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MarkTwain

MarkTwain
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  • Dire Performance By Volatile TIPS [View article]
    I think that your article somewhat misses the point that TIPS price off of nominal Treasuries of the same maturity, with the spread deriving from the market expectations of inflation. So for anyone (especially a professor like Siegel) to comment that negative real yields on TIPs are absurd strikes me as ignorant. The reality was (and possibly still is) that real yields on the far larger and more liquid market for nominal Treasuries have been repressed to negatives for some time now. All we are seeing with TIPs is the option premium for inflation-protection declining rapidly...a development I expect to reverse at some point. If you only want the inflation protection, buy TIPs and sell short the matching duration nominal Treasury.
    Jun 26 10:19 AM | 2 Likes Like |Link to Comment
  • REITs Continue to Soar [View article]
    I think you make a fair point and indeed I reduced my allocation to US REITs while maintaining my position in European REITs. However, there is the consideration that distributions should be increasing at more than the rate of economic growth given the operating leverage of real estate in a recovering market.
    May 4 01:00 PM | Likes Like |Link to Comment
  • John Hussman: Violating the No-Ponzi Condition [View article]
    I think the data set is too short (I'm starting to sound like Hussman but he is logical and consistent) to have a strong view on whether his approach is will not make money. Basically he maintains a diversified portfolio of stocks from which he expects to generate alpha within a hedging program. When he believes that market conditions AND valuations are unfavorable, he "battens down the hatches" and eliminates the market risk. This still leaves potential for alpha from stock picking although almost all of the academic literature I've seen suggests that most of the return is going to come from the market (particularly through allocation to different segments).

    He did very well in the 2000 debacle and avoided a lot of the downturn in 2008. His fault lies in not participating AT ALL in the 2009 monster rally. However, if we end up with a market like we did after the 1929 Crash then he may have the last laugh.

    My criticism is less about his thinking -- which is at a minimum very well informed and not inconsistent from some of the other "deep thinkers" like Jeremy Grantham or Andrew Smithers -- but more that his approach has the fundamental flaw of assuming that markets and market participants will behave rationally. This instills a rigidity into his thinking that you don't see with Grantham who correctly called the bottom in March 2009 as well as warning against some of the recent market tops.
    May 4 09:01 AM | Likes Like |Link to Comment
  • John Hussman: Looking Back, Looking Forward [View article]
    While I've criticized Hussman for taking $40m per year in management fees to emulate a treasury bill, I still value his views. Ultimately I think he's right in principle about many things. Just look at the stock market from 1996 to date -- the massive swings clearly indicate incredible misjudgments by the mass of investors as there is nothing in the underlying data set to justify such swings. In the 1930s you had the Great Depression, in the 1940s you had world war, in the 1970s you had the oil shock and the consequences of Vietnam followed by the Volcker tightening. But for quite some time, our market swings have been self-inflicted as excessive optimism has become the mantra du jour. Hussman is right in calling this out.

    I believe we are starting to enter the speculative zone of valuation (Hussman would say we've never left it but I just don't believe in comparing today's valuations to a data set that extends to the century before last). The ancient Romans said, "if you seek peace, prepare for war." I would say, "if you seek positive returns, prepare for losses", in other words it's time to start taking a more defensive positioning.
    Apr 27 09:06 AM | 3 Likes Like |Link to Comment
  • John Hussman: Earning More by Setting Aside Less [View article]
    Since performance has come up, I'm repeating my comment from last week. Hussman is lagging not only in a strong bull market but also following the worst bear market since the Great Crash. Old Trader, I'm not sure what market he requires in order to make money? Again, I love his thoughtful analysis, but there is a huge difference between what "should be" and what is. Dr. Hussman's approach relies extensively on what should be, and it is impossible for rational minds to disagree with his analysis. In the long term, he will be proven right; the question is whether it is worth it to his investors to pay his 1.04% management fee for years and years. OK, 1.04% is actually quite reasonable when compared to other funds, but of course this is the argument that bankers make about bonuses. If you look at his returns, they derive from a good call around 2000, and he's done nothing meaningful since. I was a big fan until he demonstrated his reliance on ideology over pragmatism and skipped the market low in March. This reminds me of the classic joke of the economist who failed to pick up a $1000 bill lying on the ground because "there is no such thing as a free lunch" in economics.

    I read him faithfully every week, not as a stock market tactician or strategist, but as an economist resource. Together with GMO's rare postings on their web site and Andrew Smithers, they bring a sobering perspective. And I don't disagree with Dr. Hussman's analysis, only the implications. F. Scott Fitzgerald could not have described Dr. Hussman's failing better:

    "The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function."

