Tidbits Over Coffee

Our friends Russell and Michelle have been visiting from Fresno for the last few days and are headed out this afternoon so the video will come later than normal. Russ was my best man when Joellyn and I got married in 1993.

The market will be closed four days in a row; all of Pisani’s chatter about this notwithstanding it is a nice break.

Barron’s has some great stuff this week. There was some content about WisdomTree’s progress so far. The more I think about it the more I think what they are doing will lead to a lot more innovation throughout the industry as a function of needing to compete.

Barron’s also had a bit on the India ETN (INF) and what you know, Sonya Morris from Morningstar didn’t have anything good to say. She feels India has had its run. Great but a diversified portfolio combines stuff that has had its run and stuff that hasn’t run yet. India has run and healthcare hasn’t. Couldn’t India keep running and couldn’t healthcare not run again? Do you have be 100% right to have success?

The Current Yield column had some predictions for the yield on the ten year treasury. I am not part of what appears to be a four handle-consensus. I am hoping for a growth spurring steepening of the curve which could mean the mid fives to low sixes at some point in the near future. I don’t think we avoid a normal recession (as I have been saying all along) but if it comes it will end and then we will grow by some measure. I’m not sure why more people don’t hope for normal.

The Asia Trader column cited a consensus for another great year for emerging markets in 2007. As I noted in last week’s video a year of less than world beating growth would not be a surprise. Emerging markets strikes me as being prone to an over optimistic consensus. In my time in the business I can’t seem to recall the consensus ever correctly calling a turn. The long term big macro is alive and well as far as I am concerned but a year of cooling off would be far from the worst thing that could happen. Please don’t add 2+2 here and get 22 as this is not a call to go to zero weight but if you are wildly overweight you may want to reexamine.

The Interview was also about emerging markets, with Arjun Divecha from GMO. He noted that five years ago emerging market PEs were nine vs 13 today. He says lower rates have contributed to the success of the last few years (oops, excess liquidity issue?). His favorite country is Taiwan and he also likes Thailand, Brazil and Korea.

More later this weekend.

9 Comments

  1. Roger, I was unable to leave a comment to your NY post. I’ll wish you a Happy New Year. I enjoy your blog and appreciate your taking time to share your perspective.

    Reply
  2. Best wishes for the new year, Roger.

    I allways find your measured comments
    thought provoking.

    Jay Charles

    Reply
  3. Roger,

    I also want to thank you for sharing your vast knowledge and insights. Wishing you a happy and prosperous new year.

    Here are the models for the week:

    Timing Model = 0.5
    60% long, 40% cash

    Global Asset Allocation

    MSCI EAFE Index 30%
    MCCI Emerging Markets Index 40%
    Russell 3000 Index – U.S. 30%

    U.S. Sector Ranks

    U.S. Telecommunications 6.5
    U.S. Financials 4.5
    U.S. Real Estate 4.0
    U.S. Consumer Goods 3.0
    U.S. Utilities 3.0
    Small Cap Value 2.5
    U.S. Banks 2.5
    U.S. Basic Materials 2.5

    Top Intl. Ranks

    MSCI Spain Index Fund 3
    MSCI Mexico Index Fund 3
    MSCI Singapore Index Fund 3
    MSCI Sweden Index Fund EWD 3
    FTSE/Xinhua China 25 Index Fund 3
    S&P Latin America 40 Index Fund 3
    MSCI Malaysia Index Fund 3
    MSCI Austria Index Fund 3
    MSCI Emerging Markets Index Fund 3
    MSCI Brazil Index Fund 3
    MSCI Germany Index Fund 3

    Top Ranked Styles, Regions & Asset Classes

    S&P Latin America 40 Index 4.0
    FTSE/Xinhua China 25 Index 4.0
    MSCI Pacific Free ex-Japan Index 4.0
    MSCI European Monetary Union Index 3.0
    MSCI Emerging Markets Index 3.0
    S&P Europe 350 Index 2.0
    MSCI Hong Kong Index 2.0
    Dow Jones Wilshire REIT index 1.0
    MSCI EAFE Value Index 1.0
    Silver 1.0
    MSCI EAFE Index 1.0

    Emerging Markets continue to dominate global equities – I can’t imagine a repeat performance in 2007 but I’ll just go with the flow. My timing model is still stuck at 0.5 leaving me with a whole lot of cash on hand. Fortunately my total return didn’t suffer much because of my heavy overweighting in internationals (I was up 20.89% for the year).

