How long have they been threatening a rate hike? 18 months? By threatening, I mean implying that it could be as early as the next meeting. Going by that, how long before we actually get one? Another 18 months? Longer?
I ask because I'm not prepared to wait this out another two years. If this is really the new normal, I need to adjust accordingly; sitting on the sidelines isn't really a strategy. I'm a little averse to risk at this point, but I need to come up with at least a temporary permanent scheme for covering our expenses through our investments.
What is more risky ... drawdowns or riskier investments? Is there a level at which the risk of an investment outweighs the risk of a drawdown?
Sorry for all the questions. I'm trying to ignore my personal dislike of drawdowns and figure out how to accurately assess this, given that that (I think) we'll be sub-3% for a long, long time.
ZIRP-finity
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stand@desk
- Posts: 399
- Joined: Sun Dec 08, 2013 9:40 pm
Re: ZIRP-finity
Why not keep a portion on the sidelines and a portion in the market? You don't have to be all in or all out. Figure out what % cash appeals to you and add on weakness and sell on strength in this rate environment. Once the rate rises or falls then re-adjust accordingly..I like having powder on the sidelines psychologically, not necessarily rationally because I feel I can respond to changes in the market where when you are fully in you can't respond at all..hard not to be able to respond after several massive down days (if/when they come). My two cents.
Re: ZIRP-finity
@jennypenny
I have the same issue with my father's portfolio. He has had a lot of long-term CDs come due recently. So, there is a decent amount of money that went from making 3-5% guaranteed to making nothing. I have been slowly buying the few beaten down dividend payers (Wal-Mart was a great buy this time last year and many dividend tech stocks were good buys, but they are starting to get bid up.), but these are difficult to find as it's what a lot of people have been doing.
I definitely don't want to buy bonds, as multiple factors suggest that horse has run it's course and will steadily lose money over the next 5 years or more.
Even most solid preferred stocks have been bid up.
I'm kind of hoping that when OPEC fails to make production cuts again, at the end of this month, we get a nice drop in oil. Maybe then I can get him into some more of the higher quality majors with decent dividends. Riskier than I would like, but it still looks like less risk than lower yielding bonds and most similar yielding dividend stocks.
I have the same issue with my father's portfolio. He has had a lot of long-term CDs come due recently. So, there is a decent amount of money that went from making 3-5% guaranteed to making nothing. I have been slowly buying the few beaten down dividend payers (Wal-Mart was a great buy this time last year and many dividend tech stocks were good buys, but they are starting to get bid up.), but these are difficult to find as it's what a lot of people have been doing.
I definitely don't want to buy bonds, as multiple factors suggest that horse has run it's course and will steadily lose money over the next 5 years or more.
Even most solid preferred stocks have been bid up.
I'm kind of hoping that when OPEC fails to make production cuts again, at the end of this month, we get a nice drop in oil. Maybe then I can get him into some more of the higher quality majors with decent dividends. Riskier than I would like, but it still looks like less risk than lower yielding bonds and most similar yielding dividend stocks.
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black_son_of_gray
- Posts: 611
- Joined: Fri Jan 02, 2015 7:39 pm
Re: ZIRP-finity
I'm thinking similar things, but I'm willing to wait a long time as I am further out from needing any income from investments. If I remember correctly, the last meeting revised down to a long-term goal of ~3% (from 3.5%) by 2019... which has been a trend for the last few years. Every new projection just nudges down the previous projection. Bond rates have been in steady decline since I've been alive! (where else can they go now??)
I can't imagine how the 3% will actually happen, because 1) the market is super high; 2) it has been a historically long time since a recession; 3) the rate of raising the rate is very slow, and 4) the Fed's mindset seems to be that any recession that happens will need to be 'managed' - and one of their main weapons* in doing that is to drop the interest rate. So between now and 2019, the odds of a recession are high. If economic data is too bad NOW to raise rates, there is no way in hell they would raise them during a recession, and would likely drop the tiny gains they made.
*not that it is a particularly good one
I think your comment underlies a bigger issue for the Fed - What happens when larger and larger amounts of people just get "Fed up" and lose faith in them?
"What is more risky ... drawdowns or riskier investments? Is there a level at which the risk of an investment outweighs the risk of a drawdown?"
What you need from your investments is income, no? My current thinking about how I want to generate income is through small REITs that aren't highly represented in index funds. REITs are often on a different business cycle than the main market, and different REIT sectors have different cycle lengths. With a bit of work, you can get in reasonably cheap and have high income. (I'm only planning to do this for part of my portfolio)
What kind of timeline are you working with - when do you need to ramp up this income? And how long could you ride out a bad event like a big (40-50%) capital loss without major drawdowns after a drop?
I can't imagine how the 3% will actually happen, because 1) the market is super high; 2) it has been a historically long time since a recession; 3) the rate of raising the rate is very slow, and 4) the Fed's mindset seems to be that any recession that happens will need to be 'managed' - and one of their main weapons* in doing that is to drop the interest rate. So between now and 2019, the odds of a recession are high. If economic data is too bad NOW to raise rates, there is no way in hell they would raise them during a recession, and would likely drop the tiny gains they made.