    In spite of his figleaf about two data sets (a convenient excuse to avoid taking any action -- as if in life we all walk around confronted with "one data set" and have perfect clarity -- Dr. Hussman has not retained the ability to function, at least not any better for investors than a conservative stock/bond/cash allocation would have done and without a 1% management fee.
    Apr 24 03:10 PM | 1 Like Like |Link to Comment
  • Five Emerging Market ETFs Outperforming EEM and VWO [View article]
    Consider also adding as a complement to a broader index DGS, which is the Wisdom Tree small cap dividend EM ETF. It's got a near 3% yield and a different allocation which helps diversify your EM portfolio:

    Taiwan 32.41%
    2. South Africa 11.03%
    3. Korea 8.52%
    4. Thailand 7.84%
    5. Israel 7.68%
    6. Turkey 5.97%
    7. Brazil 5.60%
    8. Malaysia 4.85%
    9. China 3.79%
    10. Mexico 2.57%
    11. Chile 2.41%
    12. Indonesia 2.16%
    13. Philippines 1.60%
    14. Czech Republic 1.26%
    15. United States 1.00%
    16. Poland 0.84%
    17. Argentina 0.30%
    18. Other 0.17%
    19. Russia 0.01%
    Apr 23 08:19 PM | Likes Like |Link to Comment
  • John Hussman: Extend and Pretend [View article]
    There is a huge difference between what "should be" and what is. Dr. Hussman's approach relies extensively on what should be, and it is impossible for rational minds to disagree with his analysis. In the long term, he will be proven right; the question is whether it is worth it to his investors to pay his 1.04% management fee for years and years. OK, 1.04% is actually quite reasonable when compared to other funds, but of course this is the argument that bankers make about bonuses. If you look at his returns, they derive from a good call around 2000, and he's done nothing meaningful since. I was a big fan until he demonstrated his reliance on ideology over pragmatism and skipped the market low in March. This reminds me of the classic joke of the economist who failed to pick up a $1000 bill lying on the ground because "there is no such thing as a free lunch" in economics.

    I read him faithfully every week, not as a stock market tactician or strategist, but as an economist resource. Together with GMO's rare postings on their web site and Andrew Smithers, they bring a sobering perspective. And I don't disagree with Dr. Hussman's analysis, only the implications. F. Scott Fitzgerald could not have described Dr. Hussman's failing better:

    "The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function."

    In spite of his figleaf about two data sets (a convenient excuse to avoid taking any action -- as if in life we all walk around confronted with "one data set" and have perfect clarity -- Dr. Hussman has not retained the ability to function, at least not any better for investors than a conservative stock/bond/cash allocation would have done and without a 1% management fee.
    Apr 18 10:37 AM | Likes Like |Link to Comment
  • On Banks: Krugman vs. Krugman [View article]
    I would agree that it's dangerous to follow the advice of economists as practical trading strategy. They operate in a different world from reality (like Plato's cave, they see images of what should be projected as shadows and disregard actual reality). Frankly if economists were so plugged into reality, why wouldn't they have been raising red flags sooner? Weather forecasting is a more exact science.
    May 9 09:44 PM | 4 Likes Like |Link to Comment
  • The 'Preferred' Way to Play Financials [View article]
    Well, PGF is now nearly $14. Did anyone take my advice? If you did at the bottom, you have nearly a triple in about 2 months.
    May 9 09:40 PM | Likes Like |Link to Comment
  • Bring in the Antitrust Division (on Banking) [View article]
    While I agree that the concentration of the banking system is a valid area for further consideration (although our system is far less concentrated than most European countries or Canada where banks have been managed well), I disagree with your overall implication that it is unAmerican as a healthy bank to announce you are healthy and intend to repay TARP asap.

