Monthly Archives: February 2011

Weekend Reading

Links for the Week ending Feb-20, 2011

Here are some of my favorite reads from the past week

The Links…..

  • Why people like economics but not economists by Robert Shiller (Slate)
  • All You Need to Know About Why Things Fell Apart by Michael Lewis (Bloomberg)
  • Viewing Chairman Bernanke’s Remarks Through the Lens of Emerging Economies by Mohamed A. El-Erian (PIMCO)
  • Dividend Policy for the 21st century (Musings on Markets)
  • Jeffrey Suat’s Market Commentary (Raymond James)
  • The Cognitive Dissonance of it All (Hayman Capital via Zero Hedge, pdf)
  • Investors most bullish on stocks in 10 years (Reuters)
  • Why Isn’t Wall Street in Jail? by Matt Taibbi (Rolling Stone)
  • The Art & Science of Remembering Everything! (Simoleon Sense)
  • Conan 2.0 (Fortune)
  • My Puny Human Brain by Ken Jennings (Slate)

Sentiment Update: Slight Decline but Still Bullish

Investor sentiment declined slightly last week but remains very bullish. The NAAIM (active money managers) survey for this week showed a decrease of 2.6% in bullish sentiment while the AAII (individual investors) survey showed decrease of 2.8%.

This week, active managers have, on average, an 84% allocation to equities down from 86% last week. The median allocation rose to 97% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile having a 70% or less equity exposure. The eight week moving average is now at 79%. The 84% bullish allocation is more than one standard deviation from the historical average.

The NAAIM Read more of this post

Taibbi: Why Isn’t Wall Street in Jail?

A good, yet infuriating article today from Matt Taibbi at Rolling Stone. I think this sums up nicely why Main Street is fed up with Wall Street and their minions in Washington. An excerpt below but the whole article is definitely worth reading.

The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn’t likely to fly, explaining that Mack had “powerful political connections.” (The investment banker had been a fundraising “Ranger” for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)

Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank’s regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn’t take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm’s lawyers, Mary Jo White, was on the phone with the SEC’s director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as “smoke” rather than “fire.” White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.

Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target’s firm is being represented not only by Eliot Spitzer’s former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC’s enforcement division — not Aguirre’s boss, but his boss’s boss’s boss’s boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.

Aguirre didn’t stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued.

Source: Rolling Stone

Weekend Reading: A Day Late Edition

Links for the Week ending Feb-13, 2011

I apologize for the delay. I had a rather busy weekend and did not get this out yesterday. Here are some of my favorite reads from last week but first the early candidate for quote of the week comes from John Hussman. As always his weekly market comment is a must read if you have not already done so.

And here we are again. This is not to say that we can rule out yet higher valuations, but with no transformative technologies driving the economy, little expansion in capital investment, and ongoing retrenchment in consumer balance sheets, I can’t help but think that the “virtuous cycle” rhetoric of Ben Bernanke is an awfully thin gruel by comparison. We should not deserve to be called “investors” if we fail to recognize that valuations are richer today than at any point in history, save for the few months before the 1929 crash, and a bubble period that has been rewarded by zero total return for the S&P 500 since 2000. Indeed, the stock market has lagged the return on low-yielding Treasury bills since August 1998. I am not sure that even members of my own profession have learned anything from this.

The Links…..

Thoughts on Fixed Income Portfolio Positioning

Note: This article is longer than most at a little over 2,000 words. If you choose, click here for a pdf version.

A few days ago, I was asked how I would position the fixed income portion of a portfolio. In order to provide an answer in a timely fashion I basically responded that due to the currently low interest rate environment, a steep yield curve predicting higher rates and corporate credits that would be sensitive to either an improving or weakening economy I would weight the portfolio toward short duration, government debt. Longer duration credits would only be favorable as a means to speculate on falling rates in the short-term or in an economic forecast that gives a high probability to decade with very low inflation. Under any other conditions, long-term bonds are not priced to deliver adequate real returns so a strategy of rolling short-duration bonds should outperform.


While my conclusions remain largely the same I would like to expand on this answer by looking separately at the classes of fixed income securities and exploring a few other options for a fixed income strategy. Fixed income securities include Treasury securities (bills, bonds and TIPS), corporate debt, municipal securities and mortgage back securities (MBS). We will look at each in order and then finish with conclusions and recommendations. Read more of this post