Isaiah Berlin, in his classic essay "The Hedgehog and the Fox," describes the difference between two visions of the world, those of the monist and the pluralist. He relates these two viewpoints to those of a Fox and Hedgehog by borrowing from the Greek poet Archilochus who said, "The fox knows many things, but the hedgehog knows one big thing." The hedgehog (the monist) needs only one principle that directs its approach to life. The fox (the pluralist) pursues many ideas, often accepting equally valid but mutually incompatible views on life.

The hedgehog and fox philosophies can be found in all the big arenas: religion, politics, history, literature, and yes, (he says, tying it together now...) the stock market. Essentially, all investors are either a hedgehog or a fox, and that becomes no clearer than during a tumultuous time, such as the one we find ourselves in.

Rest of this InvestMentor article from 6/18/02

We at Valentine Ventures pursue a Hedgehog's approach to the markets, and invite to consider our ramblings in the "Hog Blog."

Recent Observations (current Quarter) from "The Hog Blog"

March 23, 2008

The Market's seeing some internal rotation, which would be consistent with a bottom being in place--that and the failed re-test. 

Commodities, particularly the metals, have turned tail.  And now Financials lead on up-days.  While this may signal a bottom for financials, it's pretty tough to call just five days after financials were hitting new lows. 

Just a week and a day left in the Quarter.  Window dressing should add some excitement to the Market in the Quarter's remaining days.

Five Reasons to Stay Away from the Visa IPO

1. If the notoriously overly optimistic bankers assign a $44 ticket to the shares, why would you pay $64?

2. The MasterCard Mirage--"Visa's like MasterCard...only bigger and better!  And MasterCard's up five-fold from it's IPO...that means Visa must do even better!!"  That's already built into the $64 price.

3. Visa's already trading at a premium to sales compared to Mastercard (P/S of 7.5 vs. 6.7).

4. IPOs, on average, underperform the market in the first 18 months.

5. You don't need to gamble with your money, or beat the Market.

March 18, 2008

You're welcome!  ;-)

March 17, 2008

How's this for the daily admonition?  "Head in sand!  Head in sand!"

He can't be serious?!  Put your head in the sand?!  Surely, there must be SOMETHING we should be doing?! 

Nope, not really.  I hate to deny someone a good old fashion panic attack, but I'm sorry--it's not going to help.  If your tendency is to be reactive to the Market, that doesn't mean you're "staying abreast of conditions" and "being adaptive"--it means that you need a better philosophy.  If you're selling after the Market's already sold off, and Buying after a recovery, you're doing the opposite of what you should.  Make deliberate bets, understand their up-and-downside possibilities and probabilities, and let them ride.  I reiterated, and summarized, my long standing Market advice (for the Market-wary) yesterday, but here's the summary:

1. (Remember) This too shall pass.  Not working for you?  "Head in sand!  Head in sand!"

2. Check your Equity.  If 50% or more of your portfolio is in the US Market, that's too much.  The V8 only works when no one piston overwhelms the others.

3. Own lots of other growth assets.  Foreign Currency,  Commodities, Foreign Stocks, REITs, Foreign Debt,  and anything else that doesn't correlate closely with US stocks but provides a reasonable expected return.

4. Replace your stocks with funds.  The most important, and most ignored, advice I can give.

5. Be defensive.  Large Cap over Small Cap, Staples & Healthcare over Cyclicals & Financials.

So you've done all that, and still feel woozy?   "Head in sand!  Head in sand!"  Seriously.  Instead of taking an appraisal of your investment portfolio, take an appraisal of the real values in your life: your health, your loved ones, your friends, your interests, your memories, your recognitions, whatever will sufficiently distract you from the panicking masses.

March 13, 2008

We all have things we're working on personally, don't we?  I hope so.  One of the great things about living is that we can start each day anew.  Enough of being cornball.  For me, it's right now my focus is on the efficient use of time, and top of the list is focusing on my frequent and timely contributions here.  Bear with me...it won't be long.

