Emulating Endowments With ETFs

My latest post for Alpha Baskets is posted and includes the following; To the extent timberland is an alternative holy grail with a low correlation and high returns (not saying it is, please bear with me here) the exchange traded vehicles that target timber one way or another don’t quite offer the same exposure. I looked at two ETFs that track timber-related companies and the problem is that they tend to be cyclical (many of the companies are in the materials and real estate sectors) and so the correlation is fairly high, running 0.70-0.75 most of the time, for something that someone might hope is an alternative to equities. Even lumber futures don’t seem to do the trick, the correlation appears to increase when equities go down, again maybe because it is cyclical. Please click through to read the entire post. Bureau of Land Management Engine 2311, one of my favorite engine panel shots I’ve ever taken. 49 Palms Oasis hike at Joshua Tree National Park. Neat old...

Lower Returns For Longer?

My latest post for Alpha Baskets is posted and includes the following; Ramsay’s comment about expecting 3-4% returns over the next ten years reminds me of John Hussman’s process which simplistically put says that based on prevailing valuations the next X number of years should produce X% in annual returns. Hussman’s conclusions have not been correct during the bull run, he’s thought the markets have been overvalued all the way up such that return prospects were dim and even if he’s been right about valuation the market has of course skyrocketed. Please click through to read the entire post. Type 3 Engine from Summit Fire in Flagstaff at the Goodwin Fire in June Ford Sportsman in Prescott from about a year ago Type 4 from Idaho staged in Missoula in...

Unlucky 7’s

The weekly Market Update is posted and includes the following; Just about everyone knows the ongoing concern that domestic equity valuations are too high (even if you disagree, you know about it). One common justification for “high” valuations that you have no doubt also heard is that low interest rates allow more room for higher valuations because low rates mean fixed income valuations are stretched which alters the equity risk premium. Mark Yusko from Morgan Creek Capital says otherwise. Low interest rates, he says, are a sign of diminished growth expectations which is hard to argue with in the current environment looking back a few years and looking forward. If growth expectations are diminished then so too should corporate earnings growth expectations be diminished and if that is true then low interest rates should mean equity valuations should be lower not higher which, finishing the thought makes today’s relatively high valuations even more problematic. Please click through to read the entire update. Grand Tetons National Park Mammoth Hot Springs in Yellowstone National Park Glacier National...