The Future Of Fixed Income Investing

You probably heard about the investment fund in Florida that had to suspend withdrawals due to having too much allocated into SIVs. You might have heard about a public fund in Montana going through a similar ordeal. You may not have heard about the Norwegian brokerage that shut down for putting money from four different townships in to similar vehicles. One by-product from the tech wreck is that some people learned a lesson and now know more about not allocating too much, like 50%, into one sector. Maybe this can be thought of as a back to basics for equities. The current meltdown of complex fixed income products having to do with mortgages and CDOs levered up and “stress tested” could very likely lead to a simplification of fixed income investing even if just for individuals. A few months ago I mentioned Nassim Nicholas Taleb’s suggestion of putting 90% of a portfolio in t-bills from various countries and then letting it ride with the other 10%. To take that idea in a different direction there is no simpler strategy in fixed income investing than t-bills. This is also true of foreign t-bills (and notes). Accessing them can be more difficult but the strategy is simple. The ETF industry is starting to create funds that provide access foreign fixed income products. I believe that that over the next couple of years there will be a lot more funds as investor demand for this segment increases. I have small positions for some clients in two year (now 18 month) sovereign debt from Norway, the UK or both. Foreign debt, individual issues...

The Future Of Fixed Income Investing

You probably heard about the investment fund in Florida that had to suspend withdrawals due to having too much allocated into SIVs. You might have heard about a public fund in Montana going through a similar ordeal. You may not have heard about the Norwegian brokerage that shut down for putting money from four different townships in to similar vehicles. One by-product from the tech wreck is that some people learned a lesson and now know more about not allocating too much, like 50%, into one sector. Maybe this can be thought of as a back to basics for equities. The current meltdown of complex fixed income products having to do with mortgages and CDOs levered up and “stress tested” could very likely lead to a simplification of fixed income investing even if just for individuals. A few months ago I mentioned Nassim Nicholas Taleb’s suggestion of putting 90% of a portfolio in t-bills from various countries and then letting it ride with the other 10%. To take that idea in a different direction there is no simpler strategy in fixed income investing than t-bills. This is also true of foreign t-bills (and notes). Accessing them can be more difficult but the strategy is simple. The ETF industry is starting to create funds that provide access foreign fixed income products. I believe that that over the next couple of years there will be a lot more funds as investor demand for this segment increases. I have small positions for some clients in two year (now 18 month) sovereign debt from Norway, the UK or both. Foreign debt, individual issues...

Roller Coaster

The market is on quite a roller coaster (this picture is funnier than a random roller coaster picture). Was there despair on Monday? Is there glee now? Is this a bear market or just a dip that should have been bought? If you have been reading this site for a while you know where I stand. In assembling a thesis, which I still absolutely believe, it makes sense to think about what will tell you if you turn out to be wrong? I have a firm opinion that could be wrong. The rally closed Wednesday right at the exponential 200 DMA and a couple of points below the simple 200 DMA (according to BigCharts.com). As RW mentioned in the comments last night a new high made with conviction damages the bear case. Much was made that the lift on Wednesday came from Donald Kohn’s comments that seemed to put a rate back in play. So either the rate cut rally is now done (not a good sign) or we get another one if they cut in December (which I would take as a good sign for the market). One other point I have tried to make a couple of times in the last few days is that this type of rally in a bear (if that is what this is) is far from unusual and actually thus far unremarkable. In 2000 there were several rallies exceeding 10% after the peak in March (sorry Jasper I said one was 20% in the comment but it looks like the biggest rally was more like 15%). From April 2001 to mid May...

Roller Coaster

The market is on quite a roller coaster (this picture is funnier than a random roller coaster picture). Was there despair on Monday? Is there glee now? Is this a bear market or just a dip that should have been bought? If you have been reading this site for a while you know where I stand. In assembling a thesis, which I still absolutely believe, it makes sense to think about what will tell you if you turn out to be wrong? I have a firm opinion that could be wrong. The rally closed Wednesday right at the exponential 200 DMA and a couple of points below the simple 200 DMA (according to BigCharts.com). As RW mentioned in the comments last night a new high made with conviction damages the bear case. Much was made that the lift on Wednesday came from Donald Kohn’s comments that seemed to put a rate back in play. So either the rate cut rally is now done (not a good sign) or we get another one if they cut in December (which I would take as a good sign for the market). One other point I have tried to make a couple of times in the last few days is that this type of rally in a bear (if that is what this is) is far from unusual and actually thus far unremarkable. In 2000 there were several rallies exceeding 10% after the peak in March (sorry Jasper I said one was 20% in the comment but it looks like the biggest rally was more like 15%). From April 2001 to mid May...

Making A List

One term I hate is “making a list.” In various interviews the person being interviewed might be asked about making a shopping list of names to buy for when things get cheaper. While I am being overly critical it seems that many do-it-yourselfers are in to whatever extent they want to be in and so buying some stock when it gets cheaper probably means selling out of something else that might also have gotten cheaper. “That being said, I do have some thoughts” (that was Austin Powers’ line to Stephen Spielberg at the start of the movie Gold Member). I have been clear that I think the odds now of a bear market are very high, if I am right it would have already started but who knows? If that turns out to be correct that means the bear market will last however long it lasts, I believe 18 months is the norm, and then it will end. For anyone who is inclined to make any changes ever to their portfolio, the transition from bear to bull would be one of the times to make some changes. I’ve probably picked out seven names so far to rotate in to the mix which would probably change the overall characteristics of the portfolio by a noticeable amount. At this part of the cycle reducing volatility (for me that mean more cash, some double short and a larger cap bias) makes sense. Coming out of a bear I would think it makes sense to increase volatility (so I would have less cash, no double short and have a smaller cap bias). The...