Tuesday one of my colleagues and I met with someone and we were talking about portfolio stuff and there was a snippet of the conversation that, based on how I framed my answer, might be a useful way to think about where returns might come from.The chart is the USD versus the Norwegian krone for the last year. The chart shows the trend of dollar weakness in krone terms.
The blue dot to left is about where I got in last spring using two year sovereign debt. The move from six to about 5.05 is almost a 16% gain in one year, we will take in a little bit of coupon interest in the next few days too.
There are all sorts of things like this that in a given year can give equity like returns without exposure to equities. I would not expect the something, like Norwegian sovereign debt, to provide equity like returns every year but there is always something (many things actually) capable of this.
Finding one of these every year is not a realistic expectation and obviously knowing where to look is difficult. I think the idea behind this is that, depending on the time you can or want to spend, each do-it-yourselfer can follow a certain amount of things. For one person it might be ten things and for another it might be two.
When I say things I am talking about some of the ideas I have touched on in past posts that I watch like debt from quite a few countries (only have exposure to three mind you and no single client has more than two of them), hydro funds and the like. These are a couple of things I watch perhaps you have a couple along these lines you watch and know a little bit about. If you know a little bit about pulp futures, for example, you might be in touch with when might be a better time to add exposure.
Maybe none of this ring true to you, so maybe I am saying this could be something new to seek out and learn about. This ties into the idea that US equity returns might be a little lower than normal for a while longer. Lower than normal returns from things like the S&P 500 might cause some folks to seek out more exposure to stocks or sectors that are both hot and volatile in order to get their returns.
So maybe instead of relying on 10% into Potash (POT) and 10% into Petrobras (PBR) you could allocate to something you know about that is not a volatile equity but can deliver an equity-like result. Perhaps the benchmark for this concept is getting 15% from US treasuries in the very early 1980s.
3 comments:
There is always error in reported numbers and todays cpi may have more than usual. Another possibility is the inflation vs deflation scenarios based on loan defaults.
It will be very interesting to see which way this goes. I think we need to keep this in mind when looking into evaluating where to invest.
I had the pleasure of traveling around Norway for several months last year. It is a remarkable country and they have done an amazing job managing their natural resources. The country has a $600 billion dollar pension fund, a several hundred billion dollar insurance fund, and routinely manages to balance their budget every year. The Norwegian’s prudent management of their North Sea oil and gas has helped to develop the country and to create the highest standard of living for the masses that I have ever seen. As long as the Norwegians continue take in large quantities of oil and gas revenue I would expect the krone to continue to appreciate.
the threat for Norway is declining oil fields. It seems that at some point the surplus could stop growing which would change the dynamic.
this does not have to hurt the oil companies there depending on their global footprint.
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