Monthly Archives: March 2009

Other People’s Money 2 – “Permanent Upside Bias”

Recent oil prices and forecast

Recent oil prices and forecast

It seems to me that more contrarian-minded investors have been successful over the long term than common wisdom would suggest. Take a long hard look at where the crowd is headed, and run as quickly as possible in the opposite direction. Bet against MBS’s? You betcha! Sell into a rally? Gotcha covered!

Which begs the question: why is every position in your (and my) portfolio long?

Last year, with the Dow treading water and oil at $145 a barrel and seemingly heading north forever, I was occasionally asked if there was anything I would invest in. I repeatedly said I only had one suggestion: if I had the nerve, I would short oil. Putting aside the relative complexity and expense of futures trading, did I do it? Did anyone I spoke with? Of course not.

I was reminded of my prep school days in Rhode Island. A fortune was to be made any time the Rangers played the Bruins, or the Knicks played the Celtics. Kids from New York would beat my door down to bet FOR New York, kids from Boston, FOR Boston. Not once did some kid from New York ever say, the Knicks are going to get their butts kicked, give me Boston and 5. There’s no joy in betting AGAINST something. Only money. Which is why I was happy to bet against both the Knicks and the Celtics, getting points or favorable odds from both sides. (A nice little business; kind of like selling lottery tickets.)

Retail investors – and I suspect American retail investors in particular – have what I call a “permanent upside bias.” We want to invest in things we believe in, that will grow, that will make us happy and rich and skinny and “the new 30.” On top of that, we don’t want to “sell” things we don’t believe in anymore. Where’s the fun in that? We don’t believe in dumping (as a society, we won’t even dump waste). So not only do we never take short positions, we never sell soon enough either. It’s one of the major reasons experienced institutional investors and “insiders” beat retail investors all the time. They’re unsentimental, and they’ve learned when and how to sell.

Being long in equities is the ultimate herd mentality. I’m not saying that learning to love your inner short will be like taking candy from a baby. I’ve just always been curious why the same irony and skepticism that pervades our view of all the other aspects of our modern American lives doesn’t also inform our view of our investments. Made a profit in last week’s Obama mini-rally? Maybe you should think about taking the profit for a change.

Other People’s Money 1

Recent DJIA, courtesy, My Side of the Coin

Recent DJIA, courtesy, "My Side of the Coin"

Read “A Decade of Dow,” by My Side of the Coin here.

Famous personal financial advisors – Suze Orman and Jim Cramer come most easily to mind – keep giving people the same bad advice: if you have ten or more years to retirement, invest heavily in equities. The implication being, over any given 10 year period, you can’t lose.

Well, here’s the reality check.

Friday’s close on the Dow was 7,776.18.

On March 30, 1999, the Dow closed at 9,874.41.

That’s a 21.2% loss for that 10-year period.

Granted, there are 10-year periods in which you would have done fine in equities. If you had invested everything you owned in stocks on the day Bill Clinton took office, you’d be wondering what all the recession fuss was about, too. (To wit: see my post “Whatever happened to the ‘Barack-Olypse.”)

But there are abundant examples of 10-year periods in which you would have lost a bundle in the market. Investing in the equivalent of indexes or index ETFs anytime between 1965 and 1973, for example, you would more than likely have had a 10-year loss. And investing in equities at any point in the last decade, as we see above, was treacherous.

Unless you were timing the market – which we are repeatedly advised not to do – or picking individual stocks AND timing the market – which we are repeatedly told is too dangerous for the average investor – you would have been much, much better off over the past decade with CDs and T-bills. Hell, you would have been better off with an ING Savings Account!

The Great Mortality, by John Kelly

European antisemitism more dreadful than Plague.

Rating: Eh? (A bit repetitive too.)

Double-Take of the Week: “Clear and Hold”

…if you had said to us a year ago that– the least of my problems would be Iraq, which is still a pretty serious problem– I don’t think anybody would have believed it.

(President Barack Obama, Sunday, March 29, 2009, on 60 Minutes)

Is this whiplash, or is this love?

With the economy fixed, and the Obama rally well underway in the equity markets, the President turns his attention full time to “Pahk-eh-stan” and Afghanistan.

This is either political stagecraft of unprecedented genius, or a portent of just how screwed we really are by the sheer volume and diversity of the economic, political and social challenges we face.

Or both.

Maybe “clear and hold” isn’t just the latest strategy in the conflict I assume is now being rebranded the Committed War on Al Qaeda (CWAQ, pronounced “Quack”) from the perpetually ineuphonious GWOT, or Global War on Terror. Clear and hold appears to also be an effective strategy against the permanent Republican insurgency.

Having successfully left the likes of Cornyn, Boehner, Jindhal and Cantor sputtering and slack-jawed, reduced to nattering nabobs of Lafferism — left standing surely outside the mainstream as the Kurds will be left standing outside the new walls of Baghdad — the precincts of the economic bailout, TARP, budget, federal reserve and re-regulation, can be left safely in the hands of Leuitenant Geithner. The President has other fish to fry.