The Market is the world's best discounting mechanism.  Although imperfect, it has a remarkable ability to calibrate the future for the economy, well in advance.  It arrives at its conclusions in a process of over-shooting and under-shooting, narrowing in triangulation.  In a downturn, that oscillation can be though of as ranging from too optimistic to too pessimistic.  In October, it was too optimistic.  Now it's too pessimistic.  Fear is at a decade-record high level, and the punishment no longer fits the crime.  Additionally, we're starting this slowdown from a solid economic base, and a stock market that wasn't hugely "overvalued."  Certainly, there are big reasons for concern: bank failures, recession and inflation.  But everyone knows about them, so they're priced in. 

I think it's quite likely that the Market will make a huge upward move shortly; and it's entirely possible that when the feared events come to pass, stocks will increasingly shrug them off, or even move higher.  Historically, this point in the financial, Market, and emotional cycle has been good, not bad for stocks.  Specifically, we have a panic, (near) bank failure, and the Fed on the scene.  Typically, this occurs closer to a bottom than a top.  We're not out of the woods, and while I am confident in a big snap back, anything could happen from there.

I always allow for the fact that I might be wrong--and if I am, it will be in a big way.  Which is why we run money the way I've been sharing with you, and as will be summarized this Sunday on my radio show.

You may recall the use of my "dead body" metaphor.  Dating back to the genesis of the credit derivative mess last fall, I've been calling for the expedient disclosure of CDO, CDS, and SIV related losses.  And because so much of this exists below the radar screen, it's hard to know how much more we're going to be hearing about.  But, as silly as this sounds, the revelation of Bear Stearns solvency concern is a positive step.  I said some time back that what this story needed to see was a high profile failure or recapitalization.  And so we have it in Bear Stearns.  There will be more, but our fears will be blunted overtime as the shock diminishes.  And from this observers perspective, the Fed's really come around and deserves credit for the creative and substantial moves its made of late.  True to form, they're late to the party, but what's key now is for the orderly recognition of the damage, so that the free market mechanisms can continue to clean up the mess, absent a "run" on the banking system. 

Disclaimer: Those inclined to want the Market and economy to fail may view my take as Pollyanna.  Before you arrive at this conclusion, consider that I was an early alarmist on the events that have evolved.  I taught my radio listeners about CDOs and CDS' two weeks before Bear Stearns introduced the concept to the world (with the declaration that they had two failing hedge funds involved in credit derivatives).  Further, you'll recall that in October I lamented the elevated levels of stocks as too optimistic.  And while we're finally talking about real risks, for now, we've overshot the target in the downside for stocks.

March 5, 2008

Below is a pie chart of the Growth portion of our portfolio (everything except US bonds--which  are managed separately in a laddered portfolio).  The Growth assets are divided among of seven "asset classes" (whereas most traditional--and inferior--portfolios have just two or three...usually US stocks, Foreign stocks, and US bonds). 

When we add our bonds allocation in, we call this the V-8 Engine.  The eight asset classes are the pistons in this automotive metaphor--each goes up and down, to a different degrees, at different times, for different reasons (statistically speaking, we say "low-to-no correlation").  This smoothes out overall returns--like differently-timed pistons smooth your ride.  Further, there's always something doing well, always something doing poorly, and most assets are performing in-between.  That's diversification. 

Granted, stocks figure prominently in the mix--as they should.  (But given our conservative approach to stocks, we been fortunate to have benefited from our US stock piston going down-less than the Market's.)

Below is a  the performance of our holdings, by asset class, on a year-to-date basis.  (See how the cylinders look almost like pistons?) Collectively, the portfolio's in negative territory (due to the relative size of the stock pistons), but we're doing very well compared to most investors in the country.  You can see why we don't really give a hoot about the downside to the stock market.

THE RICH LIFE:  In life, if you're offered an exotic opportunity to do one of your favorite things, I think you should do it.  And so it was that I was unable to pass up an opportunity to fish for steelhead by train.  This last weekend, I joined some friends on the Steelhead Train out of Minam, OR.  The train runs 10 miles up the Wallowa from Minam to the Grande Ronde.  It drops you off and picks you up along the way.  What a hoot! 