    Due to circumstances that no one could avoid -- Paulson's need to destigmatize TARP 1 and Obama's need to stigmatize the bankers to avoid popular revolt -- the TARP program was in retrospect a classic case of "bait and switch." The new administration has changed the terms to such an extent that there is clear adverse selection for TARP recipients. To hold the healthier banks "captive" within TARP, is just unfair and in the longer term will only make taxpayers less well off and more pissed off. Better to let those who can stand on their own return the TARP funds and focus the efforts on the weaker banks. That's an approach that the taxpayer can understand!
    Apr 16 07:48 AM | 2 Likes Like |Link to Comment
  • The 'Preferred' Way to Play Financials [View article]
    Well, PGF is up from 5 and change to nearly 11, so it's time to rotate into the common.
    Apr 12 09:39 PM | Likes Like |Link to Comment
  • The Geithner Plan FAQ [View article]
    User 382148

    The plan was just announced but there is a 5 page white paper on the Treasury site. I would keep an eye on PIMCO who will almost certainly be one of the 5managers chosen to administer the loan purchase scheme. I would expect that they may eventually offer a product for retail investors. However, I wouldn't count on it for at least 6-12 months as the mechanism gets running. This is going to be an opportunity for at least 3 years so don't worry about getting in at the ground floor.

    The whole point is to create a "fire break" so that the economic panic wildfire doesn't continue to spread. The fire will continue to burn for quite some time.

    Mar 24 02:15 PM | Likes Like |Link to Comment
  • The Geithner Plan FAQ [View article]
    There are 4 fundamental reasons that private investors have not purchased these investments yet. First, the macro and market pictures are so cloudy and full of uncertainty that no one can effectively price risk. To the extent that a plan reduces uncertainty, it creates a positive feedback effect upon the willingness of private investors to take risk. And that in itself makes the macro and market picture less cloudy.

    Next, there has been no leverage available to purchase these assets. You can't just buy a mortgage at 70% of par and hold it for 25 years and generate the type of risk-adjusted returns that investors need today. Leverage, particularly non-recourse leverage such as what the government is providing, is necessary to goose the returns.

    Third, the banks have not been forced to sell. But you can see the proposed bonus tax as an unintentionally clever way of increasing the pain on the banks to the extent that faced with a choice of selling assets and exiting TARP so they can pay themselves well or bulling it out for 10 more years, they'll sell.

    Finally, the hedge funds themselves have been suffering massive withdrawals and have been in no position to commit capital. However, this type of "one way" bet will be seen as too good to miss. Billionaires like Leon Black generated their wealth by picking up the pieces of previous boom/bust cycles.
    Mar 22 09:15 PM | 4 Likes Like |Link to Comment
  • John Hussman: Are Stocks Really Undervalued? [View article]
    I like John but I think he's on the wrong track. Here's a letter I sent to him earlier this week:

    Dear Mr. Hussman,

    As an investor in your funds, I follow your weekly market comment with great interest. I have noted your continuing concern about the failure to restructure (as opposed to merely recapitalize) the banking system by imposing losses on bondholders. You have also emphasized the need for clarity (and effectively ringfencing) the troubled assets whose value is unknowable at present.

    While I agree with the second point (as does everyone), I actually think your proposal to restructure the banking system would do more to destabilize the financial system than anything else we could do at present.

    These bonds and preferred shares are held by investors who have shown a willingness in the past to commit capital to banks. By imposing major losses on them, you first impair their financial health, spreading the financial contagion further through the system, and, second, you destroy their appetite to invest in banks again. Worst of all, you will trigger a massive sell off in the senior securities of all financial institutions as it becomes clear the government is prepared to take advantage of the current panic to wipe out bondholders and preference holders. Just compare the value destruction after Fannie Mae wiped out preference holders with the value creation based on the generous treatment of Citigroup’s preferred stock holders.

    So then the Treasury needs to shore up the insurance companies, other banks, state governments, pension plans as well as individuals whose sudden loss of value triggers another set of dominos. In today’s market, we need all the value creation we can get: “give me a lever and I will move the world” should be the operative principle.

    Generally, I find your advice and commentary very practical and rooted in reality but in this case the last thing we need is to destabilize an entire class of financial instruments through radical restructuring.
    Mar 19 11:14 AM | 1 Like Like |Link to Comment
  • High Yielding Preferred Stocks Could Also Get the Dividend Ax [View article]
    Again, I haven't looked into BTZ fully but it's a blind pool with multiple layers of capital and using options. Sounds like exactly the sort of complex asset has been so hard to value. Transparency is king in today's market.

    Another point that I've been trying to make is that between the UK Government and the US government, you have two very strong guarantors of the issuers underlying PGF. There are no other companies, including GE, where their survival is effectively guaranteed by sovereign governments. That doesn't mean you can get restructured away but now is precisely the time when the government is trying to attract capital into public/private partnerships. Not a good idea to try that and then wipe out those who provided capital to the banks already: "this time we promise we really won't hurt you....really....no really....."
    Mar 18 10:50 AM | Likes Like |Link to Comment
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