Be Careful with Alternative Investments

I have been on the road quite a bit recently, appearing at several professional conferences around the country. One fellow speaker at a conference in San Diego was Dr. Christopher Geczy, a finance professor at the Wharton School and the new academic director of the Wharton Wealth Management Initiative. His impressive resume features a B.A. in economics from the University of Pennsylvania and a Ph.D. in finance and econometrics from the Graduate School of Business at the University of Chicago. Professor Geczy’s talk was both much anticipated and well received.

The Global Roller Coaster Ride Continues

So far in 2013, U.S. investors have enjoyed a steady climb in stocks, with the major market averages surging into record-high territory. There’s been a near absence of any sort of market volatility, with the CBOE Volatility Index (VIX) sliding to multi-year lows. Whatever the reasons behind the rally, it’s been gradually bringing back positive vibes on the part of market participants. In other parts of the world, however, the story is different: There’s been a greater degree of volatility in many international markets, and in general, international stocks have lagged behind the U.S.

Sometimes the Story is What You Don’t Own

The last two days in gold have been downright nasty, as it has lost roughly 13% of its value in that time. That is clearly not what one would have expected in a so called “safe haven” asset class. As always in markets, with a huge move comes big media attention when everyone gets to weigh in on why gold has plummeted over the past few days. Some say large hedge funds have been forced to liquidate, some think the safe haven trade is over, and some believe the great rotation might be a commodity rotation into equity.

Telling Investment Stories

The way we explain our process for managing portfolios has significantly changed over the past few years. It seems that both retail and institutional investors want to hear more about how ‘the sausage is made’ than they did a decade ago. And why not? The financial markets have been difficult to navigate since the market topped in the year 2000 and good consumers want to know how we might fare if the markets remain challenging in the future. While I appreciate the work that has gone into fine-tuning our message, one aspect of our investment process is just as relevant as it was when we started tactically and actively managing portfolios in October 2002: We try to find investment opportunities that have a great story.

Is the Yen Moving Higher Again?

J.C. Parets with does fantastic technical work, and he is telling his readers to watch the Yen/USD exchange. The chart below shows this relationship; a falling line means that the Yen is gaining against the U.S. Dollar. The Yen is rallying hard today on the back of a manufacturing miss here in the U.S., and is pushing below some key technical levels. The short term uptrend marked in white has been broken, the $94 support/resistance level has been broken, and the 50 day Moving Average has been broken. A stronger Yen seems to be the play here.

Beyond the Rubber Band Effect

One concept that is common in the investment world is the idea that assets will typically revert to the mean or mean reversion (the average). This may seem a bit contrarian since it essentially means that when an asset price returns in excess of its long term average return profile, over time it will likely reverse course and return to that long term average. Imagine a rubber band that gets stretched…. and then eventually snaps back to its normal size.

No-One Told Gold About the Currency Wars

One of the hot investment phrases streaming through the investment media lately is “currency wars.” This refers to the idea that governments around the globe are fostering weak currency policies in order to export their way to prosperity at a time when world aggregate demand is weak. Japan is the latest country to weaken its currency, as new leadership has recently diluted the value of the Yen materially in an attempt to jumpstart their way out of deflation. So with all these countries racing their currencies to the bottom, shouldn’t gold be the store of value that we can all depend on? One look at the chart below tells you that gold has not received the memo.