February 21, 2008

Castro's ceded his power...big whoop.  There is apparently to be no change to Cuba's communist stance, so wake me when the people rise up against this oppressive system.

The Market's gone nowhere in a month.  I still contend that the odds of a breakout favor the upside, but if you're invested in the V-8, who cares?  (The V8 represents the eight piston engine that should drive all portfolios: US stocks, Foreign stocks, US bonds, Foreign Bonds, Commodities, Foreign Currency, REITs, and Any-other.)

The Market has built in the first leg of slowdown.  If you think the economy's weakening, you're in good company.  At this point, for that to be a winning bet, the economy needs to weaken more than anticipated.  Which it could.  But that's largely reflected in stock prices...so for stocks to go down, the evidence, as it comes in on a daily basis, has to point to worse-than-expected indications.

THE RICH LIFE:  The most precious commodity...the one that no one can buy more of...is time.  We need to save as much of our time as possible.  Here's a tip.  Push to exchange meetings for phone calls.  And phone calls that can be an email should be encouraged.  As to emails, make them terminal--nothing saps time like a continual email thread. 

February 7, 2008

The Market's burning off some overbought froth.  Perfectly fine.  We'll resume the upward thrust soon.  I am still amazed at the degree to which the Market triggered multi-year buy signals two weeks ago.  Again, this doesn't say anything about where the Market will end the year--just what a big snap back we're likely to see.

The Dollar will rally this year confounding armchair seers, rap star stars, and runway models alike.  BUT, it can't really start in earnest until the currency markets deem that our Fed is near the end of it's rate cutting policy.  Best guess?  Mid year.  Until then, I'm staying with my currency bets.  But I suspect that I'll be pro-Dollar before too long.

I feel the stress that most investors feel: Where are decent yields?  Money markets are starting to yield paltry rates along with short-term fixed instruments (thanks to the Fed), stocks seem uncertain, bonds are yielding very little, residential real estate is a bust, and even commercial real estate cap rates stink.  So what does that leave?  Foreign stocks? They'll follow the US.  Foreign bonds?  OK, but not great and rates globally are falling, not rising.  Commodities?  Maybe, but the run has to stall at some point.  Private Equity?  Maybe, but those will go away as a lagging indicator of a global slowdown.  It's a tough time for decent returns.  Anything with a seemingly good yield has a big risk premium built in, even if you can't put your finger on what the risk is.

The Presidential race sure got interesting, didn't it?  In just the last few days, John McCain emerged as the  Republican nominee.  And Hillary Clinton went from the probable Democratic nominee to the underdog!  (See the charts at bottom that show the nomination probabilities per the electronic markets of intrade.com.)   Both parties are restless.  If the vocal right wing can't cool their disapproval of McCain, they're going to hand the election to the Democrats despite having a remarkable shot at winning, all of a sudden.  The Democrats are looking at a fracturing race that's likely to unnecessarily bruise the eventual winner.  This looks to go down to the wire.

THE RICH LIFE:  We had a rich experience the other night, at an event that turned out to be unexpectedly spectacular.  I took my boys and my father-in-law to a boxing match pitting the young men in the local club against competitors from around the state.  Compared to what you're used to seeing on TV, it was far from brutal--indeed it was very safe and remarkably well choreographed.  And my boys were genuinely interested in it--drawn in some obvious physical way.  And I was thrilled to see it in them.  It's my opinion that our society generally want to emasculate its men.  Maleness is to be apologized for.  And while obnoxious machismo is as repellant to me as it is others, I think masculinity should be encouraged and celebrated--including its less PC components.  Like boxing.

February 21, 2008

Castro's ceded his power...big whoop.  There is apparently to be no change to Cuba's communist stance, so wake me when the people rise up against this oppressive system.

The Market's gone nowhere in a month.  I still contend that the odds of a breakout favor the upside, but if you're invested in the V-8, who cares?  (The V8 represents the eight piston engine that should drive all portfolios: US stocks, Foreign stocks, US bonds, Foreign Bonds, Commodities, Foreign Currency, REITs, and Any-other.)

