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Daniel Moser

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  • Is Everything We Know About Stock/Bond Allocations Wrong? [View article]
    Just out of curiosity, what is your plan to lever up "cash" two times?
    Sep 13 03:28 PM | Likes Like |Link to Comment
  • Will The Real 60/40 Please Stand Up? [View article]
    68osb28 - congrats on the good performance doing it yourself. Having said that just remember that any asset allocation mix that incorporates multiple asset classes will likely under perform a portfolio 100% allocated to the strongest performing asset class during a set time period using only return driven metrics - it's when that cycle turns that you get crushed. If you happen to be continuously blessed with fortuitous timing skills and can successfully re-allocate your asset mix prior to a severe correction than you will no doubt fare very well.

    I have noticed TONS of investment firms, mutual funds, etc use very bastardized versions of MPT and from what I can tell, a large portion of them are essentially mediocre versions of the S&P 500 - literally by design and perverse incentive structures.
    Sep 9 02:02 PM | Likes Like |Link to Comment
  • Will The Real 60/40 Please Stand Up? [View article]
    Good comments from everyone. Let me start from the bottom and move towards the top:

    1.) Mgordon10 - On what basis are you arguing that the classic 60/40 portfolio is far superior to the alternatives I purpose? I would argue fixed income investments should provide far more than a simple anchor to a risky (read: volatile) equity portfolio. The implication of your argument, if I have understood it correctly, is that investing is 100% about stock picking - as fixed income is included to simply work as an anchor against the excessive volatility of stocks vs. including fixed income as a means of introducing incremental returns/diversification properties to the overall portfolio. Which, if I have understood your argument correctly, I can't agree. Depending on the mathematics, you can pick a majority of "winning" stocks and still end up worse off than had you invested in a diversified portfolio of different asset classes.

    2.) Geneh - I am not entirely sure I understand your question. If you wanted to go over the top and really do this the right way you would include every asset and associated cash flow/return stream ranging from SS, equities, real-estate, etc. Having said that, I did not specifically include SS or annuities into the "fixed income" allocations.

    3.) Crankyguy - Let me ask you do your investors react to modestly under performing the market during up swings? I have full confidence that this strategy works over a long investment horizon but during periods when equities go up 15-25%, this strategy would likely under-perform an all-equity portfolio and I just wonder how quick a client is to fire you as they tend to focus only on upside that they feel they are missing out on effectively forgetting what happens during bear markets?

    4.) Jonathan - I read the Bridgewater whitepaper a while back...and that paper as well as a few others completely changed my life. In fact, I have incorporated risk parity concepts into many of my SA contributions.

    5.) I will make a specific comment for Toledoinvestor.

    6.) Varan - I don't know anything about the Morning Star fund selector tool but I do agree that many people got crushed because they did not have a thorough enough understanding of the risks inherent in their portfolios.

    Thanks again for reading and all of the comments.
    Sep 9 12:37 PM | Likes Like |Link to Comment
  • Metals & Mining: Buying Opportunities Are On The Way [View article]
    Thanks for your comments on both articles. As time permits, I will definitely look into the BHP presentation you mentioned as well as look into what I can find on iron ore production costs (which intuitively I would think are similar).

    Just for the contrasting view, I would suggest looking into Hugh Hendry's market views on China. After watching a few video clips or reading a few interviews with him, you may disagree with his view...but it is definitely worth considering with respect to China and the medium/long term impacts of their policies on engineering growth.

    Thanks again for reading.
    Jul 24 08:43 AM | Likes Like |Link to Comment
  • Don't Expect North American Prices For LNG Exports: Shell Chief [View article]
    "Investors, however, have grown increasingly concerned that buyers such as China will refuse to accept an oil-linked price and instead demand pricing on North American terms. If that happens, LNG exports suddenly become a much more tenuous proposition."

    Whats your source for this argument? When you say "North American Terms", are you referring to a an index on natural gas prices such as Henry Hub (plus some variation of differentials)? Foreign buyers of LNG who have historically purchased LNG based on long term contracts priced to oil indexes got the short end of the stick within energy markets - shale production has driven North American natural gas prices to levels that would have been completely unbelievable 5-7 years ago meanwhile Brent crude oil (the global price marker) has been and remains relatively strong. Granted, at the time the foreign buyers entered into the long term LNG purchase contracts, it seemed like a good idea to enter into such agreements for their own energy security...the natural gas/crude oil markets were relatively well correlated commodities. As it turns out, it didn't work out so well for the buyer. One might be hesitant to conclude that global LNG contracts will become primarily priced off of Henry Hub prices, however, the idea that LNG becomes priced to various indexes linked natural gas prices of the producer supplying the product or at the nearest "liquid" market strikes me as a very logical idea for the buyers and the sellers.

