Debra J. Diamond

Inflation Ahead: Load Up on Tangibles!

It depends on your net worth and your discretionary assets. For a high net-worth investor ($3-$5 M+) who is not in need of liquidity, I would suggest 5-15% of their portfolio be in alternative assets ( I include art in that category- so art could let's say, be 3-5% of the overall portfolio). This is an asset that serves a dual purpose- the potential investment return and the pleasure of living with the art asset. I would rather see an investor buy one really good picture, the best example of that artist, a year though and build a collection that way. Hope this helps.


On Jun 10 12:16 AM Old Trader wrote:

> Ms. Diamond,
>
> Just out of curiousity, what percentage of a portfolio would you
> suggest be invested in an illiquid asset like fine art? Granted,
> that's a broad question, but please, indulge me.

Julian Robertson Bets the Farm on Inflation

Thank you for your article. Julian Robertson is a very smart guy.
Don't forget to consider other ways of playing the decline in the dollar- buy currencies of rapidly growing Asian, Middle Eastern, African and smaller Asian economies. Either through the Rydex ETF's or through Everbank. This is a big idea, maybe the only one you need for the next decade. It is still early and there's a premium for being early.

Top 10 ETFs for a Rising China

Nice idea but buying ETF's for Australia and Chile and base metals ETF's are not going to do for you what you think they will. There are too many other issues (political, currency, other companies within the ETF that are part of that countries economy buy not related to Chinese business) that will influence performance of these ETF's. You are going to get yourself into trouble by stretching this hypothesis. Stick to basics.

The Coming Economic Collapse, Part 2

Creating more jobs won't work. Interest on the deficit is the third largest budget item. Do the math. The US would need to create jobs at the greatest rate in the history of the world to overcome both the interest payments and to pay down the principle. It is not mathematically possible. Obama knows this. He is a smart guy. That's why taxes are going up. It's the only other deep pocket out there.
The market is not going to collapse. Look at South American countries like Argentina or Brazil in the '80's as examples. Their currencies were worthless, the standard of living of their populous
declined. They became 3rd world countries. They lacked the capital to compete. It's more likely that the US would look like that. But I understand that your headline will draw more readers because there's nothing like calling for a good collapse to get people's attention.

Inflation Ahead: Load Up on Tangibles!

We need to position ourselves in front of these trends. First and foremost make sure that you are protected against the decline in the dollar. After that, the rest of your investments will fall out of that position. You only need a few good investment ideas in a lifetime ( or a year) to do well. All the rest is noise. This is a big idea..it covers alot of territory. From shorting the dollar to tangibles and hard assets to foreign currency. Each decade has it's big trades. The 90's were the time to buy the S&P's, the 80's it was oil and gold if you were in hard assets. It's said that good investors have alot of time on their hands. The challenge is not to fiddle with a good position, buy it and leave it alone. This is one of those ideas.

Inflation Ahead: Load Up on Tangibles!

I agree again. The most important thing to keep in mind is to buy what you like. Having said that, there are areas within the art market that are currently undervalued. 19th Century British Painting for example. Pick an area that you like, buy the BEST quality pieces that you can afford, and study the area. After a few years, you will become the expert and the dealers will be coming to you. Carl Icahn has a large art collection but the pieces are second rate. When he goes to sell it, he is not going to be happy. If you buy the best, even if you can only afford one piece a year, there is always a market for quality.( I am talking about museum quality work.)
Art is just one component of a portfolio. Tangibles, which most investment advisors don't write about or are not familiar with, are a good diversification tool and provide other benefits.( i.e.- store of value, pass on to children, tax advantages for gifting), uncorrelated to other assets.
Incidentally, I am also an artist and I do make my own.

Inflation Ahead: Load Up on Tangibles!

You are correct that the frontier markets and SE Asian markets are also key. As the US economy becomes saddles by debt and our currency becomes worthless, any economy that experiences rapid/above average GDP growth looks attractive. I mentioned several ways to play the MENA markets in a post recently.In terms of the art market, the Japanese were not the main drivers of the market from the 70's through the 80's.
Incidentally, seekingalpha did not publish 3 charts that I included. I will need to republish this post.


On Jun 09 09:15 AM Old Trader wrote:

> If memory serves, the run-up in the art market in the late 80's was
> fueled in large part by the Japanese when they were buying everything
> in sight.
>
> Although there's still money to be made in BRIC investments, its
> my understanding that the truly forward-looking investors in foreign
> equity are looking at the "frontier markets", like MENA (Middle East/North
> Africa), as well as the smaller SE Asian countries.

A Low-Cost ETF Portfolio

I typically hold 20 equal weighted positions. They are built on a case by case basis. The sector weightings, allocations are a result of a combination of a top down and a bottom up approach. I do not start out with a pre-determined idea for the amount I want to invest in commodities, fixed income etc. The portfolio grows out of a selection of my best ideas.