The Market has built in the first leg of slowdown.  If you think the economy's weakening, you're in good company.  At this point, for that to be a winning bet, the economy needs to weaken more than anticipated.  Which it could.  But that's largely reflected in stock prices...so for stocks to go down, the evidence, as it comes in on a daily basis, has to point to worse-than-expected indications.

THE RICH LIFE:  The most precious commodity...the one that no one can buy more of...is time.  We need to save as much of our time as possible.  Here's a tip.  Push to exchange meetings for phone calls.  And phone calls that can be an email should be encouraged.  As to emails, make them terminal--nothing saps time like a continual email thread. 

February 7, 2008

The Market's burning off some overbought froth.  Perfectly fine.  We'll resume the upward thrust soon.  I am still amazed at the degree to which the Market triggered multi-year buy signals two weeks ago.  Again, this doesn't say anything about where the Market will end the year--just what a big snap back we're likely to see.

The Dollar will rally this year confounding armchair seers, rap star stars, and runway models alike.  BUT, it can't really start in earnest until the currency markets deem that our Fed is near the end of it's rate cutting policy.  Best guess?  Mid year.  Until then, I'm staying with my currency bets.  But I suspect that I'll be pro-Dollar before too long.

I feel the stress that most investors feel: Where are decent yields?  Money markets are starting to yield paltry rates along with short-term fixed instruments (thanks to the Fed), stocks seem uncertain, bonds are yielding very little, residential real estate is a bust, and even commercial real estate cap rates stink.  So what does that leave?  Foreign stocks? They'll follow the US.  Foreign bonds?  OK, but not great and rates globally are falling, not rising.  Commodities?  Maybe, but the run has to stall at some point.  Private Equity?  Maybe, but those will go away as a lagging indicator of a global slowdown.  It's a tough time for decent returns.  Anything with a seemingly good yield has a big risk premium built in, even if you can't put your finger on what the risk is.

The Presidential race sure got interesting, didn't it?  In just the last few days, John McCain emerged as the  Republican nominee.  And Hillary Clinton went from the probable Democratic nominee to the underdog!  (See the charts at bottom that show the nomination probabilities per the electronic markets of intrade.com.)   Both parties are restless.  If the vocal right wing can't cool their disapproval of McCain, they're going to hand the election to the Democrats despite having a remarkable shot at winning, all of a sudden.  The Democrats are looking at a fracturing race that's likely to unnecessarily bruise the eventual winner.  This looks to go down to the wire.

THE RICH LIFE:  We had a rich experience the other night, at an event that turned out to be unexpectedly spectacular.  I took my boys and my father-in-law to a boxing match pitting the young men in the local club against competitors from around the state.  Compared to what you're used to seeing on TV, it was far from brutal--indeed it was very safe and remarkably well choreographed.  And my boys were genuinely interested in it--drawn in some obvious physical way.  And I was thrilled to see it in them.  It's my opinion that our society generally want to emasculate its men.  Maleness is to be apologized for.  And while obnoxious machismo is as repellant to me as it is others, I think masculinity should be encouraged and celebrated--including its less PC components.  Like boxing.

February 3, 2008

I've never understood the meaning of the phrase, "I'd rather be lucky than good."  Have you?  I think people say it to sound humble--to strip themselves of credit.  I'd personally rather be good than lucky.    In this business being right is hard to do.  In fact my goal is to be right 51% of the time or more.  If I can do that, I'm in good shape. 

And having laid out this mosaic of self-attribution you probably saw coming, I'm glad I was right about the Market rally.  We rotated out of a speculative short position into a speculative levered long position at about the right time, and have benefited.  The Market's up 10% from it's intraday low seven days ago (the 23rd).  That's more than a dead cat bounce--it's a recalibration of the Emotional, Technical, and Fundamental gauges.  And it suggest further upside in the short term, undoubtedly checkered with occasional sell-offs that keep us out of a perpetually overbought condition.  But this is just gaming on my part, and not to be taken too seriously...and as always, "Do not try this at home." 

