Something’s Always Going Up

[Finster]

Re: Something’s Always Going Up

we are not limited to stocks, bonds, cash or commodities. there are other options- absolute return oriented investments [under which i'd categorize hussman's fund], spreads [e.g. afbix- a mutual fund short junk bonds, against short term treasuries], commodity stocks as opposed to commodities per se, foreign currency bonds.

btw- i gather there's a fair amount of chaos in toronto. ouch! i've got about 12% in canadian trusts, mostly energy, but the loss of the tax advantage has to drop prices. i guess that will make yields even higher for the next 4 yrs -til 2011- while current trusts maintain their tax status.

That's where'd we'd disagree. So-called "absolute return" just means return relative to cash, which is not absolute at all. Moreover, those presumed "absolute returns" are derived from playing with none other than stocks, bonds, cash and commodities.

Sorry, no free lunch here, either. Reminds me of the paraphrased third law of thermodynamics. First law: You can't win. Second law: You can't break even. Third law: You can't get out of the game.

Since you did not reply, I'm going to take the liberty of assuming you've thrown in the towel and agree. And while I'm at it, also want to point out that "commodity stocks" are NOT an asset class apart from stocks, commodities, etceteras. Stocks are stocks are stocks, regardless of what business the issuing corporation happens to be in.

[jk]

Re: Something’s Always Going Up

Since you did not reply, I'm going to take the liberty of assuming you've thrown in the towel and agree. And while I'm at it, also want to point out that "commodity stocks" are NOT an asset class apart from stocks, commodities, etceteras. Stocks are stocks are stocks, regardless of what business the issuing corporation happens to be in.

finster, now, now, you shouldn't be taking liberties. anyone familiar with e.g. absolute return strategies know the important part is the strategy. yes, i know the so called absolute returns still have to compete with the devaluation of the dollar. i stopped replying because i got bored with quibbling.

i do think your investment class universe, at least as described here [perhaps not in real life], is narrow, and the recognition of other types of investment is useful for investors. i also think that there are important differences among subcategories that you lump together - e.g. putting gold under commodities along with oil, copper, timber and corn, ends up obscuring things for many who might read these threads for edification. [poor souls!] as i noted in another thread, yesterday gold separated from other commodities including base metals - gold was up 2% while copper was down 4%. you might calculate a target allocation to "commodities," but whether or how much that means precious metals is a big deal, because gold and e.g. base metals will behave quite differently in diverse circumstances.

i will not comment again on this issue, at least in this thread. if you wish the last word, here's your chance.

[Jim Nickerson]

Re: Something’s Always Going Up

i do think your investment class universe, at least as described here [perhaps not in real life], is narrow, and the recognition of other types of investment is useful for investors. i also think that there are important differences among subcategories that you lump together - e.g. putting gold under commodities along with oil, copper, timber and corn, ends up obscuring things for many who might read these threads for edification. [poor souls!] as i noted in another thread, yesterday gold separated from other commodities including base metals - gold was up 2% while copper was down 4%. you might calculate a target allocation to "commodities," but whether or how much that means precious metals is a big deal, because gold and e.g. base metals will behave quite differently in diverse circumstances.

jk, I think you recently posted that you track 14 assets classes, that number sticks in my mind. May I ask how you do it? What are the classes?

I do not do this, but I think it is an idea worth implementing. It has occurred to me to use the Market Summary page of stockcharts.com. One could import the Amex Select Sector SPDRs and the US Industry Indices plus the MSCI iShares-International and World Market Indices--that is a lot more than 14, but unless a better suggestion, it is a workable starting place. Is anyone doing that? Looking for ideas and experience.

[Finster]

Re: Something’s Always Going Up

finster, now, now, you shouldn't be taking liberties.

:p

;)

i will not comment again on this issue, at least in this thread.

… tsk … tsk …

i stopped replying because i got bored with quibbling.

… sure you did …

:rolleyes:

(... cajole, taunt, tease, provoke ...)

finster, now, now, you shouldn't be taking liberties. anyone familiar with e.g. absolute return strategies know the important part is the strategy. yes, i know the so called absolute returns still have to compete with the devaluation of the dollar.

That’s better. Absolute return is a strategy, not an asset class. And as you correctly concede, its benchmark is cash.

i do think your investment class universe, at least as described here [perhaps not in real life], is narrow, and the recognition of other types of investment is useful for investors.

But there are none.

It is not narrow at all. In fact it is practically exhaustive as far as the public markets are concerned. Whatever "other types of investment" you have in mind, they are not asset classes. At best, they are strategies for investing in the available asset classes.

i also think that there are important differences among subcategories that you lump together - e.g. putting gold under commodities along with oil, copper, timber and corn, ends up obscuring things for many who might read these threads for edification. [poor souls!] as i noted in another thread, yesterday gold separated from other commodities including base metals - gold was up 2% while copper was down 4%. you might calculate a target allocation to "commodities," but whether or how much that means precious metals is a big deal, because gold and e.g. base metals will behave quite differently in diverse circumstances.

