In recognition of the possibility that we need to look to more outside the box investments I thought I would mention a couple of things I follow and maybe you can share a couple of things along these lines that you follow. Maybe we can have a collective expansion of horizons.The New Zealand dollar is now below US $0.50 and based on it's deficits galore, likelihood that the RBNZ has more work to do and a looming S&P downgrade the kiwi will probably go a little lower in the next few months.
In November 2000 the kiwi spent a few days below US $0.40 then doubled to $0.80 last March, albeit with a couple of hiccups along the way.
At some point the kiwi will go on the upswing again and someone will make a lot of money holding the kiwi. New Zealand is kind of an easy country to follow because there are very few moving parts compared to the US. It is a proxy for risk, a proxy for commodities (even though it produces more timber and agriculture than ore and the like) and NZ is growing trade with China. WisdomTree has a kiwi dollar ETF with ticker BNZ that makes access easy. To be clear I do not own BNZ, don't know if I will and think there is more downside to come.
The chart compares iPath Platinum (PGM) with SPDR Gold Trust (GLD), which is a client holding. It shows PGM dramatically underperforming GLD last fall and over the last few months there has been a zig zag relationship.You can usually find a current article making the case for platinum over gold. Sometimes those articles are correct and sometimes not. Some folks will have a knack for success with kind of pair trade or if going short is not your thing (either for comfort or account restrictions) then maybe swapping from one to the other for precious metals insurance.
I believe in PM insurance, realize that at times platinum will be the more effective insurance but have yet to sort out the extent to which I would be comfortable doing this.
Last one from me today is the Airshares EU Carbon Allowances ETF (ASO). It listed two months ago at $25, fell as low as $12.17 at one point and closed yesterday at $17.48. ASO seems to be a proxy for economic expectations. If the market sees a slowdown (obviously it does and that is exactly what has been going on for the last few months) then ASO should be expected to go down. At some point the market will start to see expansion/recovery on the horizon and ASO would likely turn up at that point.
A proxy for trading the Baltic shipping indexes would do something very similar in terms of tracking expectations. The BDI had a nice bounce from early December to mid February but I should note that there are some who believe the BDI is not a good measure of expectations for the economy. For now there is no product on it and I would suggest you sort out for yourself BDI's utility in this regard.
You should also sort out for yourself whether this stands up for ASO or not. I think there is something to it but am still trying to sort it out. Broad-based equity indexes may now be skewed, (this is my opinion) because of the sector distortions that have occurred during this decade (first tech, then financials), in such a way that a bull market could start but not be reflected in the broad based indexes (a theory of mine that might be worth exploring in a little more detail on another day).
From a bigger picture standpoint, there are a lot of ideas like this out there. It only takes one or two to meaningfully help a portfolio.
28 comments:
You say, "possibility that we need to look to more outside the box investments" maybe, but I say people need to get back to basics and should read, then reread The Intelligent Investor. The more complicated the scheme, the more fees involved to separate the investor from his money. Investors need to treat investing like a business and all fees, taxes, and other costs must be managed carefully so as to not diminish returns. To me, the best way to expand one's horizon is to be able to rationally evaluate competing investments and purchase when there is sufficient margin of safety so that if the purchase turns out to be wrong, no significant damage is done. Granted, this is old school but it meshes well with your writings of living below one's means, savings, etc.
You also say, "bull market could start but not be reflected in the broad based indexes"...this seems to me to be a contradiction in terms. How then do you know if you are in or there was a bull market?
Much of what you write of today smacks of speculation and not investing, IMHO. Speculation is one major reasons the economy is in the terrible shape it is in.
I hope RW chimes in on this.
We all need a laugh, watch this
http://www.youtube.com/watch?v=U8Ev5HgGACg
Now, back to work!
"It only takes one or two to meaningfully help a portfolio." you forgot to add "blow up to oblivion."
One person's back to basics is another person's outside the box.
We all have our areas of knowledge and focus unless one is blessed with enough time to follow everything financial.
When everything is as crazy as it is now and a person's normal trading and investing practices aren't working it seems like a good idea to step back and look around at what others are doing though I'd dare say that's a good thing to do at anytime.
I guess my point is that no matter what you are doing in the markets if it isn't making money then take a look around. There are more then a few fundamentally safe companies that are dropping for technical reasons. There is no one strategy fits everyone all the time. If there is please let me know which it is.
there are similar type ratios in the GLD:SLV or GLD:USO relationships. GLD seems overvalued versus a lot of commodities right now. If you have the patience, a short GLD and long SLV or USO trade might work
Thanks for the nod Anon 6:32 but Rhianni32 has it right I think and Roger has said something similar on numerous occasions: The reason to open up about process is so that each individual has a chance to examine and, it is to be hoped, sort out what might work best for them; it's not really an invitation to copy, it is an invitation to extract and, now and then, add to the conversation. At least that's the way I see it and, I think, that is what Roger intends as host.
For example, I've mentioned several times in the past that I have two entirely separate portfolios, one emphasizing strategic allocation, the other basically a tactical trading platform. Strategically I do use a top-down approach but not the way Roger does because my categories are defined by broader credit cycles rather than business cycles so they are more coarsely grained, at least at first; e.g., I was influenced rather early by Harry Browne so I don't begin allocation by industrial groups, I begin with behaviors in economic scenarios (beginning with expanding credit) and then select candidates based on historical responses to that environment.
But I appreciate Roger's investigations into various products because they occasionally alert me to the possibility of a more consistent behavior or, barring that, the possibility of a new trading vehicle.