Various theories compete to tell us how long a new President can effectively maintain the political capital necessary to help move difficult or innovative legislation. A hundred days? The first term? Through the second year of a second term? One thing is certain: for every commentator who expresses the clear truth that this administration just took office (mumble it to the man, Mos Def! starting around 4:20), there is a cable news talking head with a countdown clock, telling Americans their heads are going to explode if the President doesn’t deliver world peace by the time their taxes are due.

So put me in the camp that gives the President the benefit of the doubt for this sudden, head-spinning turn to foreign policy matters. If the number of adults who are now taking Ritalin is any indication, the American attention span isn’t getting any longer. Movement on multiple fronts is required, and action, even action for the sake of action, is always a tonic to the American mind.

Still, wow, what IS that sudden pain in my neck?

Complacencies of the Peignoir

Chez Fleisig in Spring

Chez Foley-Fleisig in Spring

(With apologies to Wallace Stevens.)

Crespo Dollar and the Pople are hard at work.

Yet somehow, I envision even our accountant, contingincies of tax season weighing like the world, inspired to refill her Starbucks’, undewing buds suggestive like a second cup of coffee in the warm rain. Her undoing, perhaps? A moment, the office will wait.

Back sections beckon. Woody Allen’s lingerie ads long ago deposed in demotic condominiums, sexy, swanky kitchens met in stainless steel upon the grounds of our most cherished fantasies.

I was just sitting around looking through the magazine section,” … “uh, no, no, I didn’t read the piece on China’s faceless masses, I was checking out the lingerie ads.

Instead, muttering, “that light, that light!” The too soft pitch at the San Siro and David Beckham real time on the back channels of basic cable. What an Italian would do with that body? David in pixels. Da Vincian David in underwear. Our David, bent not bowed, on his axis of fame, the cruciform shape of his testicles our cross to bear. Another cross to bear.

Charles Osgood mutters a last line of doggerel.  We drift from our sinless beds to a last, lukewarm, bit of coffee, barefoot, half naked on the cold kitchen tile, contemplating nothing. And everything. Making hay of the multitasking. Getting it sorted. An hour for this. A place for that.

And with that we rise to our monitors. Books put aside. Dogs petted. Options weighed.

It’s another Sunday morning in America. And there’s work to do.

Driftless, by David Rhodes

Interesting story. Overwritten.

Rating: 1 “yeh”.

Netherland, by Joseph O’Neill

Fabulous. Fully deserves every rave review.

Rating: double “yeh!”s.

Sometimes you just gotta’ ride your bike

More bad news on the home economics front. The New York economy isn’t in harmony yet with the good vibes emanating from D.C. With one exception (thank you french institute alliance francaise for your gracious and timely response) employment prospects don’t bother acknowledging receipt of resumes and other job application materials. Taxes are due soon, we have no idea where our property survey is and the appraiser is coming Thursday.

But, you know, it’s Friday, 65 degrees and sunny. Sometimes bad news just has to wait.



Cramer Caves

On this morning’s Morning Joe, Jim Cramer eats crow again: “I’ve got to admit, [Treasury Secretary Timothy] Geithner is more sophisticated than I first gave him credit for.”

Stablemate Erin Burnett concurs: “There’s no question, Geithner is a guy of real substance.”

Inasmuch as these two can be said to sum up the common wisdom of the equity markets, the equity markets and their gatekeepers, the financial advisors and institutional money managers of the world, are finally warming up to the Obama administration.

This shouldn’t come as too much of a surprise, although it can be beyond frustrating that it takes so long.

Market history is only a fair indicator of market futures. But a quick look at the history of the Dow in the transition years between the Hoover and Roosevelt administrations, the Nixon and Carter administrations, and the Reagan and Clinton administrations, reveals a remarkably similar pattern.

The performance of the Dow in the first weeks and months of each of these transitions to Democratic administrations was consistently abysmal, continuing broad, severe bear markets that began during the last year or years of the preceding Republican administration. But in each of these cases, somewhere between month 3 and month 6 of the new administration, a bull market emerged, creating broad and sustained rallies. A sustained Obama rally could now be emerging; time will tell.

There are two broad implications if this pattern holds true once again. 1) counter to the common wisdom, long-term Republican stewardship of the federal government is bad for equity markets (each one of the multi-term Hoover, Nixon and Reagan administrations ended with horrible bear markets); and 2) there is a knee-jerk bearish reaction to any Democratic presidential victory, which is historically unwarranted, and time after time unwinds into a sustained rally several months into the new administration.

Pass me my rose colored glasses. I’m beginning to think springtime is coming.

RIP John Hope Franklin

Slowly, invisibly, irrevocably, African Americans have shaped the American Experience. John Hope Franklin (wiki) joins that pantheon tonight. Charles Nash, W.E.B. Dubois, James Baldwin, Booker T. Washington, Ralph Ellison, Frederick Douglass, Thurgood Marshall, King, Ali, Jimi  (this just a short, insigificant list that could so easily include so many thousands more). Great Americans all.