Sun 6 Aug 2006
One area that I’ve always thought was under-represented was closed-end funds (CEFs). Most people know mutual funds and invest in them, primarily because they can buy mutual funds without incurring commissions (a pretty good reason when you’re investing with every paycheck). (more…)
Sat 5 Aug 2006
I just read a blog post at underthecounter (which references a NY Post article) that describes a hedge fund called MotherRock blowing up and losing “almost all of $450 m” after being in business for only two years.
Wow, that’s quite a failure, and fairly foreseeable. They didn’t seem to understand managing their risk and didn’t really care about the potential to lose it all.
This reminds me of some discussion of what it takes to win trading contests… a blatant disregard for risk management, luck, and very aggressive / speculative positions. It’s like these managers thought they were playing a game instead of actually trying to manage real money. After all, who decides on a Hail Mary play when you still have real money that you could return to your investors?
The good news? Trading is a zero sum game. These guys are the other side of the equation from you and I. If they’re making such big mistakes, that means there are still opportunities for us.
Sat 5 Aug 2006
It seems as though everyone is pointing to one thing or another and finding imbalances. Austrians and Keynesians fight it out as to what is right.
Schumpeter argued that economic recoveries that are largely a consequence of fiscal and monetary stimulus must ultimately fail. Schumpeter writes:
Our analysis leads us to believe that recovery is sound only if it does come from itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression undone and adds, to an undigested remnant of maladjustments, new maladjustments of its own.
I ponder this quote when I think about how the Fed aggressively lowered rates after the 2000 Nasdaq bubble burst… and how the housing “bubble” immediately formed.
When I go down this path, my main question is, “What’s Next?” So if the Fed, in it’s bubble management role is trying to slow the housing market and create a soft-landing, what maladjustment will that market manipulation produce?
Fri 4 Aug 2006
I commented a while back on the fact that we need more asset classes when defining our asset allocations. A lot of people think that it’s enough just to divide your investments between stocks and bonds. I think the world has come a long way since the original research was done when those were the only two classes of investment.
I’d include the following asset classes in my allocation strategies:
Thu 3 Aug 2006
In case you guys haven’t heard about them, Everbank has some interesting CDs available under the names MarketSafe, MetalsSelect, and WorldCurrency.
The theory is that you buy their special CDs and Everbank, and you get a 3 year CD that is tied to the performance of an index. If the index ends the 3 years below a pre-set threshhold, you get your principal back. If the index ends above the threshhold, you get your principal back plus some percentage return based on how much the index was over the threshhold.
The CDs includes indexes based on the price of Gold, Commodities, Oil, currencies (Euro, India, Iceland, Hong Kong, etc.). I think the offering for several of the CDs expires August 22, so if you’re interested do your homework quickly. (more…)
Wed 2 Aug 2006
We spend a good amount of time discussing interest rates, but there are a few different ways to look at them…
One way is the yeild curve. It looks at the current rates across many maturities right now, and many people are watching it to see if/how much it becomes inverted. There is even a web page that will calculate the probability of a recession based on the Federal Reserve’s research. (Current answer: 35%) And, of course, there’s the animated version of the yield curve.
We can also look at the yield spread ($TYX:$IRX) which compares the 30 year rate treasury bond rate and the 3 month treasury bill rate over time. (You can use the 1 month yeild ($UST1M), 1 year ($UST1Y) 5 year ($FVX), 10 year ($TNX), 30 year ($TYX), or any other yield you might want.)
As long as the line is dropping, liquidity is contracting. The line should start to rise when the FOMC starts trying to ease again, or if 30 year rates were to shoot up (bond prices would fall). This would indicate that liquidity was expanding.
We can attach a simple moving average to the chart (which StockCharts does automatically) to try and identify when a trend change is underway. This is one of the charts I regularly review to keep the concept in my mind that we haven’t seen the spreads start to widen yet.
Tue 1 Aug 2006
Decision Point.com has a good serivce and provides a perspective on the implications of retail money flowing into and out of mutual funds.
The idea is that the people who move money into and out of mutual funds frequently are doing so due to emotional reasons. Specifically, when a market is doing well, they chase the market and the buying climaxes as the price action is nearing a peak… and when prices are going down, sellers panic and sell en masse as the price action is nearing a trough.
They have some free commentary that is worth reading and reviewing… the good stuff requires a $19.95 monthly subscription.
Mon 31 Jul 2006
It looks like White Mountains (WTM) is shaking off some of the cobwebs… with today’s high, WTM was up about 12% in the last two days. It’s been a value stock that I’ve watched off and on (and owned briefly), and it looks like it might just have the energy to buck the gruelling 2 year downtrend it has been in. The 12% run is a good start…
White Mountains is an insurance company that took a bit of a hit last year with Hurricanes Katrina and Rita. They paid out about $200 million for claims. Despite the fact that they had (and have) a huge cash position that more than covered the claims ($900m then, $1.1b now), their stock price was hammered. In theory, they survived the claims and should have been able to raise insurance rates, thus making this year more profitable.
The current strength is based on their recent earnings release so it could lose momentum quickly. I’ll be watching to see if a new uptrend starts to form and thinking about buying again.
Mon 31 Jul 2006
Check out the latest price performance of Natural Gas. It’s at $8, up almost 33% since the mid-July low around $5.50. It’s still well off its 52 week high of $15 last December. (An end-of-day continuous contract chart is here.)
Goodness, I knew natural gas was a bargain at $5.50, but damn, that’s a bit of a price spike. You can see the payoff in natural gas stocks like Chesapeake Energy and Encana.
Sun 30 Jul 2006
Some clever guys (NowAndFutures.com) figured out how to reproduce the M3 statistics using public data sources. (Not a big surprise: it’s still going up.)
They also have what look to be good articles on CPI, commonly held false data, some forecasts, a good definition for bubble, plenty on real estate, a short note on the Amero (a common currency for Canada, the US, and Mexico), and even causes of death. They also have a couple of pages that aggregate charts and quotes from other sites that look to be quite handy.
On a personal note, I’m surprised that CPI doesn’t include taxes… it’s currently my largest expense.
They also have a very amusing off-topic flash bubblewrap and smack the penguin… as well asthe disclaimer, “Do your own research and make up your own mind, as usual. If you think we’re conspiracy nuts, that’s fine too.”