*not that it is a particularly good one
I think your comment underlies a bigger issue for the Fed - What happens when larger and larger amounts of people just get "Fed up" and lose faith in them?
"What is more risky ... drawdowns or riskier investments? Is there a level at which the risk of an investment outweighs the risk of a drawdown?"
What you need from your investments is income, no? My current thinking about how I want to generate income is through small REITs that aren't highly represented in index funds. REITs are often on a different business cycle than the main market, and different REIT sectors have different cycle lengths. With a bit of work, you can get in reasonably cheap and have high income. (I'm only planning to do this for part of my portfolio)
What kind of timeline are you working with - when do you need to ramp up this income? And how long could you ride out a bad event like a big (40-50%) capital loss without major drawdowns after a drop?
Re: ZIRP-finity
What follows is purely my opinion and mental modelling, while perhaps somewhat oversimplified... I trust my gut! I don't think rates will go up significantly until inflation starts to rise (I'm talking about official reports, I assume we all agree that inflation is higher than reported!). Here's my reasoning...
ZIRP and corporate bond buying policy is happening to spur growth in our economy which has peaked and would otherwise begin its natural correction phase. I may be placing too much importance on to this, but one of the unintended side effects of ZIRP that gets overlooked is that any sane person will actually hoard more cash to meet their future financial goals because interest rates results in lower returns, thus the economy doesn't grow, also there's only so much debt individual consumers can stomach, or only so much before the banks won't lend any more. The fact that base rates are low signals that times are still tough and the recovery hasn't really kicked in, so its prudent to save more. Its catch 22 for the CBs. If they raise rates significantly, the economy will stall because the cheap debt dries up and they know this, but if rates stay the same and the CBs admit the global economy has flatlined, the markets will crash. Since the CBs unofficial raison d'être is maintain order in the economy, and preventing a stock crash is up there, they will keep rates low whilst continuing to promise rate raises. They can slowly raise rates without crippling the economy over night, but will eventually forced to lower them again to ease the economy once more. The CBs simply cannot announce the emperor has no clothes, because it's against the interests of the status quo, so for a while longer I expect to hear about promises to raise rates, possible with the odd raise, but shortly followed by lowering again.
Also, of relevance, I think the CBs are attempting avoid NIRP as long as possible because setting rates too low would trigger bank runs as people realise their cash is better kept under the mattress than pay to keep it in a bank, raising fees will not be tolerated forever. By then the calls for banning cash will be coming in hard and fast from the financial sector and its lobbyists, so you'll know it's coming in advance
. Personally, I don't think we'll see any significant raising rates again until either significant productivity gains occur (perpetual motion machine invented anybody?) or energy prices spike, particularly oil. Once energy costs start to rise, this inflation will be impossible to hide, the game is up and the worlds CBs will have to raise rates at that point or else risk runaway inflation. Raising rates will kill inflation by demand destruction, that will kill off growth without doubt, but I would bet that the CB would prefer another recession to high-inflation which is no doubt worse for the vested interests.
We'll see a lot more novel and daring attempts to manipulate the economy as falling energy per capita forces growth to slow, and eventually contract, the irony is that most of these manipulations encourage inflation which will inevitably erode financial capital of savers. The status quo will be paid for at the expense of savers and uniformed (soon-to-be)pensioners. This is why I think its important to hold some gold in my portfolio, its essentially a hedge against the hidden inflation. NWO/lizard men conspiracy theorists will declare this was the plan all along, while others will realise this is just another bump in the road as global energy per capita begins to decline.
Sorry for the doom
ZIRP and corporate bond buying policy is happening to spur growth in our economy which has peaked and would otherwise begin its natural correction phase. I may be placing too much importance on to this, but one of the unintended side effects of ZIRP that gets overlooked is that any sane person will actually hoard more cash to meet their future financial goals because interest rates results in lower returns, thus the economy doesn't grow, also there's only so much debt individual consumers can stomach, or only so much before the banks won't lend any more. The fact that base rates are low signals that times are still tough and the recovery hasn't really kicked in, so its prudent to save more. Its catch 22 for the CBs. If they raise rates significantly, the economy will stall because the cheap debt dries up and they know this, but if rates stay the same and the CBs admit the global economy has flatlined, the markets will crash. Since the CBs unofficial raison d'être is maintain order in the economy, and preventing a stock crash is up there, they will keep rates low whilst continuing to promise rate raises. They can slowly raise rates without crippling the economy over night, but will eventually forced to lower them again to ease the economy once more. The CBs simply cannot announce the emperor has no clothes, because it's against the interests of the status quo, so for a while longer I expect to hear about promises to raise rates, possible with the odd raise, but shortly followed by lowering again.
