Quarterly Report: Really, what is everyone else saying???
Not since my time rocking with the dot.com bubble has the rest of the world’s opinion mattered so much. Ok, maybe the emerging market boom earlier this decade, but I was on board for that one. Rather than tell you things you already know, like the economy is not great, the dollar is weak, and stocks are going up for no fundamental reason, I will give my observations on the general overlap of what the big research departments are telling their investors. As you could guess, I will also add my “color” to their bullet points. So, let’s get in the trenches and see what “Wall Street” is touting these days. This includes places like Citigroup, Barclays, and Goldman. I am not reflecting on variant views or wild outlier thoughts.1. Everyone is getting ready to short treasuries – me too, but since they broke below a 3.3% yield (what I thought was the bottom), I am waiting for hedge funds to get short squeezed before diving in. As I recall, I was called “stupid” for suggesting shorting them at a 2% yield . . . So I am watching from the sidelines.
2. Wall Street loves TIPS – I think it is early, but would rather have the exposure now before the inflation house burns down. Sometimes you have to go with the crowd . . . I still think we are early.
3. Asia – wow, many out there are getting concerned about valuations! I hear that, but still think it is the place to be long term. My fund models are fully weighted and in some cases we have replaced emerging markets completely for MAPTX or MAPIX (less risky Asia only mutual funds versus the Chinese index). But, I still do not like Japan – come on, they are in a 100 year recession.
4. Most everybody likes industrials and tech, the next most popular areas are health care, financials, and gold. But it is the vicious cycle of upgrade after upgrade that drives traders and long-only investors crazy (I am in both camps).
5. Most think jobs matter (they do!) and that if the wealth in the US does not return to post bubble levels (how could it?) the savings rate will stay above 3%. The implication, as I see it, is poor retail spending. Of course, don’t tell any retail stocks that. They just keep going up with the only rationale (other than insane market participants) is that Wall Street drove earnings expectations too low. I don’t argue with the thinking, I just don’t want to be involved . . .
6. Most seem to think the market goes higher, but everyone expects this to end. Really!?!?!? My concern here is that even the big houses suggest (between the lines) that the next few months will be critical in testing the March bounce. Here is a case where I agree none of us know. It is curious that we all seem to think next year will not be great in terms of continued earnings, but nobody wants to express that in shorting . . . yet.
7. It’s a lucky number – why spoil it with more nonsense.
In light of all of this I have made some changes to the primary models.
1. Portfolio Pension Model (PPM) – We increased our exposure to REIT’s earlier this quarter while the rest of Wall Street bashed the group. It was hard to find any body in the press to say a nice thing about REIT’s except for me. I just noticed they could raise more cash with secondary offerings and rents trumped the penny dividends most banks were paying. Outside of that, everything else in the model simply was working.
2. Low Duration Opportunity Fund (LDOS) – My new and an institutional strategy I have wanted to implement for years. Some of you may not be familiar with it. We just look for odd lots of bonds off retail bond desks (mispricing), add some distressed debt (like Sally Mae), mix in higher quality special situations (like the California Anticipation notes – yes, I think those are pretty safe!), and finish it off with some FDIC or government backed notes. The whole thing is short term, under two years, and not necessarily laddered. Here is my main observation. The sweet spot in yield has shifted from 12 to 18 months. Oh boy, you mean the curve is steeper? Yeah, I know, you can read that in the papers, but what I see is individual investors don’t understand bonds and continue to fire sale odd lots.
3. Active Conservative Invest Portfolio (ACIP or the “trading strategy”) – Since Labor day I have been shifting from fast reaction day trading back to scaling into positions. It is the market, not me, that is changing its game. The big surge is done, so I am building core positions slower with longer time lines (don’t worry, longer may only be a month or two!). I would love a day when I could buy something for a year, but that is not the strategy for this market. We are currently NOT short, but keep plenty of cash and focus on quality, dividend generation, and larger size. Anything else in ACIP is for a trade, including any currency or bond positions. I trust nothing.
4. Other Fund Models – The bottom line is an increase in hedged equity like GATEX and inflation protected bond strategies like HARRX. Small Caps are being paired down or sold completely. No rocket science here, just reality. Also, in most cases cash positions are being raised a bit, but nothing earth shattering.
Good luck with your investing and know I am here every day fighting the battle for investment survival.
- Lee

Tags: ASIA MAPIX, industrials, jobs, lee munson, LLC, MAPTX, portfolio, TIPS, treasuries, unemployment, Wall Street