Kevin S. Price

Interdependence and This Crisis

It's good to see that this post has generated some heat, though I think some of the responses here reflect a less-than-subtle reading of what I wrote in the first place.

I'm not going to get too deep into the philosophy of all this, but I'll note a few things to try to allay some concerns:

1. We're a small money management shop. We have no particular/direct stake in the proposed bailout. No more, that is, than whatever stake we have as rank-and-file investors interested in seeing a functioning system.

2. We have no interest in artificially/temporari... higher asset prices per se. Indeed, our actively managed portfolio has for months featured--and still retains--a substantial cash position. We do have a very modest long position in Goldman Sachs. I can assure you it's not big enough to affect our perspective, or my writing, on the larger credit crisis.

3. As I wrote in the footnote to the above piece, we're quite concerned about the concentration of power in this or any other administration. The now-infamous section on the Secretary's un-reviewable powers won't survive the legislative process, as well it shouldn't. We're concerned about the interests of the taxpayers as well. Speaking for myself, I sense that the legislative train has slowed a little, and that's good. A deliberate process will surely produce a better outcome than a hurried one.

4. I believe very strongly in market mechanisms. I also think business and government need each other to function properly. That's the point about shedding dogmas of all kinds. Perhaps the process will play out and the "solution" will be a stripped down version of what we've seen to this point. If that's the right answer, that would be great.

5. As relatively small-scale investors a thousand miles from Wall Street, we feel plenty sour toward the masters of the universe who put us all in this position. The point about interdependence is that whatever sorts of recriminations we might want to offer, the fact is that the credit markets stared into the abyss last week. As a pragmatist (or so I'd like to think!), I'm for whatever walks us back from the edge and gets the system functioning again.

I certainly don't pretend to have all the answers, but I doubt the best available answers will conform perfectly to many people's idealized and abstract notions. Including my own!

Morningstar's 'Vastly Superior' ETF Research?

Milo--In noting that it was "too easy," I tried to acknowledge that the single instance of XLF should not be viewed as indicative of Morningstar's entire effort. But it is reflective of the hubris of the entire undertaking, one in which consumers of this information have to hope the whole (the ETF fair value estimate) is worth more than than the sum of its parts (the individual stock fair value estimates). I don't see it working that way--and I don't think this is a particularly useful of thinking about ETFs anyway. For the vast majority of investors, they should be part of long-term asset allocation strategies, not the sort of gun-slinging implicit in Morningstar's construct.

In any case, the argument of this post isn't contingent on what happens to XLF in the near term. I just threw it in to be a little extra snarky. That may sit better with some readers than others, but it doesn't invalidate the overarching logic of the post.