Balancing Act by Dion Wright.
Hillary Till, from the French EDHEC Risk and Asset Management Research Centre, published a very instructive study (copy here) on commodities. She touched on a couple of interesting tools which are vital to improving our bottom line. I’ll start with the unequivocal advantage of rebalancing a portfolio periodically; which not only safeguards investments, but furthers returns.
David R. Kotok, Cumberland Advisors, Inc.
Source: Global Interdependence Center
There’ a lot going on. But let me start out with David Kotok’s remarks (with a copy here) which I picked up from John Mauldin’s mail. I recommend subscribing to both mail newsletters –they’re free and their advice is sound and most of all thought provoking.
Kotok argues that globalization allows us to determine one set of global real interest rates for the different maturities (3 mo, 1 yr, 2, 5, 10, 30 yrs). I’m sure he’s singling out the developed countries (US, UK, EC and Japan) in his determination of the global rate, because they do carry most of the debt weights; as for the rest, in order to determine their real rates, we would have to add each country’s risk rate.
Chateau Margaux wines.
Source: french-old-wine-club.
Trophy wines are going up in prices like champagne bubbles. Apparently, positional goods are in strong demand as a consequence of globalization —which has widened the wealth gap, exacerbating the numbers of the filthy?? rich. So a bottle of Petrus 1987 vintage, which used to carry a £65 price tag 10 years ago , sells for £1,000 nowadays… in excess of 15x, a whopping 31 % annual yield.
According to this post from Gideon Rachman:
Some people reckon that it is all a bubble, and that the prices of the
top wines will come crashing down. I don’t believe it. The supply of
the fanciest Bordeaux wines is limited by the fact that they come from
a specific vineyard. But the demand for them will only swell, as
globalisation ensures that the number of new billionaires in search of
“positional goods” keeps rising. In a few year’s time, a case of Pétrus
2005 for £22,000 may seem like a bargain.
Only 250 hectares of vineyards at Chateau Margaux according to Bert from wineterroirs. I like that… especially, if the Margaux investment goes south, you can always call your friends over
and throw a very nice… wine party.
Check: Position goods.
The whole point of looking at the economy is to get an idea of where to put our chips… and it hurts when we’re wrong.
After making the rounds, I still hold to my view that 2007 is going to be a rough year for the US economy: 1.5 % GDP growth. If it does get rough, the Fed will have to open the liquidity valves full blast —they’re already pushing liquidity… And if this is the case, interest rates falling, bonds will be a good place to be… And if liquidity will be pushed from all currency angles, assets is the next place to be.
Having said that, let’s hone in to select the best sectors to safeguard our money this coming year.
What does GS expect for bonds next year?
A downturn in the economy, which will drag interest rates with it; and bonds to do quite well…
"The economy will grow below trend, around 2 percent in
2007,” said Jan Hatzius, chief U.S. economist at Goldman in New
York. "The short end can rally somewhat more,” with the two-
year yield dropping to 4.5 percent at year-end.
…and base metals?
"While structural changes have pushed metals price ranges higher, we
believe a cyclical slowdown in demand will likely result in a modest
temporary surplus for most metal in 2007, with fundamentals likely
tightening once again in 2008," said the report.
A pit stop at Roubini’s blog to have an idea of how the US dollar may fair in 2007…
According to Nouriel, the prospects continue to be on the negative side:
I am not in the business of predicting high frequency movements of
currency over the horizon of a week or a month. But my macro and
medium-term perspective tells me that fall of the dollar – over the
medium term – has still a very long way to go.
Bill Gross from PIMCO feels that cream may turn into skim milk… or that credit spreads are disquietingly approaching their lower profit limit.
Here’s a morsel to wet your appetite on his comments:
I, and I’m sure you as
well, am always amazed at the pundits who claim that certain just
released information is already priced in to the markets. How do they
know and who did they ask? Even if they did, would a 54% OJ majority
opinion be proof that it was so? I suspect not and that is why
investment management is partially art, partially science, and at least
a small part BS. But there are certain points in more definable, less BS-able asset markets that approach certainty if only because they
are more mathematically based.
Trading tips and how to trade... crude oil, US dollar, copper, real estate...
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Worth reading.
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