Also, of relevance, I think the CBs are attempting avoid NIRP as long as possible because setting rates too low would trigger bank runs as people realise their cash is better kept under the mattress than pay to keep it in a bank, raising fees will not be tolerated forever. By then the calls for banning cash will be coming in hard and fast from the financial sector and its lobbyists, so you'll know it's coming in advance
. Personally, I don't think we'll see any significant raising rates again until either significant productivity gains occur (perpetual motion machine invented anybody?) or energy prices spike, particularly oil. Once energy costs start to rise, this inflation will be impossible to hide, the game is up and the worlds CBs will have to raise rates at that point or else risk runaway inflation. Raising rates will kill inflation by demand destruction, that will kill off growth without doubt, but I would bet that the CB would prefer another recession to high-inflation which is no doubt worse for the vested interests.We'll see a lot more novel and daring attempts to manipulate the economy as falling energy per capita forces growth to slow, and eventually contract, the irony is that most of these manipulations encourage inflation which will inevitably erode financial capital of savers. The status quo will be paid for at the expense of savers and uniformed (soon-to-be)pensioners. This is why I think its important to hold some gold in my portfolio, its essentially a hedge against the hidden inflation. NWO/lizard men conspiracy theorists will declare this was the plan all along, while others will realise this is just another bump in the road as global energy per capita begins to decline.
Sorry for the doom
Re: ZIRP-finity
How timely! I spent most of yesterday evening rummaging around in the premium stock screener (paid version) of Morningstar, looking for unicorns. One of the many searches I did was for:
* top rated mutual funds (4 or 5 stars)
* 9% or higher 15-year trailing returns
* 7% or higher 10-year load adjusted returns
* 4% or higher SEC yield
* less than 1% fee
* open to new/outside investors
* $10k or less initial investment
Of the 30,146 mutual funds tracked by Morningstar, exactly 5 funds met this particular screen:
AB High Income A
Fidelity Advisor Emerging Markets
Fidelity Advisor High Income
Fidelity Capital & Income
Fidelity New Markets Income
I have done no further research on these funds other than creating the above list, so I don't know asset allocations within the funds, and have no idea if they would meet our goals (or yours). And this assumes, of course, that the data within Morningstar is correct. I know people who swear by their software, but I'm not in the habit of using it, so I don't know.
* top rated mutual funds (4 or 5 stars)
* 9% or higher 15-year trailing returns
* 7% or higher 10-year load adjusted returns
* 4% or higher SEC yield
* less than 1% fee
* open to new/outside investors
* $10k or less initial investment
Of the 30,146 mutual funds tracked by Morningstar, exactly 5 funds met this particular screen:
AB High Income A
Fidelity Advisor Emerging Markets
Fidelity Advisor High Income
Fidelity Capital & Income
Fidelity New Markets Income
I have done no further research on these funds other than creating the above list, so I don't know asset allocations within the funds, and have no idea if they would meet our goals (or yours). And this assumes, of course, that the data within Morningstar is correct. I know people who swear by their software, but I'm not in the habit of using it, so I don't know.
Re: ZIRP-finity
I don't mean to be rude, but the above seems to be a great methodology to buy the funds that outperformed yesterday, pay them at a high price today, and that will mean revert tomorrow.GandK wrote:How timely! I spent most of yesterday evening rummaging around in the premium stock screener (paid version) of Morningstar, looking for unicorns. One of the many searches I did was for:
* top rated mutual funds (4 or 5 stars)
* 9% or higher 15-year trailing returns
* 7% or higher 10-year load adjusted returns
* 4% or higher SEC yield
* less than 1% fee
* open to new/outside investors
* $10k or less initial investment
Of the 30,146 mutual funds tracked by Morningstar, exactly 5 funds met this particular screen:
AB High Income A
Fidelity Advisor Emerging Markets
Fidelity Advisor High Income
Fidelity Capital & Income
Fidelity New Markets Income
I have done no further research on these funds other than creating the above list, so I don't know asset allocations within the funds, and have no idea if they would meet our goals (or yours). And this assumes, of course, that the data within Morningstar is correct. I know people who swear by their software, but I'm not in the habit of using it, so I don't know.
Except for the two energy companies (Exxon and Suncor), there is nothing to buy that I can see in North America now among the 15 stocks I follow (DuPont, Suncor, P&G, Walmart, McDonald's, Apple, Amazon, Pfizer, ibm, Microsoft, GE, Pepsi, Exxon, coke, Berkshire).
Something in Europe is doable though, Royal Dutch is not expensive, Generali is low, Axa is ok.
In general banks and some insurance companies + energy are the only areas where I look.
I am building up some cash, but did not get out of the market, I like to never sell unless it's obviously super duper overpriced (sold all my Amazon stock at $650 for example).
The good thing about having an above average salary and a 60%+ savings rate is that you don't need to sell your equities to build up cash reserves quickly.
I'm usually 95% invested, now I'm close to 80% and I only invest 50% of my new savings.
Aside from very obvious bubbles like 2000 (I was 20 at the time and had no investments, so this is in theory only), I don't like to be on the sidelines because you end up missing some gains more often than not.
This means that for example now I own precisely 0% bonds, but also that I didn't sell my Walmart stock that I bought at $55
Re: ZIRP-finity
You're not being rude. Our strategy is in transition, and I would never have posted the above on this site if I was averse to (potentially negative) commentary. Who knows what we will migrate our investments into, or if dividends will even be a part of that. But I share Jenny's concerns about the ongoing ZIRPfest limiting our investment options.
