The Big Picture for the Week of November 1, 2009

Short post today. The media paid a lot of attention to several things yesterday. The huge move up in the fear gauge, aka the VIX. Dollar up means stocks down. 1042 is a very important number for the S&P 500. All of these things are very very important. Unless they’re not. The VIX’ importance ebbs and flows. Sometimes it is important but sometimes not. It is not clear to me that the best application of VIX is as a coincident indicator IE VIX up a lot today so stocks are down. For now there does seem to be something to dollar up stocks down. If concerns about the greenback come to fruition (perhaps it makes more sense to say play out further) then this relationship should be expected to change. The bigger picture I have been working with has been the US as a less attractive investment destination than other countries. If this turns out to be correct then the dollar will go down slowly and stocks will go up most of the time (but less than many other markets). The point here is that dollar up stocks down will likely change soon. If you think of yourself as an investor, as opposed to a trader, then 1042 means nothing. Whether the market goes up or down from here investors should take solace the the US capital markets are not permanently broken. At current levels the SPX is about 400 points from the low and 500 points from the high so sort of in the middle. In that context, if you believe that the US markets will function, does...

The Big Picture for the Week of November 1, 2009

Short post today. The media paid a lot of attention to several things yesterday. The huge move up in the fear gauge, aka the VIX. Dollar up means stocks down. 1042 is a very important number for the S&P 500. All of these things are very very important. Unless they’re not. The VIX’ importance ebbs and flows. Sometimes it is important but sometimes not. It is not clear to me that the best application of VIX is as a coincident indicator IE VIX up a lot today so stocks are down. For now there does seem to be something to dollar up stocks down. If concerns about the greenback come to fruition (perhaps it makes more sense to say play out further) then this relationship should be expected to change. The bigger picture I have been working with has been the US as a less attractive investment destination than other countries. If this turns out to be correct then the dollar will go down slowly and stocks will go up most of the time (but less than many other markets). The point here is that dollar up stocks down will likely change soon. If you think of yourself as an investor, as opposed to a trader, then 1042 means nothing. Whether the market goes up or down from here investors should take solace the the US capital markets are not permanently broken. At current levels the SPX is about 400 points from the low and 500 points from the high so sort of in the middle. In that context, if you believe that the US markets will function, does...

Follow Ups & Other Fun Facts

A few days ago I wrote somewhat critically about the IQ CPI Inflation Hedged ETF (CPI) and IQ Arb Global Resources ETF (GRES) and said I would try to listen on the conference call IndexIQ was hosting to explain the funds. I was able to get to the call and did learn a few things. Regarding CPI I said I was baffled at the complete omission of any sort of TIPS product in favor of such a heavy weight to short term t-bills. I allowed that with stated inflation being so low that t-bills could work for now. They have done backtesting galore and the backtests have been successful. For the last year (I think have that time frame right) the index outperformed the reported CPI index by well over 200 basis points, pretty good given the objective. For now the reported inflation environment is benign so the fund can be heavy in t-bills. At times of higher inflation the fund will allocate more to things like gold, oil and even equities and “real estate.” Presumably real estate means REIT ETFs. So the success of the fund will rely on correct assessment and timing of inflation trends. It would seem to me that if inflation kicks up and at the same time somehow the other things they would use to protect against inflation, based on past backtest success, went down that the concept would fall flat. That is not a prediction just the obvious threat. The reason for no TIPS exposure is that it turns out that per their research TIPS have a very low correlation to the reported...

Follow Ups & Other Fun Facts

A few days ago I wrote somewhat critically about the IQ CPI Inflation Hedged ETF (CPI) and IQ Arb Global Resources ETF (GRES) and said I would try to listen on the conference call IndexIQ was hosting to explain the funds. I was able to get to the call and did learn a few things. Regarding CPI I said I was baffled at the complete omission of any sort of TIPS product in favor of such a heavy weight to short term t-bills. I allowed that with stated inflation being so low that t-bills could work for now. They have done backtesting galore and the backtests have been successful. For the last year (I think have that time frame right) the index outperformed the reported CPI index by well over 200 basis points, pretty good given the objective. For now the reported inflation environment is benign so the fund can be heavy in t-bills. At times of higher inflation the fund will allocate more to things like gold, oil and even equities and “real estate.” Presumably real estate means REIT ETFs. So the success of the fund will rely on correct assessment and timing of inflation trends. It would seem to me that if inflation kicks up and at the same time somehow the other things they would use to protect against inflation, based on past backtest success, went down that the concept would fall flat. That is not a prediction just the obvious threat. The reason for no TIPS exposure is that it turns out that per their research TIPS have a very low correlation to the reported...

Down On The Farm?

This week’s post from Jeffrey Saut took a look at a different type of Permanent Portfolio that not shockingly to long time readers I found to be very intriguing even if very difficult to implement. Maybe more correctly, impossible to implement… for now anyway. Saut took this idea from a mentor from his early days in the business named Lucien Hooper who liked the idea of 25% into equities, 25% into bonds, 25% into precious metals and 25% not into cash like Harry Browne but that last 25% into farmland. I’ve written quite a few times about farmland as a potential investment and while it is intriguing on some level it is difficult to access. Saut mentioned Cresud (CRESY) from Argentina which owns a lot of farmland but also owns a lot of cattle. There is an English version of the website if you’re so inclined to learn about it. In the post Saut also mentioned an area in the Ukraine where the “black earth” is very suitable for farming without mentioning the one stock I have looked at casually before Black Earth Farming which is listed in Sweden with ticker BEF-SDB and on the US pinksheets with ticker BLERF. He does suggest (clients have their reps) calling “the desk” for specific names. There are other stocks around the world, but not many, and they are not easy to trade or even closely follow but conceptually stocks of this sort from Malaysia, Indonesia or elsewhere in Latin America could be of interest. On a related note BTW, Paraguay (mentioned the other day as being the world’s fourth largest grower...