    Because the sentiment models I watch are toppy and the yield curve is ugly I’m expecting a sizable selloff sometime in the first half of 2007.

    Reply
  4. Roger,

    Any thoughts on ishares’ Global S&P sector funds vs. WisdomTree’s International sector funds.

    Thank you,

    CA

    Reply
  5. As products increase, would than not mean that we average diyers have more sources of alpha? For me, mutual funds are behind me, though I would not be too rigid about this, never say no. Well, it was the uniqueness of the oef manager that brought value to the table. Now, with etfs, the alpha should be more transparent and easier to see as different from other altnernative etfs. In building a portfolio (it was tongue in cheek when I referred to this in a prior post) I do want to go beyond sector and asset diversification. Within the branches of the tree,so to speak, why not allocate to different “strategies”…fundamental rules, equal weighting, intellidex, sector rotation, defensive rotation, and more to come. Can Roger help us with making a list of strategic etfs, spot the caveats where evident, and consider how to integrate them into a portfolio? Just a thought that problably needs some more structure.

    Reply
  6. thanks for the new years wishes.

    TomK, props on an excellent year!

    I will address the alpha question in a separate post or this week’s video.

    Reply
  7. tom k: do you have a take on the acceleration pdf that you posted? My translation is to compare roc in the first 6 month period to the more recent 6 month period, and then wait 3 months for confirmation, which implies a total look back period of 15 months. Eventually, I hope to overcome a learning curve for how to use some software to start generating mom models, sort of best fit to price action (trending, range bound, overbought,etc..but really not sure if all those gyrations will be productive. Currently, “graduated” to using log returns.

    Reply
  8. Anon, I skimmed the paper and haven’t spent any time trying to decipher how they calculated acceleration. Here’s the link if anyone else wants to take a look:
    http://www.tiny.cc/yFBrH

    Reply
  9. I read 9 blogs daily, and I look forward to yours the most.
    Hope that you will (once again?) describe your portfolio including %’s.
    I am now, at year end, about 50%cash, 40%bonds and hoping for some kind of correction so that I can get back into the market.

    Reply

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Tidbits Over Coffee

Our friends Russell and Michelle have been visiting from Fresno for the last few days and are headed out this afternoon so the video will come later than normal. Russ was my best man when Joellyn and I got married in 1993.

The market will be closed four days in a row; all of Pisani’s chatter about this notwithstanding it is a nice break.

Barron’s has some great stuff this week. There was some content about WisdomTree’s progress so far. The more I think about it the more I think what they are doing will lead to a lot more innovation throughout the industry as a function of needing to compete.

Barron’s also had a bit on the India ETN (INF) and what you know, Sonya Morris from Morningstar didn’t have anything good to say. She feels India has had its run. Great but a diversified portfolio combines stuff that has had its run and stuff that hasn’t run yet. India has run and healthcare hasn’t. Couldn’t India keep running and couldn’t healthcare not run again? Do you have be 100% right to have success?

The Current Yield column had some predictions for the yield on the ten year treasury. I am not part of what appears to be a four handle-consensus. I am hoping for a growth spurring steepening of the curve which could mean the mid fives to low sixes at some point in the near future. I don’t think we avoid a normal recession (as I have been saying all along) but if it comes it will end and then we will grow by some measure. I’m not sure why more people don’t hope for normal.

The Asia Trader column cited a consensus for another great year for emerging markets in 2007. As I noted in last week’s video a year of less than world beating growth would not be a surprise. Emerging markets strikes me as being prone to an over optimistic consensus. In my time in the business I can’t seem to recall the consensus ever correctly calling a turn. The long term big macro is alive and well as far as I am concerned but a year of cooling off would be far from the worst thing that could happen. Please don’t add 2+2 here and get 22 as this is not a call to go to zero weight but if you are wildly overweight you may want to reexamine.

The Interview was also about emerging markets, with Arjun Divecha from GMO. He noted that five years ago emerging market PEs were nine vs 13 today. He says lower rates have contributed to the success of the last few years (oops, excess liquidity issue?). His favorite country is Taiwan and he also likes Thailand, Brazil and Korea.

More later this weekend.

Submit a Comment

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