So the Fed cut rates another 50 basis points.  Fed Funds at 3%: Now that's what I call an Economic Stimulus Plan.  Here's what I don't get.  When the Fed made it's intrameeting, 75 bp cut the week before, William Poole dissented (didn't agree with the action).  But this time, Poole didn't dissent???  So by that logic, he's content with Fed Funds at 4.25% or 3%, but not 3.5%.  As my older boys would say, "Dude, whatever!!"  So you'll allow me to use this as an opportunity to once again disagree with the idea of Open Market actions.  Let the yield curve determine rates.

And back to the point of right-vs-lucky, I was neither with my calls for Google's stock price decline.  This absurdly priced and overvalued behemoth of populist misspent capital repudiated my calls for a massive decline for the last few years.  Alas, the beast finally tumbled and nearly 1/3rd of its value has disappeared since November.  (Some poor schmo actually paid $747/sh for this pig).  Having been neither right nor lucky here, it's a good thing I never put any money behind this bet.  We're reminded that "The Market can remain irrational longer than you can remain solvent."

January 25, 2008

OK, no sooner do I say to expect only one weekly entry here that I am posting my third for the week.  So we're going back to the old system...writing when I feel like it, but not apologizing for long breaks in between.  And I'll continue to try and be less verbose.

First, the Presidents Economic Stimulus plan is Social planning with all the potency of a half dose of Viagra.  Because I will cover it on the air this weekend, we'll leave it at that for now.  (Did you know you can listen to my radio show on your computer or iPod?  Check here every Sunday evening for the latest installment.)

As mentioned here before, the Nation's endowments (university investment plans) lead the country with their investment thinking--and their results.  US News & World Report tells us that the nation's richest 76 colleges earned 21% on average for the year ending in June of 2007.  What's their secret?  ALTERNATIVE ASSETS!!!  Duh!

My good friend Drew Skelly forwards me this ditty from "The Liberator Online." 

What makes a country wealthy? What is the best way for impoverished people and countries to escape poverty? The evidence is now overwhelming. The answer is economic liberty: free markets, entrepreneurialism, free trade, limited government.

The latest proof comes from The Heritage Foundation and the Wall Street Journal, who have released the 2008 edition of their Index of Economic Freedom.  Now fourteen years old, this annual survey ranks over 150 countries on how they score on these ten key factors of economic freedom:

* Business Freedom * Trade Freedom * Fiscal Freedom * Government Size * Monetary Freedom * Investment Freedom * Financial Freedom * Property Rights * Freedom from Corruption * Labor Freedom

According to the survey: "Taken together, these ten freedoms offer an empirical depiction of a country's degree of economic freedom."  The survey clearly demonstrates that "economies with higher levels of economic freedom enjoy higher living standards." Double Duh! Indeed, the Index reports that the freest 20% of the world's economies have *twice* the per capita income of those in the second quintile -- and five times that of the least-free 20%.

The freest economies also have lower rates of unemployment and lower inflation. Further, the report shows that the less free an economy is, the more the people suffer from poverty, inflation, and unemployment. Triple Duh!

Here are the ten freest economies in the world, and their scores. According to the study, a score of 100 (which no country has reached) would represent "an economic environment or set of policies that is most conducive to economic freedom."

1 Hong Kong-----------90.25 (#1 for the 14th year in a row)

2 Singapore------------87.38

3 Ireland---------------82.35

4 Australia-------------82.0

5 United States----80.56

6 New Zealand--------80.25

7 Canada--------------80.18

8 Chile-----------------79.79

9 Switzerland----------79.72

10 United Kingdom----79.55

And the ten least free:

148 Venezuela------------45.0

149 Bangladesh----------44.9

150 Belarus---------------44.7

151 Iran------------------44.0

152 Turkmenistan-------43.4

153 Burma (Myanmar)--39.5

154 Libya-----------------38.7

155 Zimbabwe-----------29.8

156 Cuba-----------------27.5

157 North Korea----------3.0

(Source: Heritage Foundation http://www.heritage.org/research/features/index/index.cfm)

BELOW ARE THE DYNAMICALLY UPDATED "ODDS" OF PROSPECTIVE PARTY NOMINEES, PER THE TRADING MARKETS AT INTRADE.COM

 

 

WEEK OF JANUARY 21-27, 2008 UPDATE (1/23)

Coupla extra thoughts given the magnitude of the event today (the 5% intraday swing)...

