When I was young, it seemed that life was so wonderful,
a miracle, oh it was beautiful, magical.
And all the birds in the trees, well they'd be singing so happily,
oh joyfully, oh playfully watching me.
Two pretty good videos that will take you back... The Logical Song by Roger Hodgson (former Supertramp singer songwriter) The Logical Song Roger Hodgson w Orchestra
I instantly thought of this Supertramp song when I saw the following graphic in today's WSJ. A pictorial of my first fifty years, as seen through the lens of the ten-year treasury note. So many memories, good, bad, and not fit for a family newsletter. Wow, what a wild ride...wonder what the next fifty years will look like?
Yesterday the 10-year Treasury yield fell below 2% for the first time since April 1950.
Could it go lower? Of course, just look at Japan.
Could it stay at this level for an extended period? Of course, again look at Japan, and remember that Bernanke said short-term rates would be at zero for the next two years.
Could they go higher? Of course, if foreigners (our good friends in China, Russia, & the Middle East) decide that they no longer want to buy them and no longer accept the dollar as the worlds global currency.
If we only knew the answer to those questions we wouldn't have to worry about working for the next fifty years.
There are times when all the world's asleep,
the questions run too deep
for such a simple man.
As investors though we still have to invest knowing that we don't know. "Knowing that you don't know" is clearly better than "not knowing that you don't know", which is significantly superior to "thinking that you know". Follow?
Investing in a world of unknowns has never been easy, but one thing most investors do agree on is the need to diversify. For me diversification is not defined as owning different securities, for me diversification is only useful when you are diversifying your risk exposures. Risk diversification, not asset diversification. To diversify risk you need to look for inflation hedges, deflation hedges, currency devaluation hedges, sovereign debt default hedges, and corporate debt default hedges.
Once you've identified the best securities to hold for proper diversification, the next step is determining what exposure you should have to each risk at any given time. This is tactical asset allocation, this is not "buy-and-hold (hope)" investing.
We've had a lot of volatility in the last several weeks, and our Global Tactical Asset Allocation portfolio has had some significant changes. Here's where we stand today:
US Equities -- 5% Bearish,
we are now at our minimum US equity weight.
Int'l Equities -- 5%
Bearish, we are now at our minimum International equity weight.
US REITs -- 4%
Neutral, but very near our minimum target of 3%.
Int'l REITs -- 2% Bearish
. The sell-off in Europe has knocked these stocks down.
Gold --10% Bullish, clearly being viewed as a fiat currency substitute.
Commodities -- 6% Neutral, but very near our minimum target of 5%
.
US Fixed Income -- 18% Bullish, with the Fed all but guaranteeing that rates will be kept low for the next two years.
Int'l Fixed Income -- 12% Bullish, but risk has increased with the European bank problems.
Cash Equivalents & Currencies --38%, divided between the US at 23%, and 5% each in China, Australia, and Brazil.
While defensive, this is very different than what happened in 2008, in 2008 everything went negative, equities, gold, bonds, etc. Today money has run to gold and fixed income.
While corporate earnings continue to be OK, we are seeing some early warning signs that the second half might be a bit weak. Clearly we still have the issues with insolvent governments in Europe and here in the US.
But then they sent me away to teach me how to be sensible,
logical, oh responsible, practical.
And then they showed me a world where I could be so dependable,
oh clinical, oh intellectual, cynical.
I thought this was a great segment from Jon Stewart's Daily Show this week. I'm a fiscal conservative, social liberal, which means I generally agree with 80%+ of what the Libertarian Party stands for. I think it's amazing how the media totally ignores a Republican candidate that a huge segment of the population agrees with.
Enjoy...