New Years Eve Mish Mash

Long time reader Stephen Drone pointed us to an article from Tim Middleton dated yesterday in which he plans to use double long ETFs because he expects a big move up in stocks. I don’t think I have ever been a regular reader of his stuff and if I ever was I haven’t been for ages. Per the article he is putting 10% in the double long S&P 500 (SSO), 6.2% in the double long mid cap (MVV) and 6.2% in the double long small cap (SAA). His logic is “…That makes both stock and bond prices compelling right now. Ergo, I want to own a ton of both. And thanks to leveraged ETFs, I can.” He mentions that sometimes these funds “misbehave” but that they would have done the trick over some period of time. He may be right about the market or not in terms of direction but owning the double long funds may not work even if he is right. In 2007, which was an up year, SSO lagged the S&P 500 SPDR (SPY). The combination of up and down days will determine how a levered fund does over time and obviously there is no way to know ahead of time. That he makes the misbehave comment at all would seem to imply he knows that they may not capture the effect over a longer period of time yet he is buying them anyway. I have picked on him a couple of time before (but it haven’t mentioned him since May, 2006) for a couple of different things. Everyone gets some calls wrong so I won’t...

New Years Eve Mish Mash

Long time reader Stephen Drone pointed us to an article from Tim Middleton dated yesterday in which he plans to use double long ETFs because he expects a big move up in stocks. I don’t think I have ever been a regular reader of his stuff and if I ever was I haven’t been for ages. Per the article he is putting 10% in the double long S&P 500 (SSO), 6.2% in the double long mid cap (MVV) and 6.2% in the double long small cap (SAA). His logic is “…That makes both stock and bond prices compelling right now. Ergo, I want to own a ton of both. And thanks to leveraged ETFs, I can.” He mentions that sometimes these funds “misbehave” but that they would have done the trick over some period of time. He may be right about the market or not in terms of direction but owning the double long funds may not work even if he is right. In 2007, which was an up year, SSO lagged the S&P 500 SPDR (SPY). The combination of up and down days will determine how a levered fund does over time and obviously there is no way to know ahead of time. That he makes the misbehave comment at all would seem to imply he knows that they may not capture the effect over a longer period of time yet he is buying them anyway. I have picked on him a couple of time before (but it haven’t mentioned him since May, 2006) for a couple of different things. Everyone gets some calls wrong so I won’t...

Municipal Debt

Doug Kass wrote up his list of 20 surprises in 2009 for theStreet.com. Included in the list is the following; 11. State and municipal imbalances and deficits mushroom. The municipal bond market seizes up in the face of poor fiscal management, revenue shortfalls and rising budgets at state and local levels. Municipal bond yields spike higher. A new Municipal TARP totaling $2 trillion is introduced in the year’s second half. I don’t know about any muni Tarp but I have written a couple of posts expressing concern about going into this area. Many people in print and on TV are extolling the space for the yields available. I take the yields as a warning of something coming. There is some stat out there, I think I saw it on Barry’s site a while back, about 31 states either having a deficit or soon to have a deficit. One could argue that treasury yields are so low because of the crisis/deleveraging/flight to safety trade which is of course true but we need to watch out for justifying abnormalities. An anomaly that lasts for months isn’t an anomaly it is something else–IMO it is a warning. As opposed to trying to quantify what it all means I’d rather just heed the warning not have a meaningful commitment to the space. This is what I wrote about and did in the portfolio with financial stocks when the yield curve inverted. Just lightening up into an early warning is enough to reduce pain. Look at many of the famous value mutual funds that held on to (and probably still own) financial stocks too...

Municipal Debt

Doug Kass wrote up his list of 20 surprises in 2009 for theStreet.com. Included in the list is the following; 11. State and municipal imbalances and deficits mushroom. The municipal bond market seizes up in the face of poor fiscal management, revenue shortfalls and rising budgets at state and local levels. Municipal bond yields spike higher. A new Municipal TARP totaling $2 trillion is introduced in the year’s second half. I don’t know about any muni Tarp but I have written a couple of posts expressing concern about going into this area. Many people in print and on TV are extolling the space for the yields available. I take the yields as a warning of something coming. There is some stat out there, I think I saw it on Barry’s site a while back, about 31 states either having a deficit or soon to have a deficit. One could argue that treasury yields are so low because of the crisis/deleveraging/flight to safety trade which is of course true but we need to watch out for justifying abnormalities. An anomaly that lasts for months isn’t an anomaly it is something else–IMO it is a warning. As opposed to trying to quantify what it all means I’d rather just heed the warning not have a meaningful commitment to the space. This is what I wrote about and did in the portfolio with financial stocks when the yield curve inverted. Just lightening up into an early warning is enough to reduce pain. Look at many of the famous value mutual funds that held on to (and probably still own) financial stocks too...

The NZ Perspective

Liam Dann: Keep calm, all things must pass – Best of business analysis – NZ Herald News: Money Funny quote. There will be a downturn. It will fall somewhere between Mad Max and ‘a bit bumpy’ in severity. On a related note I wrote about New Zealand port stocks for greenfaucet today. I hope you can check it...