The Debt Elephant in the Living Room

Behind closed doors U.S. politicians on both sides of the aisle acknowledge that something needs to be done about the future cost of entitlement programs  and our growing national debt. The secular bear market view holds that the U.S. will not be able to fix these issues politically and the problem will eventually be resolved…

What I Like Most About This Rally

Back in the second quarter our theme was “consolidation and continuation”, meaning we were looking for a market correction that would lead into a continuation of the bull market (See April 20, 2012 “Looking Ahead to Second Quarter”).   Well, the correction we were looking for clearly unfolded, taking the S&P 500 down about 10% between…

Leaving Style Boxes Behind

Recently I was interviewed by Money Magazine on the topic of Exchange Traded Funds (ETFs). I pointed out that ETFs are an excellent investment tool to implement a sector rotation strategy, and that sector rotation was completely different from the Morningstar Style-Box approach to equity selection. Morningstar is perhaps the best-known research firm specializing in…

A New Kind of Hedge

We continue to position portfolios at neutral levels of risk, believing that the substantial downside risks (Europe, the looming fiscal cliff, an economic slowdown, etc.) are balanced by the growing possibility that global central banks may soon inject more stimulus that could propel risk markets higher again — similar to what’s happened the past two…

“Whatever It Takes”

As recently as this week Spanish bond yields had been roiling the markets as they crossed the 7% threshold that is considered the point of no return. With system risk rising anew, the onus was on policy makers to get moving in another attempt to bring down spreads and calm global markets. In the last…

The Humility Helmet

I just returned from a trip to Canada that took me from Niagara Falls to Toronto to Montreal to Old Quebec, and then back to the U.S. Our final stop before getting on the plane home was the Norman Rockwell museum in Brockton, Massachusetts. The museum owns hundreds of Rockwell’s original paintings, many of which…

Neutral is STILL a Moving Target

A few weeks ago, I introduced you to the concept of pro-forma portfolios, and explained how we use them to estimate our current portfolios’ position in terms of volatility and beta. There is an Italian saying that could be translated as “to trust is good, not to trust is better.” While the pro-forma portfolios give…

Economics and the Problem with Assumptions

Two of the most destructive forces for the economy are the words “let’s suppose” and the use of the = sign. When we put the two together, they form a combustible combination that gives seemingly well-intentioned and rational investors the power to disintegrate assets at will. This is because investors have a desperate need for…