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eudaimonia
- Posts: 45
- Joined: Thu Apr 24, 2014 3:51 pm
Re: ZIRP-finity
Bubbles tend to go on longer than most people think. The same will be the case with ZIRP. Eventually the macro fundamentals will assert themselves on global economies and force a different policy from central banks; however, until that time the markets will continue to grind higher fueled by corporate buy-backs financed by zero interest rate loans from central banks. Essentially, this is an inevitable losers game and one where everyone is playing musical chairs betting they won't be the one left without a chair at the end.
I have typically found that the most uncomfortable position is typically the correct one with these types of events (think housing bubble). Right now you and many other investors are in the unenviable position of earning nothing on their money or subjecting that money to riskier and riskier assets trying to squeeze yield.
More and more of my passive assets are coming out of stocks and into cash or similar equivalents (savings, short-term CD, etc.). Even though this is hardly an ideal position as Warren B. says - "The first rule of investing is don't lose money". This isn't just a platitude - losing 50% of your capital means needing a 100% gain just to get back to break even.
If everyone jumps off the London Bridge just to see what happens will you blithely jump after them? The smart money is in cash, holding businesses or land (typically ag) that has real cash flow, or knows enough about active investing to hedge their bets right now.
I have typically found that the most uncomfortable position is typically the correct one with these types of events (think housing bubble). Right now you and many other investors are in the unenviable position of earning nothing on their money or subjecting that money to riskier and riskier assets trying to squeeze yield.
More and more of my passive assets are coming out of stocks and into cash or similar equivalents (savings, short-term CD, etc.). Even though this is hardly an ideal position as Warren B. says - "The first rule of investing is don't lose money". This isn't just a platitude - losing 50% of your capital means needing a 100% gain just to get back to break even.
If everyone jumps off the London Bridge just to see what happens will you blithely jump after them? The smart money is in cash, holding businesses or land (typically ag) that has real cash flow, or knows enough about active investing to hedge their bets right now.
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jacob
- Site Admin
- Posts: 17143
- Joined: Fri Jun 28, 2013 8:38 pm
- Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
- Contact:
Re: ZIRP-finity
It's been almost two years since QE ended and markets went flat (as predicted).
The mental frameworks that were installed between 2009 and 2014 were that the Feds are in control; the future can be predicted by exact interpretation of Fedspeak; that one could borrow USD for nothing and invest them for higher yields in emerging markets; that corporations could increase EPS by borrowing money and buying back shares; that they could borrow money and turn around and pay it out as increased dividends.
The result of this on the retail side was that pure TSM and dividend growth strategies became immensely popular. On the corporate side, the result was that debt/equity ratios became really high as companies essentially pursued a leveraged buyout of themselves. On the international side, dollars used to increase demands for EM which in turn drove those up and drove the dollar down.
This has to be corrected. Ideally this has to happen in a slow and orderly fashion. Fortunately, the prevailing belief is that the Feds are still in control, so therefore things are still orderly. The first step was for the Feds to "teach" the profs to stop focusing so much on the poetry of every single word and focus on the "data". The Feds became so-called data-driven. This is nice, because the data they use as, as some of us think, completely made up and highly malleable. Fortunately, for the Feds, enough people still believe that the official government inflation and unemployment numbers are true.
The next thing was to threaten a raise. This made many realize that raising rates would kill the highly leveraged EM carry trade---unwinding the carry trade would shoot up the dollar and render US companies less competitive. This taught US companies to be less frivolous with the business plans. This step has more or less been accomplished. The USD is quite up there compared to a couple of years ago but nobody is complaining anymore.
Talking about raises for a while is sending the message to companies that they should stop trying to boost their share price with financial tricks and instead focus on paying off debt and getting LTD/Eq down to normal numbers. As a result, some have flattened dividends. Some have cut them. Buyback is stopping. This process can take a while. Fortunately for the Fed they can just sit and wait out the roll-down of the debt watching debts mature both in their own portfolio but also with corporations some of whom seem to be doing the right thing. This is a process that in a normal business cycle takes a couple of years. But 2009-2016 was not a cycle as much as it was an aberration.
In the grand scheme of things, corporations have essentially taken out debt on behalf of the investors and paid their investors with dividends and unrealized gains. This now has to be paid back either with the corporation's own cash (meaning shareholders won't get as much) or with unrealized gains which then becomes unrealized losses.
What's the last mental framework to deal with? The retail public's like for yield and [growing] dividends and trending markets. If this goes fast, it's a crash. If it's slow, it's just a bunch of blah.
Anyhoo, the Feds have been saying they're going to do a hike this year because the data is nearly there. This means they're either going to do it (the effect of which was observed about two weeks ago) or they have to come up with some other framework instead of Fedspeak or "data-driven" to replace it. Because the overall meme that they're in control has to be preserved in order for the markets to stay this high. That belief + the recent trend of unlearning investing is the only support left.