It almost sounds like you have been paying attention. In the parent thread, I stated:

But all told, there would be perhaps only three to five fundamentally different investable asset classes. Personally, for asset allocation purposes, I use three major classes and further subdivide those into fourteen subclasses. But the important point is not the exact classification you use, but the concept of dynamic asset allocation and the opposing principles of concentration and diversification, and the maximization of return and minimization of risk...

Thus, my "three major classes" are broadly defined so as to be not only mutually exclusive, but collectively exhaustive. Cash, for example, is taken as the zero-maturity limiting case of bonds. But these major classes are further broken down into fourteen subclasses, to which individual assets are assigned. Now I do confess to lumping copper in with gold in one of those subclasses, but the value of most investors’ position in copper bullion relative to gold is going to be small enough as to make little difference. Regardless, the usefulness of a small number of very broad classes is in no way diminished by the existence of performance divergences between assets within the class. One can slice and dice to one’s heart’s content.

[bart]

Re: Something’s Always Going Up

It almost sounds like you have been paying attention. In the parent thread, I stated:



Thus, my "three major classes" are broadly defined so as to be not only mutually exclusive, but collectively exhaustive. Cash, for example, is taken as the zero-maturity limiting case of bonds. But these major classes are further broken down into fourteen subclasses, to which individual assets are assigned. Now I do confess to lumping copper in with gold in one of those subclasses, but the value of most investors’ position in copper bullion relative to gold is going to be small enough as to make little difference. Regardless, the usefulness of a small number of very broad classes is in no way diminished by the existence of performance divergences between assets within the class. One can slice and dice to one’s heart’s content.

Not only was that a good last word, but I'd call jk's comments and supposed points dead.

He obviously didn't fully understand what you were talking about, at the very least.

[jk]

Re: Something’s Always Going Up

jk, I think you recently posted that you track 14 assets classes, that number sticks in my mind. May I ask how you do it? What are the classes?

i track:

1. hussman/equity - hussman is almost the only way i invest in domestic equities, but he is variably hedged

2. precious metals - subdivided as gld, slv, tgldx, nem, paas - the latter 3 are the only way i currently invest in precious metal stocks. on other occasions i've invested in pm stocks more diversely, and would lump them together.

3. foreign currencies - tracked counting leverage- i also have charts breaking out each currency. current vehicles are rywbx, gim, czj, pfbdx, plmdx.

4. canadian income trusts- i break them out because they are mostly but not completely energy related, that portion which is not energy related partakes of the currency exposure.

5. shorts- total value of direct shorts

6. nominal value of puts- this tells me how much short-equivalent they cover

7. u.s. cash

8. u.s. bonds

9. short bonds- via afbix i am short junk bonds

10. energy not including canadian trusts

11. natural resources not including energy

12. long domestic stock

13. strategic mutual funds not including hussman

just 13- i think when i said 14 i was counting silver and gold separately. there's a case to be made for that, since silver is an industrial metal which transforms to a precious metal under certain circumstances.

these are not separate asset classes, but they are how i think about and allocate my assets.

[Jim Nickerson]

Re: Something’s Always Going Up

Thanks, jk.

25% Commodities - this would include your gold, silver, platinum, and copper bullion, and your net collateralized long position in commodity futures - for example shares in PCDRX.

What does "collateralized long positon" mean. I understand "long" but not "collateralized," though I understand "collateral", I just do not grasp to what these refer as an investment method.

I've tried to see what PCDRX (from post # 1) is, but I find nothing with the symbol.

Finster, what are the 14 sub-classes of the three classes of assets?

Cash, for example, is taken as the zero-maturity limiting case of bonds.

What is the "zero-maturity limiting case of bonds? I do not grasp what that asset is.

[Jim Nickerson]

Re: Something’s Always Going Up

And Something is Always Going Down it seems for one in Canadian income trusts.

For you guys into those "things", how are you playing it now? Just looking at the charts of the 5 or 6 symbols jk put up, it appears as though some have lost 20% in two days. Do you think they will recover, or does one take their losses and lick the wounds?

[Finster]

Re: Something’s Always Going Up

What does "collateralized long positon" mean. I understand "long" but not "collateralized," though I understand "collateral", I just do not grasp to what these refer as an investment method.

Unleveraged. With futures, it's quite easy to control $50,000 of commodity with $5000 of equity. Deposits are often just a small fraction of the total contractual obligation. In this example, that would be 10:1 leverage. A "fully" collateralized investment often means the fund has the difference made up with, say a position in TBills sufficient to cover the whole contract.