On May 21 02:03 PM Analyste de Boston wrote:

> >The investment strategy is simple and focused: to hedge against
> inflation and dollar devaluation. We subscribe to the concept that
> the best ideas are also the simplest.
>
> Here are the two components:
> Structure:
> * 20 equal weighted positions, since we don't know in advance which
> ones will be the winners and since this gives us good diversification.
>
>
> Investment Focus:
> * Global markets with above average long term growth potential.<br/>
> * Positions selected to hedge against inflation and dollar >devaluation
>
>
> I do something similar (strategy) but express it a very different
> way. I wouldn't call it "simple," but I don't believe the process
> is too complex for any asset allocator to grasp. If you are determined
> to diversify with 15-20 options, you've made it easier: the two
> questions are WHICH OPTIONS? and WHAT WEIGHTINGS?
>
> First, you must decide the broader &amp; narrower asset allocation:
> what %fxd inc or cash/proxies? what %age intl/emg mkts? what %age
> commodities? I focus on downside risk and risk tolerance, modeling
> off lifecycle allocations for a measure suitability - that's a personal
> &amp; professional bias. Guidelines &amp; benchmarks: you may deviate,
> but do you track, confirm &amp; correct your idiosyncrasies &amp;
> unorthodox judgments? In a prudently diversified portfolio, ASSET
> ALLOCATION practically determines what the weighting of any investment.
> Studies have shown that <3% unleverage allocation doesn't contribute
> to portfolio return in a meaningful way. That makes part of the 'weighting'
> very formulaic 3-7%, for most investment choices.
>
> The investor's goal should be to refine a winning strategy: AVOID
> flakey calls, wild gambles, willy-nilly BUY/SELL activity. Start
> with asset allocation that makes sense: finish with investment selections.
> It's not necessarily easy &amp; quick, but the DIY process isn't
> so complicated either.
>
> My Model maxlost -15% during the Great Bear Mkt, but its UP +52%
> since 10/9/07 due to 3 excellent market timing calls (a 20% shift
> between Ultra Bear &amp; Bull funds.) Across Bear &amp; Bull periods,
> 55% of the Model allocation was the same funds &amp; stable allocations
> - the other 45% of the Portfolio was shifts, turnover. Discipline.
> I moved out of mutual funds and into new sector ETFs as those became
> available. Adapt! Watch trends, tinker accordingly, and be flexible.
> Do you have a Bear strategy, already modeled and just-in-case? Be
> prepared.

A Low-Cost ETF Portfolio

What makes you think this is high risk? I'm curious.


On May 21 10:42 AM oldman wrote:

> maybe low cost but also high risk. Not for me.

Dollar Denominated Assets: Get Out Now

No, I mean that when a new idea is seized upon by investors, Wall Street will continue to invent new products that will ultimately destroy the investment thesis. Wall Street's( if there really is a Wall Street left) strategy is to make money for itself, not the investor. The Street has a penchant for exagerating anything on both the upside and the downside, so investors need to be careful.


On May 05 03:17 PM fw wrote:

> When you say:
>
> "Other hard assets have been turned into derivatives as well through
> ETFs, leverage and structured instruments. After Wall Street gets
> everyone into the hard asset pool, the result won’t be any different
> than the meltdown of financial markets through financial engineering
> in 2008-2009"...
>
> ... do you mean that commodities will be bid up to prices such as
> $200/barrel of oil, only to drop again?
>
> Thanks for further clarifications here.
>

Dollar Denominated Assets: Get Out Now

I am happy to have a conversation off line to further clarify the points. There is a limit to the length of the pieces on seekingalpha.


On May 05 12:41 PM Analyste de Boston wrote:

> I agree with the overall message here ("Diversify beyond electronic
> assets while you still can!"), but the communication isn't entirely
> successful. Financial advisors have done themselves a huge disservice
> catering to their own narrow interests over the client's - now we
> all need to be much more frank and explicit what any &amp; all investment
> risks might be. Clients' cynicism demands it.
>
> While I fully agree fine art &amp; high-end collectibles might be
> a valid diversification, anyone suggesting unorthodox strategies
> (include bullion here) should produce an iron-clad case without the
> garbage-chatter that hyped stocks for the past few decades. <br/>
>
> The message &amp; delivery MUST change. Sorry.

Dollar Denominated Assets: Get Out Now

You're welcome.
Right on


On May 05 11:09 AM Steve in Greensboro wrote:

> Thanks, Ms. Diamond, for the note.
>
> The headline says it all. With Bernanke's debasement of the USD,
> dollar-denominated assets (bonds, annuities, etc.) with long maturities
> are going to get hammered over the next decade as inflation kicks
> in.
>
> The retail investor is scared and many are moving into annuities
> as a safe haven from a volatile and manipulated equity market. What
> a disaster.

Dollar Denominated Assets: Get Out Now

Allan
Give me a break.IF you're dumb enough to do that, then I can't understand how you got so many followers.


On May 05 10:51 AM Alan Young wrote:

> I love the "we don't care" part. I'll just trade my US$ for-- hmm,
> Icelandic Kronen? Zimbabwean dollars? It's nice to know it doesn't
> matter.

Dollar Denominated Assets: Get Out Now

Oil is a commodity and it will continue to become more expensive in dollar terms as the world expands.
Stocks vs. art is not a binary decision. Each asset has to be evaluated on a case by case basis.


On May 05 10:19 AM sickofthehype wrote:

> You been to China recently? Wow. Long way to go over there, and
> I mean a LONG LONG way to go.
>
> Oil is priced in dollars and I got in mid January - just watching
> things bloom now. I'll take a ton of oil stocks over a painting
> that can't be liquidated quickly.. thanks for the advice though.

Dollar Denominated Assets: Get Out Now

Of course the US is not shutting its doors for good. But the damage that has been done to the dollar will have repurcussions for all US based assets that will make the road ahead more difficult.


On May 05 09:25 AM captainccs wrote:

> Debra, are you saying the US is shutting its doors for good? You
> mean the world's largest economy is shutting its doors for good?
>
>
> If you don't have a liquidity problem, Old Masters could be a very
> good investment, indeed. But the rest of your opinion hold no water.