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Tied and Tried

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You can't play matador with tied hands!

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I received the following email from a faithful Minyan and I think it speaks volumes about our current environment. Rather than paraphrase, I thought the text would speak for itself.


Toddo,

I've read on Minyanville and other financial sites about the dollar, insider selling, complacency, yields, deficits, savings, spending, growth, ect. Today you discussed the Asset Alligators out of stocks and into bonds. As I've said before, I am the portfolio manager in a bank trust department. I am regulated by the OCC to accommodate an allocation model based on specific information and the needs of each individual client. That means that there is always a portion of money in bonds in nearly 98% of our discretionary accounts, unless otherwise noted by the client to have 0% bonds.

Therefore, regardless of the current rate environment, I'm always looking for fixed income to reallocate accounts and to replace maturing bonds. Another caveat of a trust department is that I am limited to A or better bonds (we use corp's, agencies, treasuries, muni's). So, while I see an extended market across the board, it can certainly get more extended. I can "see" the dollar going lower until the Asian countries quit buying so much stinking US debt. I could "see" rates going higher and the market ultimately going lower. The artificial nature of the liquidity in our economy is down right silly.

But, when all is said and done, I'm stuck. I'm stuck to an allocation (40-60% stock, 40-60% fixed income, 0-10% cash as an example) that is discussed with the client at least annually. You see my conundrum (I hope). I could argue there is something to be said for asset allocation is it is our way of managing risk. Higher rates going forward will hurt my existing fixed income and lower stock prices which will hurt my equity allocation--so where is the benefit of asset allocation? I suppose one won't lose as much as the other.

Keep up the fantastic work, I'm a huge fan.

Name Withheld


The content of this email is clearly not intended as advice. It simply illustrates how many money managers are hamstrung by their respective covenants. I'm jamming (sans Fokker) so please lemme hop. I'll be back in a bit with further commentary on the Minx. As always, I hope this finds you jinglin' baby.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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