PS: If anything is different this time it's that the popularity of investing has peaked out and investing has now become common from being a pretty unusual rich man only thing 75 years ago. This suggests the new game is not in paper but somewhere else.
The mental frameworks that were installed between 2009 and 2014 were that the Feds are in control; the future can be predicted by exact interpretation of Fedspeak; that one could borrow USD for nothing and invest them for higher yields in emerging markets; that corporations could increase EPS by borrowing money and buying back shares; that they could borrow money and turn around and pay it out as increased dividends.
The result of this on the retail side was that pure TSM and dividend growth strategies became immensely popular. On the corporate side, the result was that debt/equity ratios became really high as companies essentially pursued a leveraged buyout of themselves. On the international side, dollars used to increase demands for EM which in turn drove those up and drove the dollar down.
This has to be corrected. Ideally this has to happen in a slow and orderly fashion. Fortunately, the prevailing belief is that the Feds are still in control, so therefore things are still orderly. The first step was for the Feds to "teach" the profs to stop focusing so much on the poetry of every single word and focus on the "data". The Feds became so-called data-driven. This is nice, because the data they use as, as some of us think, completely made up and highly malleable. Fortunately, for the Feds, enough people still believe that the official government inflation and unemployment numbers are true.
The next thing was to threaten a raise. This made many realize that raising rates would kill the highly leveraged EM carry trade---unwinding the carry trade would shoot up the dollar and render US companies less competitive. This taught US companies to be less frivolous with the business plans. This step has more or less been accomplished. The USD is quite up there compared to a couple of years ago but nobody is complaining anymore.
Talking about raises for a while is sending the message to companies that they should stop trying to boost their share price with financial tricks and instead focus on paying off debt and getting LTD/Eq down to normal numbers. As a result, some have flattened dividends. Some have cut them. Buyback is stopping. This process can take a while. Fortunately for the Fed they can just sit and wait out the roll-down of the debt watching debts mature both in their own portfolio but also with corporations some of whom seem to be doing the right thing. This is a process that in a normal business cycle takes a couple of years. But 2009-2016 was not a cycle as much as it was an aberration.
In the grand scheme of things, corporations have essentially taken out debt on behalf of the investors and paid their investors with dividends and unrealized gains. This now has to be paid back either with the corporation's own cash (meaning shareholders won't get as much) or with unrealized gains which then becomes unrealized losses.
What's the last mental framework to deal with? The retail public's like for yield and [growing] dividends and trending markets. If this goes fast, it's a crash. If it's slow, it's just a bunch of blah.
Anyhoo, the Feds have been saying they're going to do a hike this year because the data is nearly there. This means they're either going to do it (the effect of which was observed about two weeks ago) or they have to come up with some other framework instead of Fedspeak or "data-driven" to replace it. Because the overall meme that they're in control has to be preserved in order for the markets to stay this high. That belief + the recent trend of unlearning investing is the only support left.
PS: If anything is different this time it's that the popularity of investing has peaked out and investing has now become common from being a pretty unusual rich man only thing 75 years ago. This suggests the new game is not in paper but somewhere else.
Re: ZIRP-finity
"Opponents of the quarry project marched from Toronto to the farming town of Melancthon last year.
So what, exactly, is this investing heavyweight doing in a fight with small-town Canadian farmers? The publicity-shy Klarman declined Fortune’s requests for an on-the-record interview to discuss his investing approach or his stake in Highland. Instead, a spokesperson provided a statement. “Baupost’s investment in the Highland Cos. is consistent with our long-term, value-oriented strategy,” the statement reads. “We take our role as a responsible investor seriously.” It goes on to say that Baupost is confident that Highland will proceed in a way that respects the community and environment.
Well, sure, but here’s the bottom line: The quarry investment could provide an exponential return over time. Based on recent market prices, the volume of limestone in the proposed quarry is worth more than $6 billion. And its value could be on the rise. The Ontario government expects demand for limestone and other rock used in construction to increase by 13% annually over the next two decades, driven by an ongoing population and construction boom in the province.
In a broader sense, Klarman’s willingness to put money into a Canadian quarry is reflective of his view that stocks today offer little value. The really big potential gains, he believes, are in more complex investments. Klarman is not bullish on the recovery. “With most of the world’s developed economies grappling with structural budget deficits and a grim outlook,” he wrote to clients last July, “and because all foreseeable solutions to excessive borrowing and spending will dampen global economic activity, we find it hard to be optimistic about the economy.” At Baupost’s client meeting this past October, Klarman told investors that stocks were neither cheap nor expensive. It is the Federal Reserve’s policy of near 0% interest rates combined with government bailouts, he believes, that have driven asset gains since the financial crisis. “Massive government intervention in the wake of the 2008 financial crisis is now widely considered to have been a good thing,” he wrote in July. “We remain unconvinced.” He worries that the next crisis could be worse than the one in 2008."
http://fortune.com/2012/02/15/a-hedge-f ... ga-quarry/
But even Fortune magazine is a year late. The project cancelled around that time.
I also catch a whiff of desperation with the "Feed the Pig" commercials. Prop up the market with dumb money.