• The three determinants of short-to-intermediate term market direction (depending on how you define that)  are aligned to give some relief from the panic sell-off.  As discussed below, the Economic, Behavioral, and Technical indicators overwhelmingly  favor a massive rally, building off today's gains.  That doesn't say anything about where we're headed this Spring, but between now and then the Market's going to confound and frustrate those that sold stocks anticipating continued panic selling.

• We're finally to the point that fundamentally, the punishment doesn't fit the crime.  The Market's overshot its gloomy economic target--at least for now.  Recall that in November that I lamented the fact that the Market was not pricing in the economic weakness clearly looming on the horizon (remember that we were a scant 3% below the all-time-high?).  That represented RISK to investors because it meant that it was quite possible that the Market wasn't seeing things the right way and was set to fall.  Indeed it was the rationalization for our move to max defensiveness then.  I can't predict the markets, but I can detect and calibrate risk pretty well.  The only alternative (to the Market reconciling to the downside) was the possibility that the Market might have had it right, and that the economy was actually going to blow people away with its strength.  Alas, that was not to be and the Market's finally on board with the economic reality...as it would appear the Fed is too.  The Market risk has fallen in proportion with its price level.  And yet, when you consider that the Enterprise Value of Corporate America has lost 1/5th of its value in two months...it's way overdone.  All of my economic concerns remain in place, but we must be mindful that we're starting our economic slide from a very firm starting place (low unemployment, nearly-free money, low inflation, high profit margins and productivity), so it's hard to argue that it's 1973 or even 1981 or 1970.

• Behaviorally, we're at a fear-and-panic emotional crescendo.  Every statistical and anecdotal measure of the smart and dumb pluralities of the crowd are pointing to a turn.  Just like "There's no crying in Baseball!"  There's no room for emotion in investing.  Control it or put someone or something between you and your money.

• From a technical standpoint (at least per the MACD), the Market's the most oversold it's been since the Bear Market (July of 2002).  Wow!

• It would appear that the capitulation is underway (listen for that word in the press, by the way...you should start hearing it tomorrow and over the next week).  The market reversal today was capitulatory, and the movement between sectors (away from the winners of late to places like Financials and Retail) is all part of capitulatory behavior.

• If you're among those that needs to modify your portfolio, I suspect you'll get that chance to do so in a more orderly market in the next few weeks.  If you hold out, you'll get to trade in a sane manner with cooler heads--but that doesn't mean the market can't fall further between now and then.  The point isn't about waiting for better prices--it's waiting for the panic selling to end.

• Global markets will recover when we show stability in the U.S..  The U.S. always leads...we are the paternal market and economy.

• Don't look now but Oil's at $87. 

• ALL THAT SAID, I DOUBT WE'RE OUT OF THE WOODS JUST YET...BUT WHO CARES?  IF YOU'RE INVESTED PROPERLY THIS SHOULD JUST BE A SIDESHOW--and again, one you shouldn't pay that much attention to. 

WEEK OF JANUARY 21-27, 2008

On a day like today (Tuesday)--one that brings forth so much of the truth and mistruth about markets and economies--I really need to temper my verbosity...so if I seem brief, believe me, it's done in your best interest.  Bullet points work nicely...

• If you're disheartened to see the value of your assets decline, that's natural.  If you're panicked, angry, or unable to sleep, that's unnatural--and needs to be addressed.  It's a sign of one of two things: either you have assumed way too much risk, and you now realize it; or, you don't have too much risk--it just feels that way.  Either way, that apprehension you feel is a combination of your (misdirected) hard-wired survival instinct, and fear--not about "losing money" but rather that which money represents to you.  Awareness is the first step to mastering your emotions as an investor.  If you can't master your emotions, that's OK (most folks can't)--but the only true antidote in that case is a portfolio of Treasury bonds.  This kind of Market is a great exercise in building up investor mettle.

