Tied and Tried
You can't play matador with tied hands!
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.
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.
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.
Daily Recap Newsletter