I'm not investing because I don't have a job atm but I wouldn't when I do.
So what, exactly, is this investing heavyweight doing in a fight with small-town Canadian farmers? The publicity-shy Klarman declined Fortune’s requests for an on-the-record interview to discuss his investing approach or his stake in Highland. Instead, a spokesperson provided a statement. “Baupost’s investment in the Highland Cos. is consistent with our long-term, value-oriented strategy,” the statement reads. “We take our role as a responsible investor seriously.” It goes on to say that Baupost is confident that Highland will proceed in a way that respects the community and environment.
Well, sure, but here’s the bottom line: The quarry investment could provide an exponential return over time. Based on recent market prices, the volume of limestone in the proposed quarry is worth more than $6 billion. And its value could be on the rise. The Ontario government expects demand for limestone and other rock used in construction to increase by 13% annually over the next two decades, driven by an ongoing population and construction boom in the province.
In a broader sense, Klarman’s willingness to put money into a Canadian quarry is reflective of his view that stocks today offer little value. The really big potential gains, he believes, are in more complex investments. Klarman is not bullish on the recovery. “With most of the world’s developed economies grappling with structural budget deficits and a grim outlook,” he wrote to clients last July, “and because all foreseeable solutions to excessive borrowing and spending will dampen global economic activity, we find it hard to be optimistic about the economy.” At Baupost’s client meeting this past October, Klarman told investors that stocks were neither cheap nor expensive. It is the Federal Reserve’s policy of near 0% interest rates combined with government bailouts, he believes, that have driven asset gains since the financial crisis. “Massive government intervention in the wake of the 2008 financial crisis is now widely considered to have been a good thing,” he wrote in July. “We remain unconvinced.” He worries that the next crisis could be worse than the one in 2008."
http://fortune.com/2012/02/15/a-hedge-f ... ga-quarry/
But even Fortune magazine is a year late. The project cancelled around that time.
I also catch a whiff of desperation with the "Feed the Pig" commercials. Prop up the market with dumb money.
I'm not investing because I don't have a job atm but I wouldn't when I do.
Re: ZIRP-finity
It's not directly on the topic of this thread but fairly closely related.
I see a lot of people* make comments sort of along the lines of 'rates are so low that bond-buying is a bad idea, because rates must go up soon.'
I feel that it's not a sure thing. Rates may still drop further. A number of European countries have negative rates. If the US economy takes a turn for the worse it could happen there too, so bonds bought today may be worth more. People have this quite understandable attachment to the 'zero floor', but even if it doesn't gel with your intuition, it's worth considering that rates can drop lower than 0.
*More so in Australia-based investing discussion, and rates in Aus haven't gone as low as in much of the developed world yet.
Edit: Also, humblebrag: part of the reason I feel this way might be because a few years back when people said 'surely rates won't go any lower' I increased my bond allocation, and rates did go lower, and hence I was fairly pleased.
I see a lot of people* make comments sort of along the lines of 'rates are so low that bond-buying is a bad idea, because rates must go up soon.'
I feel that it's not a sure thing. Rates may still drop further. A number of European countries have negative rates. If the US economy takes a turn for the worse it could happen there too, so bonds bought today may be worth more. People have this quite understandable attachment to the 'zero floor', but even if it doesn't gel with your intuition, it's worth considering that rates can drop lower than 0.
*More so in Australia-based investing discussion, and rates in Aus haven't gone as low as in much of the developed world yet.
Edit: Also, humblebrag: part of the reason I feel this way might be because a few years back when people said 'surely rates won't go any lower' I increased my bond allocation, and rates did go lower, and hence I was fairly pleased.
Re: ZIRP-finity
It's highly unlikely the Fed goes negative. If you take Jacob's Fed strategy explanation, which is spot on, negative rates would ruin all these carefully laid plans. Rates are not going to sky rocket by any means, but there is little reason for the Fed to go lower and there doesn't appear to be strong enough potential catalyst to warrant it. Though, no doubt, there are plenty on here that would disagree with that, as doom is well liked on this board.
Re: ZIRP-finity
I think the only reason why everybody is investing is that we are in a 8 year long bull market.
Are we sure that investing popularity has peaked now?
I mean in 1998 I was 17 years old and I heard friends talking about investing in new economy stocks.
Then there is that saying that goes "I decided to cash out when my barber started giving me stock tips" or similar, dating from 1929 or so.
Let's get to the next bear market and we will see how many people will "stay the course because in the long term it always goes up"
Are we sure that investing popularity has peaked now?
I mean in 1998 I was 17 years old and I heard friends talking about investing in new economy stocks.
Then there is that saying that goes "I decided to cash out when my barber started giving me stock tips" or similar, dating from 1929 or so.
Let's get to the next bear market and we will see how many people will "stay the course because in the long term it always goes up"
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Riggerjack
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Re: ZIRP-finity
Yeah, I went thru this re-evaluation back in February when we had that last correction. I've always been an index investor. I have had faith that stocks pay well, and in the long run pay a decent return. Well, I still believe that but buying anything at record highs requires a level of faith I just don't have. Yes, prices could continue to climb, in which case I am missing out.it seems less likely than another crash, though.