• Market Timing does not work.  Period.  Panic selling remains about the only "strategy" that's not even good enough to warrant an investment book.  Recession or slowdown?  Wrong question.  Right question: has the market correctly priced in the economic environment.  Don't look to professionals to tell you when to get in and out.  INDEED, GET OUT OF THE BUSINESS OF THINKING YOU--OR ANY ONE--CAN PREDICT THE MARKETS. 

• The best line of defense in this, and ALL, environments is a proper asset allocation.  You must have at least seven asset classes--and if you're lucky, you're defensive with your stocks.  Among and between those classes, you should be invested properly for someone in your relative situation.  Get that right, let the markets do their thing, and you'll be in fine shape.  Don't believe me?  Test it with a Monte Carlo simulator.

• The Market is about to shoot up 10% or more.  Not necessarily tomorrow or even this week...but it's imminent.  We've taken steps for added participation.

• The Fed's behind the curve.  It fell for that great lie that we have an inflation issue.  We don't (notwithstanding the new trendy use of "Stagflation" by nitwits who don't have the first clue about economics).  Now the Fed has to play catch up.  Today was a good start, though--certainly more meaningful than all the social planning being discussed in Washington.

• LIVE!  Turn off your computer.  Take a break from CNBC and up-to-the-millisecond Breaking News!!! Use the Wall Street Journal or Investors Business Daily to start a fire to stay warm while you're cross country skiing with your friends.  Have a glass of wine.  Hold your kids.  Watch "The Wire" on HBO.  WHATEVER!  YOU LIVE IN AMERICA...YOU HAVE MORE BLESSINGS THAN 99.9999% OF THE PEOPLE THAT HAVE ROAMED THE EARTH.  ENJOY ALL THAT YOU HAVE--THE TRUE RICHNESS IN YOUR LIFE.  And if you just can't stay away, I'll see you back here in a week--in the meantime, go easy my friend.

WEEK OF JANUARY 14-20, 2008

Hello.  You'll note that I'm referring to this entry as the "Week of..." as opposed to the day of origination.  GOING FORWARD, I'M GENERALLY GOING TO MAKE ONE ENTRY PER WEEK.  YOU SHOULD EXPECT IT THERE BY FRIDAY, BUT IT MAY BE ENTERED MID-WEEK IF SOMETHING WARRANTS A MORE TIMELY ENTRY.

Why switch to a single weekly entry from more frequent contributions (you mean, "Where's the love?").  Two reasons:

First, as an investment manager with a generally longer-term view than most, there just isn't that much happening most weeks that requires mention.  A lot of the time, over the last few years, and I'm just being honest here, I've been self-burdened by the need to make a blog contribution--and so I spit out whatever I can.  Imagine a baseball blog that creates an entry after throw the pitcher makes.  Overkill.  The proper periodicity should be less frequent.

Secondly, the lie about the Information Age is that the value of information is related to it's volume.  On the contrary.  The lesson of the Information Age is that data is a commodity, and inherently nearly worthless--the value is in the utility.  And few investors appreciate how much damage they do to their investing by drowning themselves in information.  The best thing an investor could do would be to winnow down to just a few information sources.  So I don't want to add to the problem, by giving you too many reasons to read my stuff.  Once a week will be all you need.

I spend five minutes perusing the Wall Street Journal in the morning.  I "watch" CNBC on mute (glancing periodically at the screen).  I read the CFA Digest.  My news comes from headlines on Yahoo.  And I have a couple of websites I review.  That's it!  IBD?  The Economist? TheStreet.com?  And on and on...totally superfluous.  You can't have an original thought if you drown yourself in that junk.

NOW, that doesn't mean I don't research my ideas, and occasionally chase a wild hare, empirically speaking.  But generally speaking, my Informational inputs are kept on strict daily quota.

Now onto The Market...