I've tried to see what PCDRX (from post # 1) is, but I find nothing with the symbol.

PCRDX is the ticker symbol for the PIMCO Commodity RealReturn mutual fund, which generally tracks the Dow Jones AIG Total Return index.

Finster, what are the 14 sub-classes of the three classes of assets?.

As I tried to emphasize, it's not critical to the concept. This level is not a matter of general principle but one of personal preference. Mine certainly are the latter, even having been given whimsical names that wouldn't mean much to other folks. I'd have to type a lot to fully explain what they all were, so here are abbreviated descriptions. On the condition that I'm not obliged to explain further, they are, very briefly:

Soft Money (cash, US dollars)
Hard Money (gold, silver, platinum, copper)
Short Term Treasuries
Long Term Treasuries
Equity Income Mix
Commodity Futures
Large Cap US Stocks
Small Cap US Stocks
Foreign Developed Markets Stocks
Foreign Emerging Markets Stocks
Natural Resources Stocks
Science & Technology Stocks
Real Estate Stocks
Health Science Stocks

The more important point (especially if you're looking to compare jk's and my (coincidentally!) fourteen subclasses), is that I'd argue that jk's are not valid subclasses at all. By my reckoning, a short position in equities is not a separate subclass from a long position in equities, but the same class with a minus sign, to signify it is not equities owned, but equities owed. And as I pointed out earlier, the Hussman thing is not an asset class or subclass either, but a strategy.

What is the "zero-maturity limiting case of bonds? I do not grasp what that asset is.

Cash. Remember that our money is essentially an IOU, and as such is effectively a debt obligation, like a bond. Bonds have a price change component related to their term; the longer the term of the bond, the more sensitive the principal to interest rate changes. Conversely, the shorter the term, the less sensitive to interest rates change. At a term of zero, there is no sensitivity of principal to interest rate changes - it's just like cash in the bank.

[Jim Nickerson]

Re: Something’s Always Going Up

Thank you, Finster, for explaining the above to me and perhaps one other person.

It seems your sub-classes are generally quite broad regarding equities, until you get to the last four on the list which are then sectors. I am not getting into an argument about what are sub-classes or not, but I am just curious of how others who critically look at these things look at them and specifically at what. I presume as time goes forth, both you and jk might change some aspect of your focus into other sectors, seems reasonable.

This notion of "cash." and I mean bonar bills, is interesting if one is intellectually curious enough to examine it, which I'll admit not to have been until a couple of weeks ago, when I was forced to think about it after reading something that I do not recall or where. But effectively a bonar is nothing. A 1Bonar is labeled Federal Reserve Note, which infers that the US Government owes me something if I have one. But if I were to "call" the note, how would the US Government cover my loan to it? What would I get? Nothing! It is truly incredulous if one thinks about it, so I guess that is why so few do. It certainly is the argument for precious metals.

[Finster]

Re: Something’s Always Going Up

And Something is Always Going Down it seems for one in Canadian income trusts.

For you guys into those "things", how are you playing it now? Just looking at the charts of the 5 or 6 symbols jk put up, it appears as though some have lost 20% in two days. Do you think they will recover, or does one take their losses and lick the wounds?

You can say that again, Jim. When it comes to taxes there is something always going up, too. Based on the information we have, I figure to hang on. Despite the bull market they’ve been in, they’d been quite modestly valued even before the sell-off, and the latter pretty well reflects the inherent loss due to the new tax. If the current yield is, say, 12%, and the tax takes a third of it, you’ve still got something yielding 8%. And remember even that doesn’t kick in until 2010. I’ve had mine for long enough I’ve just about already gotten my original purchase price back anyway. And given that Ottowa’s decision pretty well sticks a fork in the trust structure, with the value still left in the units quite a few of them could turn out to be takeover targets.

[Finster]

Re: Something’s Always Going Up

Thank you, Finster, for explaining the above to me and perhaps one other person.

It seems your sub-classes are generally quite broad regarding equities, until you get to the last four on the list which are then sectors. I am not getting into an argument about what are sub-classes or not, but I am just curious of how others who critically look at these things look at them and specifically at what. I presume as time goes forth, both you and jk might change some aspect of your focus into other sectors, seems reasonable.

Just remember that they don't necessarily reflect actual investments, just a way of categorizing them. I've used that subclassification for years, but my investment allocation has varied greatly.

This notion of "cash." and I mean bonar bills, is interesting if one is intellectually curious enough to examine it, which I'll admit not to have been until a couple of weeks ago, when I was forced to think about it after reading something that I do not recall or where. But effectively a bonar is nothing. A 1Bonar is labeled Federal Reserve Note, which infers that the US Government owes me something if I have one. But if I were to "call" the note, how would the US Government cover my loan to it? What would I get? Nothing! It is truly incredulous if one thinks about it, so I guess that is why so few do. It certainly is the argument for precious metals.