    May 30 10:02 PM | Likes Like |Link to Comment
  • How to Invest After the Roller Coaster Last Week [View article]
    Thanks for the comment. The only reason it is compared to the S&P 500 is that the S&P 500 (or in reality the Dow Jones Industrial Average) is the most publicly accepted measure of how the market is doing. As such, I would argue most people are always intuitively comparing the returns they are earning with that of the S&P 500 or DJIA. As I recall, I did state that the risk exposures are much more diversified (i.e. different) than the factors inherent in the S&P 500 in the article where I covered my process of how I created this portfolio (linked above).

    My primary interest is the creation of a portfolio that exhibits less than or equal to the volatility of the S&P 500. The general point or theme being that you can still earn decent returns by holding risk exposures that are distinct from one another as well as the risk exposures inherent in the S&P 500.

    What is it about these funds that you consider particularly risky? The fact that they utilize leverage? So long as the risk factors inherent in the funds maintain some level of independence from one another, the leverage isn't necessarily a bad thing. Furthermore, the second primary question of this article was dedicated to my view on short term interest rates and the implications they will have on investing. Debt funds can be much less volatile than equity funds, and to the extent that they utilize leverage (which in my view will remain relatively cheap for quite a while into the future) they should perform well on a risk adjusted basis compared to stocks which will likely remain uncomfortably volatile for a lot of investors.

    My final question is in regard to the NAV of the fund PTY. I definitely appreciate that concern. It is at least mildly uncomfortable seeing such a large discrepancy but I do wonder whether it is some sort of accounting short coming with how PIMCO is required to report NAV or more generally what is the driving force behind such a large discrepancy. How can the market so blatantly allow such a wide variation between market prices and value to occur? Unless of course there is some shortcoming in how you are analyzing the values vs. price. I guess I take some solace in the fact that PTY has been performing essentially as expected...and the allocation is smallest to it in the overall portfolio. It probably still deserves some extra scrutiny by individuals.

    Thanks again for reading and for the comment.
    Aug 15 05:39 PM | Likes Like |Link to Comment
  • 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 12:22 PM | Likes 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 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 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 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 10:19 AM | 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 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 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 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 07:55 PM | Likes Like |Link to Comment
  • Should the Bush Tax Cuts Be Extended? [View article]
    Truth be told, I do my best to keep my rhetoric under control. I really am not a fan of most government entitlement spending at all. Thus I tend to find myself supporting, on philosophical grounds, any tax cut that can be found. But as you correctly point out, these tax cuts have not been met with any reduction in spending, so there is a real pickle.

    A very typical argument against government meddling in the economy is that the government is poor at the allocation of scarce resources when compared to the private sector. Most large scale bankrupt government insitutions such as medicaid or medicare, social security, etc. are used as examples of how ineffecient governments can be. Energy policy with respect to ethanol is another perfect example of horrible resource allocation that has failed miserably but probably succeeded at increasing world hunger.

    While many put their faith in the ability of the private sector to allocate resources in a superior fashion, hoarding unnecessary cash is not allocating resources at all - which is not really an improvement over the government mis-allocating resources. By recycling idle cash back through the economic system individuals will be able to allocate that capital how they see fit. Perhaps that would be buying corporate bonds. It could be some much needed repairs on their car. Maybe it is some new clothes for their kids.

    I cannot recall the precise quote, but somewhere I have seen something along the lines of, "the decision to take no action is still an action". This is shown as a quote at the beginning or end of some movie. And I am literally beating my head against my desk to recall what movie it is so I can find the exact quote.

    Nonetheless the quote is fitting in this situation. Corporations are hoarding cash because they do not see easy growth on the table. Yet, while they believe they are making a decent decision, they are abdicating their sole responsibility. If they do not see the opportunities to maximize shareholder value it is incumbent upon them to return retained profits to their shareholders to be recycled back into the economy as the shareholders see fit.

    That is a possible private sector solution. That is capitalism. Now, we just need the government to encourage it. And it would certainly help if shareholders become a bit less complacent with companies holding so much idle cash.
    Aug 19 05:07 PM | Likes Like |Link to Comment
  • Should the Bush Tax Cuts Be Extended? [View article]
    I like your ideas. A 3-5 year tax holiday on profits for newly formed businesses sounds like a great idea. Perhaps that could be extended to include some sort of tax relief on costs incurred from adding to payrolls.

    I hope I was clear that I don't find the trickle down theory of tax cuts particularly compelling...but I do find the notion of a massive corporate dividend, to recycle the uneccessary idle cash back into the real economy, very compelling. Sure dropping dividend taxe rate to zero doesn't by default trigger a massive increase in dividend payments, but it sure seems like it would increase the incentives for such a transaction. Market forces of extremely unpleasant shareholders would definitely start to take hold of corporations hoarding unneccessary cash. Couple that with some Obama led roadshows/marketing campaigns and maybe this could gain some momentum resulting in a massive private sector stimulus.

    Aug 19 09:48 AM | Likes Like |Link to Comment