It stinks right now.  Get over it.  Don't be a fool and try to "time it" by selling stock in the hopes of sitting on the sidelines until the market recovers.  I'll make three points, and we'll call it good for now.

1) I've gotten a couple of calls from the press and from clients about the state of the Market.  That only happens when the Market's on its butt, and about to massively rally. 

2) Recall that when I was trying to make my bold predictions about the economy and stock market for the year, I lamented the fact that the market hadn't priced in the inevitably slowdown, and that that represented risk.  Well a lot of that risk is now gone--which is not to say it can't fall further, but there's less to fear from here than there was.

3) If you've followed the advice shoved down your throat here (to be diversified across at least seven asset classes, and to be maximally defensive with your stocks), you are not feeling the pain of the Market--by design.  All is well in that regard.

January 10, 2008

The charts above are from Intrade--an electronic futures trading marketplace.  These aren't polls--they're the inferred "odds" of each candidate winning his/her party nomination, based on the value of the futures contract that trades at Intrade.  Fascinating stuff.  As I've oft said, never underestimate the the predictive power of an electronic market with diverse participants and a profit motive.  They're remarkably accurate, these electronic marketplaces...and yet not infallible.  Indeed they assigned a 94% probability to Obama winning the New Hampshire Primary.  Oops.

Last weekend I gave my outlook for the year to my radio show listeners.  Let me summarize it here.

The economy will slow notably this year.  Whether or not we have a "Recession" is irrelevant to investors.  That's an arbitrary concept and what matters is the degree to which the stock market over-shoots or under-shoots the economic outcome, and the pace in which the market recognize the downturn.  I've made this exact point  for the last several weeks.  When I began making the point, the market was a scant 4% below its all-time high and my concern was that the Market was not pricing in the weakness--we've since slipped another 8% (and bounced back a bit in the last couple of days).  We are now firmly somewhere between a Correction and a Bear Market. 

Conservativism remains the call of the day.  This means two things, and not a third.  It means, "Multiple Asset Class Diversification."  It also means, "Defensive Stock Exposure."  It does not mean, "Be in Cash."  Multiple Asset Class Diversification implies investment in at least Seven Asset Class investments (the ones we continue to use include US stocks, Foreign Stocks, US bonds, Foreign Bonds, Commodities, Currencies, and REITs).  Within stocks, overweight ought be afforded to defensive sectors (Consumer Staples and Healthcare), and one best be underweight Cyclicals/Discretionary and Financials.  The rest of the sectors can be normal-weight.  BUT, we're tweaking to allow for an overweight to Tech (compelling valuations) and an avoidance of Utilities and Energy(unattractive valuations). 

Overall, it means little to no Small Cap exposure.  We're favoring Asia over Europe, and the Developed Markets over the Emerging ones.  Commodities remain a must-have asset, but this is the one asset group where the bullish and bearish arguments are so equally matched, it's hard to have a strong view on Commodities.  We remain bearish on real estate and stand on a credible record here--and yet we still have a small REIT exposure for good measure (in a diversification context).

Finally there is "currency."  As you know, we've been Dollar bears for the last year and have done well with the Peso, the CAD, the Aussie Dollar, and the Euro.  But that bet no longer remains an easy one.  With the wind at its back, the anti-Dollar bet remains viable, but our view is that the bet to place in 2H08 is in favor of the Yen v. Dollar, and the Dollar v. Dollar index.  You can count on headlines like "The Return of the Dollar!" on periodicals a year from now.

We haven't given away all our secrets here...we have to save something for the very special participants in our investment program.  But I hope you'll give some thought to the aforementioned strategy, for your own good.

January 2, 2008

First post all year...blame it on the holidays!

The Market's off to a lousy start, but it should be.  The economy is decidedly weakening, and yet the Market is just 7% below its all time high.  Stocks should weaken from here for the foreseeable future (measured in weeks, mind you).

Below are the predicted winners tomorrow in Iowa, from intrade.com, updated dynamically.

 

Finally, per below (12/22/07), the seasonality held in there for awhile, but we got overbought and thus had to sell off to end the year.  This is a case in point example of the difference between a "tendency" and a "rule."