So, I looked around, a lot,for something that didn't seem overpriced. I am playing with a 401k, so my options are limited. I have to buy a mutual fund or ETF.
What I found was JJG. Tomorrow I'll go into why. I'm wiped out tonight.
So, I looked around, a lot,for something that didn't seem overpriced. I am playing with a 401k, so my options are limited. I have to buy a mutual fund or ETF.
What I found was JJG. Tomorrow I'll go into why. I'm wiped out tonight.
Re: ZIRP-finity
Before you invest in an ETF or ETN whose strategy is to be continuously invested in the near months of any commodity futures with automatic rolling out of the contracts, please make sure you really really REALLY understand what is going on "under the hood" with that fund. Myself, I wouldn't touch a product like that. I would think there are better ways to get exposure to that commodity.Riggerjack wrote: What I found was JJG. Tomorrow I'll go into why. I'm wiped out tonight.
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Riggerjack
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Re: ZIRP-finity
So, I went looking for something, anything, that didn't seem inflated beyond value. For me, bonds have always been out. when I started, because statistically, stocks had better returns, and I didn't mind volatility. Then, because the prices were so clearly being manipulated, and that just always seemed a bad idea. Now, I am sure there are still good individual buys in stocks, but my record of buying individual stocks is abysmal, other than range trading my company stock. Also, the 401k restricts me to mutual funds and ETFs.
I stumbled across a 52 week chart on wheat, and that got me started looking into grains commodities. This year has been predicted to be a bumper crop in wheat, and excellent for soybeans and corn. All those prices are very low. JJG is an ETF that trades grains futures contracts, and charges 0.75% in fees.
http://www.indexmundi.com/commodities/? ... months=120
http://www.indexmundi.com/commodities/? ... months=120
http://www.indexmundi.com/commodities/? ... months=120
https://finance.yahoo.com/quote/JJG?p=JJG
When you look at those charts, notice what happened in 2008.
I can't predict the future, but I can read a chart. I don't know commodities, and have always stayed away from them. I always assumed that the traders "knew more than I" did, so EMT says they set the price right. And in most commodities I can't work out the whys of price moves. Silver is up, because a few mines dried up? Or more industrial use? Or more jewelry use? Or more silver bugs? I don't know. and I don't know when or if that will change. But I do know why grains prices are low, right now. Great weather. We are having such a bumper crop this year, that silage has experienced a mini boom. Farmers are building onsite storage, because the commodity price is expected to be low at harvest, and they want a better price, later.
So, I can't predict weather, but I can bet that every year, won't be better than this one, and when that happens, the price goes up. I can't predict a market crash, but if it does, the price goes up. I can't predict crazy inflation, but if it happens, the price goes up. In the mean time, I pay 0.75% holding on, waiting for a good time to trade out. And as the charts show, there is a lot of room for the price to go up, and not much for it to go down. As I see it, I only lose if weather is freakishly good for crops, forever, or population experiences such a downturn that demand drops. In which case, my portfolio is likely to be the least of my problems.
If anyone sees something here I don't, please let me know. I have thought about this a lot, and I just can't find any reason not to do this trade. I have 6.5 years til retirement, and I can't see a way this doesn't pay off much bigger than a mutual fund in that time-frame. This is certainly not a strategy I would normally pursue, but the price is not normally this low.
I stumbled across a 52 week chart on wheat, and that got me started looking into grains commodities. This year has been predicted to be a bumper crop in wheat, and excellent for soybeans and corn. All those prices are very low. JJG is an ETF that trades grains futures contracts, and charges 0.75% in fees.
http://www.indexmundi.com/commodities/? ... months=120
http://www.indexmundi.com/commodities/? ... months=120
http://www.indexmundi.com/commodities/? ... months=120
https://finance.yahoo.com/quote/JJG?p=JJG
When you look at those charts, notice what happened in 2008.
I can't predict the future, but I can read a chart. I don't know commodities, and have always stayed away from them. I always assumed that the traders "knew more than I" did, so EMT says they set the price right. And in most commodities I can't work out the whys of price moves. Silver is up, because a few mines dried up? Or more industrial use? Or more jewelry use? Or more silver bugs? I don't know. and I don't know when or if that will change. But I do know why grains prices are low, right now. Great weather. We are having such a bumper crop this year, that silage has experienced a mini boom. Farmers are building onsite storage, because the commodity price is expected to be low at harvest, and they want a better price, later.
So, I can't predict weather, but I can bet that every year, won't be better than this one, and when that happens, the price goes up. I can't predict a market crash, but if it does, the price goes up. I can't predict crazy inflation, but if it happens, the price goes up. In the mean time, I pay 0.75% holding on, waiting for a good time to trade out. And as the charts show, there is a lot of room for the price to go up, and not much for it to go down. As I see it, I only lose if weather is freakishly good for crops, forever, or population experiences such a downturn that demand drops. In which case, my portfolio is likely to be the least of my problems.