And I'll add a product to the conversation (so T won't have to keep repeating himself): Thinking outside the box includes non-financial products and there are growing opportunities in a number of housing markets where individuals and partnerships are purchasing dwellings at low cost on good terms and renting them for positive cash flow. I used to do that sort of thing when younger -- I took the building and repair end and let a partner deal with the renters because I was a soft touch -- but now just own some shares in limited partnerships. Still, if I were a younger man ...
Hee-Hee. Thanks anon 6:49
Rhianni32, If a stock is paying a nice dividend, but its share value has decreased, is it making you money?
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Bad with my money, great with other peoples!
Negotiator
(I am based in London, England so excuse the weird times you get this email!)
Giant Investments
E: alex.preece@giant.org.uk
T: 01273 224002
6:32, look at 2007. SPX up 5% including dividends. at the same time a few sub-sectors and other asset classes skyrocketed. If one just owned SPY or the Russell 3000 they were essentially flat. Anyone thinking outside the box had the potential to make a lot more thus providing a larger cushion for this decline.
I think "...it only takes one or two to meaningfully influence a portfolio" would be more accurate,
as would "...in such a way that a bear market could start but not be reflected in the broad based indexes..."
that is exactly what happened in 2000. leadership got narrower and narrower.
Roger,
The following was posted today at the big picture... Very interesting stat:
"Thomas Lee, US Equity Strategy at JPMorgan writes: “Believe or not, retracing 12-year lows for the Dow is an incredibly rare event. Besides the retest of 1997 lows seen on Monday, this has only happened two other times, on April 8, 1932, and December 6, 1974.”
Given the rarity of the event, it is worth taking a closer look at the past instances: The 12 year low in 1932 was ~three months before the end of the bear market. In 1974, it was exactly the low for that bear market.
Dan Greenhaus of Miller Tabak adds, in both cases, “the economy continued contracting beyond the bear market bottoms; this is typical of rrecessions. Unemployment continued rising and GDP remained weak. The 1974 Bear market ended in December, but GDP contracted even in the Q1 1975 at a 4.7% clip — the worst GDP Q of that entire recession. Despite this, the Dow managed to rally 24.65%.”
Hitting a twelve year low is by no means is proof the bear market is over. And, two prior examples does not a sufficient sample make. Financial and housing sectors remain in a state of paralysis, and while substantial levels of stimulus are coming, eveer larger deficits are coming too.
Regardless, the oversold nature of the market, as well as the virtual straight down drop that brought us here, does present a real possibility of a strong market rally."
BTW, Kass called a bottom yesterday.
http://www.thestreet.com/_rms/s/kass-bottoms-up-mr-%20market/newsanalysis/investing/10467351.html
Anon 10:34
A good dividend on a falling stock is still making money. A lot of banks were paying pretty good dividend yields last fall.
Now don't get me wrong... I'm a fan of fundamental analysis. I think its a great addition to other theories and ideas. A person will do a lot better in managing their money with the more knowledge and tools they have. I'm simply against a one size fits all answer in "getting back to basics" that seems to imply to discard the rest, the basics are all that is needed to fix the world's stock markets. The world is more complex than nice dividends on falling stock and it seems to me at least that there would be a more complex answer.
Rhianni32, you are deluding yourself into thinking investing is more complex that it is. You don't have to fix the world's stock markets, you simply need to evaluate what it is offering at any given time and then ask yourself what would happen if you are wrong. Heck, who even said the stock markets are broken? Stocks are not the only conservative investments either. But I acknowledge this is a stock market blog.
Have you ever read Graham's Intelligent Investor? Read it, then re-read it. From your comments, I would bet that you haven't. Spend the money and buy the book, you won't regret it!
Didn’t like that close. Very tepid. More pain coming……
Anon 6:12
Agreed. Think we’ll see mostly weaker rallies ahead and selling into any strength whatsoever, which means we’re still headed lower. Never thought I’d be too optimistic with my original prediction but it looks like DOW 6,000 and S&P 600 will be a reality at some point. Batten down the hatches if we get to 5,000 and 500 or below
Regarding anon 6:11, if you're a tightwad like most of us, check it out at the library.
Article on preferreds....
http://www.indexuniverse.com/sections/features/5511-preferred-stocks-gone-wild-will-investors-be-safe-or-sorry.html
Sure you have seen this Roger but in case you have not.
http://www.vanityfair.com/politics/features/2009/04/iceland200904?printable=true¤tPage=all
dnf
alphaville had a link to the VF piece about Iceland. i have it bookmarked (its a long one). Top Chef Reunion is on later, i may knock it out then, LOL.
RW - do you have a blog or site?
Maybe one way to help determine if the bear market is relenting is to observe Equal Weighted Indices as opposed to Cap Weighted; SPX, INDU, ...
I find Bullish Percent charts interesting too as they are not weighted.
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Please show my where I said investing is complex. I'm pretty sure I didn't. Now I did say that trading is more complex then stocks that pay nice dividends and I stand by that irregardless of what you assume I have or haven't read.
Your post was more to trap me into a corner then in making a point. That apparently didn't work because now you've moved on to calling me delusional instead of expanding upon your previous dividend post.
Well if my idea that the more knowledge an investor has to draw upon is better then less knowledge makes me delusional then I have no problem with that.
Anon 10:40 - nothing public on investing (aside from comments on other folks blog posts that is).
C'mon now, what does he know?
BTW, Kass called a bottom yesterday.
http://www.thestreet.com/_rms/s/kass-bottoms-up-mr-%20market/newsanalysis/investing/10467351.html
Posted by Anonymous | 12:01 PM
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