decisions out of fear of political instability getting out of control vs. your view that higher oil prices have given them a shot of testosterone in which they just decide to be more aggressive and move backwards in favor of authoritarianism instead of liberalization.

    Under your viewpoint, Putin would have passed (which he had full support for at the time) the constitutional amendment to make him president for life. Why didn't he? Because, in my view, in the end he wants to see Russia as a liberalized economic/political power house that is as stable as any Western country - even though the path can be rocky as hell at times.

    Putin (and to a lesser extent Medvedev) might very well believe that Russia should take full advantage of their natural resources to gain as much of a competitive advantage over their sphere of influence but that does not equate to retracing towards an authoritarian state.

    Russia is on a long, and at times rocky, journey towards a more liberalized political/economic climate. They are still quite unstable and have a long ways to go. BUT I think the trend in Russia is clear...it is from the lower left to the upper right AND in direct correlation with commodity prices (not the other way around).
    Jan 6, 2011. 09:15 PM | 1 Like Like |Link to Comment
  • Commodities Are Sizzling, Risks Are Building [View article]
    I can easily own that criticism, I didn't mention anything about energy demands from developing economies although I am well aware that the majority of incremental demand for energy is stemming from developing economies. It does seem to me that Chris is in agreement with me to a large extent, he just believes I should have included a contrary data point in my post. I don't believe including comments surrounding increasing demand from emerging economies is a game changer in my analysis though...as short term price seems to be getting stretched (a point that Chris concedes in his second comment). I did cherry pick, to some extent, as I wanted to manage the size of the posting. Thanks for reading and I appreciate all the comments.
    Oct 14, 2010. 09:02 AM | 1 Like Like |Link to Comment
  • Why David Tepper Is Only Half Right [View article]
    "A better metric would be to use the price of gold, which has increased 30% YoY."

    My cost of living hasn't gone up 30% in the past year. In the business I work in, numerous contract prices are adjusted annually to reflect inflation. Many of these contracts use a straight up CPI measurement while others use more esoteric formulas that are oriented around more specific CPI data. Imagine tieing these contracts to the price of gold. We would be in and out of real businesses like day traders...which is entirely unfeasible. Real economics in business just don't work that way.

    Directionally, maybe gold does contain some kind of pertinent information on inflation (although I am not entirely sure) but it definitely isn't correct in terms of magnitude. GLD is up 175% over the past 5 years. How many readers have actually seen an increase of 175% in their cost of living? I suspect not many. In part most Americans would be homeless-given their propensity to live pay check to pay check. If those folks, living pay check to pay check, had an increase in their cost of living of 35% annually...they would be homeless, starving, and probably on the cusp of death.
    Oct 4, 2010. 05:44 PM | 1 Like Like |Link to Comment
  • Don't Let Talk of a Bubble Scare You Out of Bonds [View article]
    Bruce Krasting's comments provide a great point. Whether you agree or disagree about the merits of investing in bonds is actually somewhat irrelavent to the discussion. The central argument in the entire discussion is how you define a bubble.

    In my opinion the two biggest fads, in the past 24 months, (which I cannot wait until they disappear) is using these two terms: bubble and ponzi scheme. These are the two most over used misunderstood terms in existence right now. Every week countless commentators ask, "are bonds in a bubble...are hedge funds a bubble...are agg products a bubble...where's the next bubble going to be...what's the next bubble to pop?"

    As Mr. Krasting correctly points out...a bad investment does not constitute a bubble...it constitutes a bad investment. Roche, in my mind, wasn't arguing that bonds are a great investment he was merely pointing out that based on price action bonds are not on some unsustainable path that is destined to for a catastrophic debacle of mythic proportions that will likely unfold over some mind numbingly short time period.

    Bubbles are often associated with dramatic price declines in a short period of time. I don't see the merits in defining what will probably be a slow process of change over the course of many years as a bubble. Sure investors in bonds might catch some undesirable opportunity costs...but hell...at the end of the year have you ever checked the stocks with the biggest % gains for the previous 12 months and calculated your opportunity cost? I haven't. But I know it is HUGE. The fact that you missed that opportunity doesn't mean the stocks you actually did invest in were in a bubble. It just means they weren't as good of an investment as others.


    Sep 29, 2010. 10:11 AM | 5 Likes Like |Link to Comment
  • Jeff Saut: 'Equity Risk Premium Exceptionally Large'- A Bullish Sign [View article]
    It would be interesting to scale the equity risk premium and corporate bond risk premium by some measure of risk. While some may argue that volatility and risk are not the same thing...I would still be interested in seeing if scaling this expected return differentials by some risk measure would actually change the results. I am positive it would definitely cause a little extra head scratching for people evaluating stocks - after all nothing is free so how much extra risk is assumed to earn this extra return?
    Sep 16, 2010. 02:04 PM | Likes Like |Link to Comment
  • Global Macro Notes: Forget Copper, What About Oil? [View article]
    You seem to like oil despite the influence of OPEC in the oil market without even questioning the accuracy of DOE data or entertaining the notion that official statistics could potentially be manipulated to present data in such a way that it is favorable for certain parties. I am not saying this is the case...but if you are telling me you don't like copper because of rubber futures, surely it seems worth mentioning.

    "Copper fell the most in a week after a report that Chinese regulators are investigating positions in rubber futures spurred speculation that some traders may be forced to sell commodities…"

    That sounds like a worthless rationalization of a price move in the absence of fundamental data on the part of Bloomberg.
    Sep 13, 2010. 09:09 AM | Likes Like |Link to Comment
  • Can Retail Sales Prosper Despite the Weak Labor Market? [View article]
    I appreciate the comment.
    Sep 2, 2010. 09:13 AM | Likes Like |Link to Comment
  • Should the Bush Tax Cuts Be Extended? [View article]
    I think you are missing the point. Maybe the bush tax cuts were a dismal failure for the last 8-10 years. I am not arguing that the Bush tax cuts paid for themselves. I might not have been clear enough in my original post...but I am trying to focus in on the hoards of cash and what kind of stimulative effect it could have on the real economy.

    Argue what you will about the Bush tax cuts...but refute my argument that a zero dividend tax rate would add incentives for companies to payout more of their retained earnings - which could compound into some much needed stimulative support, provided by the private sector, for the economy.
    Aug 19, 2010. 07:55 PM | Likes Like |Link to Comment
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