Michael Steinhardt was on Squawk Box on Friday morning and had a very interesting comment that I have transcribed below off of my DVR.
Carl Q: But Michael, you on the other hand think there is not enough information to make a call (on the broad market) and my question is the fallout from that just to stay in cash and stay out of the markets completely?
Michael Steinhardt: I've been in the market all my life, and I focused on projections all my life and I have always taken great pride in being right and I don't open my mouth unless I think there is a reasonably high probability that I'm going to be right and I'd say most people are random in their judgments and are perfectly happy to express their views no matter what.
So with that background I would say it is a very difficult time to make judgments. I think Lee (Leon Cooperman) is a very smart guy but if we are sitting here six months from now it is at least 50/50 that he will have a different view then he has today because it is just a strange difficult time because there are too many imponderables and too many things that are going to change that we can't anticipate now.
So I would rather be liquid for sure to be liquid be relatively risk adverse and just hang in and say most of us have lost a lot of money in the last year and I'd rather not lose some more.
It doesn't sound like he is too worried about timing a turnaround and is quite content sitting in what sounds to me like a defensive position. My two cents here, which I have said often, is that there are times to let your money grow (most of the time) and other times where protection of assets are most important.
I found this by Chuck Jaffee at the site for the Fort Worth Star Telegram (so presumably it ran on MarketWatch first) about the potential importance of the sale of iShares by Barclays Bank. The article explores whether the sale would create a new ETF powerhouse and whether this is a path to active ETFs.
Many agree that active ETFs are the next big thing but I have never understood the appeal. In a manner of speaking we have had active ETFs for decades; closed end funds. Obviously there are structural differences. The biggest and most popular ETFs (SPY, EFA, EEM and IWM as examples) are used by large pools of capital because they are fast, easy, liquid proxies. The levered, inverse and certain sector ETFs are used the same way but also for speculation. Beyond that there are the majority of funds (including a couple of active or quasi active) that do not trade a lot.
Maybe I'll turn out to be wrong about this but given the difficulty that so many mutual funds have beating the market I doubt a new, more expensive exposure can gain much traction. One point I have made about ETFs is in the context of portfolio construction and being able to rely on what a given ETF will look like six months from now. There is no way to know what an actively managed product will look like in six months. I would note that any active ETFs will be transparent.
What if it ends up being overweight the wrong sector and at the same time another fund you own is overweight that same wrong sector. It would be like owning both the Legg Mason Value Trust (LMVTX) and Davis NY Venture (NYVTX) in 2008. Those funds were down 55% and 40% respectively that year.
Lastly Barry has a post from John Mauldin that excerpts an op-ed in the WSJ by Gary Schilling and Richard LeFrak. Basically the idea is to give a green card to any immigrant who will buy a house. The idea is interesting and would probably, as the article asserts, stabilize things. But for how long? A commenter on the post said that it would simply delay the final result however bad or not it may turn out to be. This probably also has truth to it.
What do you think?