A Lot of Market Stuff & the Maui Invitational!

This week’s Market Update is posted and includes the following; The spread between two year and ten year treasuries narrowed to 63 basis points last week (61 basis points this morning), keeping fears alive that we are on the way to an inversion. T. Rowe Price made some noise last week calling for the spread to zero out in 2018 with most of the narrowing coming from increases in Fed policy. The FOMC obviously understands the implication of an inverted curve (it’s recessionary because lending is no longer profitable) so something may have to give in terms of the FOMC stopping short or allowing the curve to invert if the market doesn’t bail them out with higher long rates. Please click through to read the entire update. In honor of the Maui Invitational, a couple of pictures from when I went in 2008 and...

Shiller Is Wrong

My latest post for Alpha Baskets is published and includes the following; According to ETF.com there are 58 ETFs focused on technology totaling about $70 billion. They all appear to be index funds or smart beta funds, but any use of these funds would clearly be part of an active strategy. Ditto any other sector funds or funds that are narrower than sectors. While someone might pushback on me that there is no passive strategy that uses tech sectors funds, what would be the passive use of a Chinese internet stock ETF be? Please click through to read the entire post. The Baja 1000 just ran and while I didn’t go, here are some the trucks that participated (my pictures are from the Mint 400 in...

Very Odd And Unfamiliar Crimson Hue On My Screens

The title for the weekly Market Update comes from a Tweet from Todd Harrison. The update also includes the following; Gold hit an air pocket on Friday after a widely reported sale of futures that had a notional value of $4 billion. This equates to about 10% of average daily volume in one trade. Although we found nothing to support this, our first inclination is to think we might subsequently hear it was a fat finger situation, a trade error. Bitcoin also hit an air pocket on Friday dropping more than 7% at its low, continue to fall over the weekend. Zerohedge blamed comments from Dennis Gartman as being the catalyst for the drop. Maybe the 25% increase the week before might have contributed to some over exuberance leaving it ripe for some sort of decline or correction. The Wall Street Journal posited that Bitcoin might be the Most Dramatic Bubble Ever. Take it easy everyone. As we said a couple of weeks ago, at $200 billion for all the cryptocurrencies it is still just a tiny fraction of the size of the internet bubble. For some perspective, here’s a link from November 2000 headlining a $1.7 trillion decline in market cap for the dot coms and that was only a few months after the peak, there was still a long way to go. Please click through to read the entire update. Lone buffalo in Yellowstone National Park Badlands National Park Prescott Fire Engine 731 with a fisheye...

Don’t Get Done In By Unintended Overweight Exposure

My latest post for Alpha Baskets covers a lot of ground and includes the following; With a starting point being 60/40 equities/fixed income, the proposed (theoretical?) portfolio allocates 37% to fixed income so that’s not far from 40 but takes a lot from equities to put into diversifiers. Emerging market equity gets about 2/3rd of the overall equity allocation and using iShares funds as proxies, emerging market equity has a standard deviation of 15% compared to 10% for the S&P 500 so maybe the authors are viewing EM’s standard deviation as a form of leverage, more bang for the buck although to be clear the paper doesn’t say that. Please click through to read the entire post. Park Avenue in Arches National Park Virginia Lake (or Falls?) at Glacier National Park Mount Rainier National...

What Is Risk Allocation & Should You Invest In It?

My latest post for Alpha Baskets is posted and includes the following; This topic is always interesting to ponder and fun to write about. As I have said many times before my introduction to the idea that allocations can go beyond 70/60/50 equity, the rest in fixed income goes back to the 90’s when I first read about Jack Meyer who was running the Harvard Management Company, the endowment, and he was talking about timberland as an alternative investment. This has long influenced how I manage portfolios, dynamically increasing or decreasing to alternatives or as I have called them before, diversifiers, based on where I thought we were in the market cycle. Please click through to read the entire post. Kenan Stadium at the University of North Carolina. Lisbon, Portugal Mint 400, Las...