If anyone sees something here I don't, please let me know. I have thought about this a lot, and I just can't find any reason not to do this trade. I have 6.5 years til retirement, and I can't see a way this doesn't pay off much bigger than a mutual fund in that time-frame. This is certainly not a strategy I would normally pursue, but the price is not normally this low.
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jacob
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Re: ZIRP-finity
@Riggerjack - I only see two things you didn't mention. The first is that "waiting for a good" time could be a long time (5-10 years). For an idea of how things could play out, check out a long term chart of another hot commodity (USO). It's hard to say whether prices are currently low on an absolute scale or whether they're just low on a relative scale (e.g. lower than 2008). The second is that grain prices needn't necessarily go to infinity "because people need to eat". In 2012 during the drought period, the dynamical situation was solved by slaughtering cattle (who eat a lot of grain) instead---point being that commodities are part of a complex adaptive system and if things get too pricey, people will take action if they can---and they mostly can.
PS: If you like indexing but want to focus on ag, there's always MOO. This is not a recommendation. I don't own it but I do own single issues in the ag space. This has been somewhat of an exercise in masochism in the past few years.
PS: If you like indexing but want to focus on ag, there's always MOO. This is not a recommendation. I don't own it but I do own single issues in the ag space. This has been somewhat of an exercise in masochism in the past few years.
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Riggerjack
- Posts: 3199
- Joined: Thu Jul 14, 2011 3:09 am
Re: ZIRP-finity
I am sure there are better ways to be involved in wheat, if that is what I wanted. I don't. I am not a commodities trader. This is my first time, and quite possibly last. What I want is to be invested in a commodities trading product, based in grains, without time limits. That last part is why I went with JJG. Expense of 0.75%, while I wait for the current bumper crop to clear out. I could do the same thing with WEET or CORN, but the expenses were much higher. Since I started buying JJG, the price has dropped nearly 10%. Yeah! I bought more.Before you invest in an ETF or ETN whose strategy is to be continuously invested in the near months of any commodity futures with automatic rolling out of the contracts, please make sure you really really REALLY understand what is going on "under the hood" with that fund. Myself, I wouldn't touch a product like that. I would think there are better ways to get exposure to that commodity.
You seem to object to the index style buying of futures contracts. I assume that your objection is based in asset volatility, that the potential for buying automatically exposes me to a huge potential for loss of asset value. If the price were $45, I would agree with you. But at 27.80, this seems too good to be true.
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Riggerjack
- Posts: 3199
- Joined: Thu Jul 14, 2011 3:09 am
Re: ZIRP-finity
@jacob, look at:
http://finance.yahoo.com/quote/moo?ltr=1
on the 10y scale.
See what happens in 2008? And since? This is exactly what I am trying to avoid. I want something that is not at all correlated to the stock market, and that is at a very low historic price.
USO is exactly what I was talking about with commodity price volatility for reasons I don't know. There are way too many people speculating on the price of an asset that is supply managed and highly regulated. Lots of variables I can't predict. The price is crazy low, I like that. It will eventually pay off, I like that. But it will pay off when demand goes up (I think this is unlikely, near term) or when producers slack off.
I have no way of knowing when that will happen, and no need to wait for it.
With JJG, the signal for price increase will come with weather. Nobody is manipulating that for their own purposes. In 2012, when cattle were slaughtered, resolving the grain price issue, the price was in the 50-60's. I started buying at 30.10. I have continued to buy even lower. I will start selling at 42, barring further increases in stocks. I don't need to wait for a 10 year high of 72 to make money on this. When I started buying JJG the SPX:JJG ratio was about 66. I just expect JJG to get to 42 long before SPX reaches 2800.
http://finance.yahoo.com/quote/moo?ltr=1
on the 10y scale.
See what happens in 2008? And since? This is exactly what I am trying to avoid. I want something that is not at all correlated to the stock market, and that is at a very low historic price.
USO is exactly what I was talking about with commodity price volatility for reasons I don't know. There are way too many people speculating on the price of an asset that is supply managed and highly regulated. Lots of variables I can't predict. The price is crazy low, I like that. It will eventually pay off, I like that. But it will pay off when demand goes up (I think this is unlikely, near term) or when producers slack off.
I have no way of knowing when that will happen, and no need to wait for it.
With JJG, the signal for price increase will come with weather. Nobody is manipulating that for their own purposes. In 2012, when cattle were slaughtered, resolving the grain price issue, the price was in the 50-60's. I started buying at 30.10. I have continued to buy even lower. I will start selling at 42, barring further increases in stocks. I don't need to wait for a 10 year high of 72 to make money on this. When I started buying JJG the SPX:JJG ratio was about 66. I just expect JJG to get to 42 long before SPX reaches 2800.
When I was researching this, I found that grain crop variability has been much less volitile than I previously thought. USDA has a bunch of charts on this. Crops have increased in the US and world wide almost continuously for decades. Crops have done very well for the last few years. But for this to be the new normal seems unlikely, given CC.It's hard to say whether prices are currently low on an absolute scale or whether they're just low on a relative scale (e.g. lower than 2008).