Yesterday S&P downgraded the outlook for the UK to negative from stable. Then later Bill Gross piped up about about the US' AAA rating being in jeopardy at some point which should not be a shock to anyone. We also saw the ten year yield and gold whiz higher maybe spurred by Gross, maybe not (doesn't matter whether Gross caused it or not). The entire financial crisis and the measures taken to try to fix-it puts upward pressure on treasury rates and gold. Yesterday may serve as a microcosm of what is coming even if it does not go in a straight line.I've never been a gold bug or the like but rates would seem destined to at least go up to a normal level and most commodities should nudge a little higher.
Matt Hougan has an interesting post about a reflation trade portfolio.
Vanguard Emerging Market (VWO) 20%
Vanguard All World Ex-US Small Cap (VSS) 10%
iShares Global Materials (MXI) 10%
iShares Brazil (EWZ) 5%
SPDR China (GXC) 5% Matt has the wrong symbol in the post
SPDR Gold Shares (GLD) 20%
SPDR Internations TIP (WIP) 20%
WisdomTree Emerging Currency (CEW) 10%
Lemme disclose MXI, GLD and WIP and get that out of the way. Well this baby will reflate alrighty but seriously it is a fairly narrow focus relying an awful lot on reflation being the outcome. To make the conversation simpler and more generic, if we all "know" that we are going to reflate and then we don't the portfolio might get hit badly, obviously the market very often confounds what everyone "knows" will happen.
One outcome counted on is a weaker dollar. There is no convincing me that a dollar bull case makes sense. I have been a dollar bear for a long time but that did not stop the dollar from having a massive risk aversion rally a few months ago. I am not predicting that now but if it happens, I say if it happens, Matt's portfolio will get whacked painfully. Matt clearly says this should not be 100%, 50% or even 25% of someone's portfolio but that sort of warning sometimes gets lost in the weeds.
David Rosenberg thinks the S&P 500 will take out its March low "because consumer spending hasn’t shown signs of a recovery," hat tip Barry. Fantastic.
Yesterday's picture was from Hellnar, Iceland which as of 2006 had a year round population of nine.
10 comments:
UK debt is in pounds
US debt is in dollars
Both countries have printing presses. They can not default. That is not to say everything is rosy going forward.
Dollar will fall until the next financial crisis which will start once we get use to the idea that the crisis is behind us and life is good again. I am still betting on 3 to 12 months from now for the crisis, but that is really hard to predict.
Man, what is with Middleton and the "ultra" ETFS over the last few months (mentioned in the article Roger references). I've kinda stopped reading him.
Natural Gas seems pretty darn cheap from a historical basis...may be to tactical, and the Summer can drag - but from a longer term cleaner energy play seems interesting. (I play the company side rather than the commodity and they have moved ahead all ready.) Just a thought. Chart it up and take a look at the results, saucy. Have a good weekend Rager - thanks for the posts.
Hey Roger:
WIth inflation hedges all the rage now (GLD, TIPS,WIPS etc.) am wondering if you (or any readers) have any thoughts on CUT (Timber ETF). Apologies if you have already discussed this...I did a search and couldn't find it..
Best, Andrew
Actually I think I recall you owned some PCL, which I guess is another proxy....
have touched on timber a few times. I feel as though I have had better luck owning Plum Creek Timber. I have explored and written about other products like timber trusts in canada and one or two of the stapled products in Oz (forget if there was more than one) and still prefer to stick with PCL.
interesting post today by mish, reference market valuation and sectors...
http://globaleconomicanalysis.blogspot.com/2009/05/market-bottom-what-market-bottom.html
RR- I was reading this article over at Trader Mark's blog fundmymutualfund and was wondering what you thought of Indonesia?
http://www.fundmymutualfund.com/2009/05/guest-post-indonesia-must-own-emerging.html
Anon 6:45- Indonesia looks interesting however I am no means an expert...
Found this comment of interest: "The Indonesian (IDX) Fund will come with some added volatility (1.8 Beta and 36.45% annualized volatility) and may not be for the safer crowd, but offers possible huge returns, and has the lowest correlation of all economies to the developed markets that make it an attractive addition to any portfolio."
the risks in Indonesia as I understand them is they are no longer an oil exporter. They mine a lot of stuff but now need to import oil to get it done. They have had problems with inflation which has kpet the central bank rate much higher than most other countries and at times has caused a lot of vol in the rupiah. there are also political stability issues.
the fund has obviously been white hot and maybe it is a great destination but the extent to which they spread out on some of the islands might be tough too.
I have looked several of the farm/plantation stocks there and had a tough time getting a handle on them. barrons has written aobut some political strangeness with one of the companies there maybe Bumi Resource but not sure. Can't argue with the result of the fund but for now I'm leaving it alone.
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