I don’t think my troubles are here to stay, either. I was down a little more than 3.3%, better than the S&P 500, but not by much. So what whacked me? Generally, cyclical companies: Cemex, Conoco, Barclays, Sappi, Jones Apparel, Sanamento [SBS], Lafarge, Magna International, Lyondell, Deerfield Triarc, Patterson-UTI Energy, Japan Smaller Capitalization Fund, and Lithia Automotive.
For the most part, these are companies with strong balance sheets where they will do well in the intermediate term, in my opinion.
As for my balanced mandates, I don’t have solid numbers yet, but I suspect I was down a little more than 1%. Not bad, but I hate to lose, period. I take some comfort, but not much, that I am still up a little less than 2% so far this year on the broad market portfolio. Let’s see if we can do better in the next trading session.
long CX, COP, BCS, SPP, JNY, SBS, LR, MGA, LYO, DFR, PTEN, JOF, LAD
Hi David,
I enjoy your blog and the macro perspective you bring to the discussion on the street.com. I share your concerns about contagion risk and systemic risk in this system. With access to virtually everything around the globe at everyones fingertips things can get very out of control very quickly. The interest rate environment has still barely moved. How will this sytem react when the curve becomes as out of control as the stock market? Just as stocks proved yesterday history does repeat itself. Have a good night
James
I’ve written about it at RealMoney, and I will eventually put up a discussion of this in my “Major Article List,” but risk can’t be eliminated from the system, leaving aside the example of natural counterparties, which is rare.
Risk can be shifted around, though. The danger comes when the parties bearing the risk are thinly capitalized, and financed by those only slightly better capitalized. We’ll see what happens here. Yesterday was only a “test run” for something bigger. I don’t think the “something bigger” is coming soon, but I think the markets will decline for a bit, and then resume their rise. There is still a lot of liquidity in the system; speculation should continue for a while, which could be months or years, but not a decade from now. Demographics will have kicked in by then.The new blog looks just great, David. Congrats.
Hi David,
Can you elaborate on this: “speculation should continue for a while, which could be months or years, but not a decade from now. Demographics will have kicked in by then. “
Cody, thanks. You and Barry were my inspirations for the blog.
aliens8mycow — by 2017, financial systems will without a doubt be grappling with the retirement of the Baby Boomers. This will involve rising taxes, because OASDI and Medicare annual surpluses will be decidedly lower, and the markets will see them going negative in 5 or so years. Municipal pensions will require rising taxes in many states, and people will be looking at their relatively meager savings/investments, and recognize thaqt there’s not a lot of time on the game clock for them. Many people will just find that they can’t retire; for those that can, assets will trend into net liquidation mode. For insurance companies, it will mean the creation of more disposition products. Hey, you might find that life reinsurers will start reinsuring a bunch of SPIAs in various flavors.thanks David…I agree with you about taxes…and that will reduce(or even reverse) the tax deferral “benefits” of 401K plans and the like
wrt SPIA’s, I would also not be surprised to see life reinsurers reinsuring them
…and I be that it will happen well before 2017 …and speaking of SPIA’s, I think that many retirees would be well served by allocating a portion of their assets to a payout life annuity, particularly those who are not covered by a DB pension plan
It is an unpopular concept, but buying a Single Premium Immediate Annuity [SPIA] is a very smart thing to do as part of a retired persons asset allocation, particularly in an inflation-indexed context. Jonathan Clements has advocated them over at The Wall Street Journal, but I know of few others. Part of the reason is that once the SPIA is sold, the money can’t be turned over for a commission again. And since insurance products are usually sold, not bought, that is a problem.
The only real alternative is to keep a certain amount of inflation sensitive investments and limit your withdrawal rate to an inflation adjusted 4% of the initial balance. Even that will fail 5% of the time. There are no absolute guarantees in life, except death and taxes.