It's fascinating when you really think about it, Jim. Basically the Federal Reserve Note is an IOU for a Treasury Note. The Treasury Note is an IOU for a Federal Reserve Note. The Federal Reserve Note is an IOU for a Treasury Note. The Treasury Note is an IOU for a Federal Reserve Note...

Round and round we go ... :rolleyes:

[jk]

Re: Something’s Always Going Up

I presume as time goes forth, both you and jk might change some aspect of your focus into other sectors, seems reasonable.

This notion of "cash." and I mean bonar bills, is interesting if one is intellectually curious enough to examine it, which I'll admit not to have been until a couple of weeks ago, when I was forced to think about it after reading something that I do not recall or where. But effectively a bonar is nothing. A 1Bonar is labeled Federal Reserve Note, which infers that the US Government owes me something if I have one. But if I were to "call" the note, how would the US Government cover my loan to it? What would I get? Nothing! It is truly incredulous if one thinks about it, so I guess that is why so few do. It certainly is the argument for precious metals.

my categories are those in which i am currently invested, and which will respond differently than the other categories under a variety of economic assumption. periodically i'll review them and think: how will each react if there is a deflationary crisis? how will each react under kapoom? if the dollar rises against other currencies? etc, etc. i want to know that i have assets that will survive under any economic conditions, and that my assets are indeed oriented to those scenarios i think most likely.

i expect at some point to start investing in foreign equity, but i am waiting for a global slowdown/recession sell-off. at that point i'll add that category.

re canadian trusts: i bought some more after they were down about 15%. specifically bought energy trusts as i wanted some increased exposure to oil.

[jk]

Re: Something’s Always Going Up

re holding dollars:

Holding Wealth Robin Hahnel from “Panic Rules”

While most of us who live month to month don’t have to worry about it, how to hold their wealth is the chief economic concern of the tiny minority who own most of the wealth. If they hold their wealth in dollars, it :”earns” nothing and could be “eaten away” by inflation or depreciation of the dollar relative to other currencies. If they hold their wealth in stocks, they will get dividends but may suffer ‘capital losses’ if stock prices fall. If they hold their wealth in bonds, they will get yields but may suffer capital losses if bond prices fall because interest rates rise in the economies above the yields their bonds pay. If they hold their wealth in foreign currencies, foreign stocks, or foreign bonds, they have similar worries. What a headache.

There’s just no foolproof way to ‘salt’ wealth away and be secure that it will not erode---even if one were willing to forswear any interest in ‘earnings’ from wealth. Even if one buys gold, diamonds, famous painting, Persian rugs, or real estate, there is no guarantee that their market prices won’t fall and wipe out a portion of one’s wealth. And leveraging wealth to increase its “earnings” only increases the downside danger of serious capital losses.

These dilemmas lead to the following rules for those with significant wealth:

? Rule 1: Get your priorities straight. Remember that how to hold your wealth should be your MAJOR economic concern, and whether or not your government is helping you preserve your wealth or making it more difficult should be your first criterion for supporting or opposing any government.

 Rule 2: There is no such thing as “salting” wealth away. You must choose to hold your wealth in some particular form.

 Rule 3: There is no way to hold wealth that does not entail some risk that it will be lost. Even governments sometimes default on bonds, and even insuring wealth is useless if the insurer goes bankrupt. There are only more or less risky ways to hold your wealth.

Financial advisors---people who advise other people how to hold their wealth draw three conclusions from all this:

 Conclusion 1: Don’t put all you wealth eggs in one basket, i.e., diversify your portfolio.

 Conclusion 2: Remember that the secret to wealth-holding is “knowing when to hold’em and when to fold’em,” i.e., when to stay with one type of asset, and when to sell that asset and buy a different one. Moreover, the “when to hold’em and when to fold’em” decisions should be guided by Rule 2 for proper behavior in credit systems: PANIC FIRST. And

 Conclusion 3: the best “sucker play” is to find high-yield investments where someone else (foolishly) assumes the risk by agreeing to pay you if your investment goes bust. (As we will see, taxpayers are often the easiest “suckers” to bamboozle.)

[Jim Nickerson]

Re: Something’s Always Going Up

re canadian trusts: i bought some more after they were down about 15%. specifically bought energy trusts as i wanted some increased exposure to oil.

jk, Finster:
Generally, if not always, the higher yield on bonds as I understand reflects greater risk. On the other hand, if the yield were 6% on the SPX, I expect it would be a excellent buying opportunity. Why are not the Canadian energy trusts considered risky investments, even disallowing the taxation issue that caused them to "tank"?