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Strategy:
Investors have changed their minds. During the long bull run of the 1980s and 1990s, investors felt very comfortable with a buy-and-hold strategy. Regardless of whether it was ever a good idea, it was hard to knock - it was working. Now, investors have endured two bear markets in the last ten years. They are more aware of global politics and of alternative asset classes. The world is a scarier place, and investors have decided they need to be more active.
According to a recent article in Smart Money: "In Jefferson National's 2010 survey, 66% of advisors said clients were more confident with a tactical asset management strategy, while only 34% said clients were more confident with a traditional buy-and-hold strategy."
That's a big change. The majority of investors are now more comfortable with a tactical strategy. The problem is that very few management firms embrace tactical allocation. (In fact, many of them have gone out of their way to ridicule it in the past). There's not a lot of proven product in the tactical allocation space because buy-and-hold was the mantra for the last 20 years.
It's important to do your due diligence and find experienced managers with a robust strategy, whether it is relative strength or valuation-based. Both styles should work over time, but are likely to perform well at different points in the market cycle.
Europe:
German Chancellor Merkel and French President Sarkozy plan to drive forward their agenda for stricter budget rules seeking to rescue the Euro.
The leaders have a plan to establish new fiscal guidelines by March to resolve the crisis that began more than two years ago. Policy makers are struggling to persuade investors that risks can be managed and the single currency can survive.
Now they are coming for us:
US Federal Reserve policymakers have suggested borrowers' loan balances be reduced. This is a radical change for the central bank that has long sought to distance itself from fiscal policy.
William Dudley, president of the Federal Reserve Bank of New York said that, among others, that taxpayers should shoulder the cost of reducing borrowers' loan principal.
He added that US-controlled mortgage giants Fannie Mae and Freddie Mac, should reduce borrowers' loan balances to help stem the rising tide of property repossessions.
If the Fed is successful with its argument, it will be a radical change in who bears the burden of risk, investors or taxpayers. Will taxpayers accept a backdoor stimulus as suggested by Mr. Dudley?
A penny saved is a penny...Wow:
As Benjamin Franklin once wrote "A penny saved is a penny earned.."
In Orlando Florida on Saturday an old penny saved was sold for $1.38 million. The one-cent copper coin was made at the Mint in Philadelphia in 1793, the first year that the U.S. made its own coins. James Halperin of Texas-based Heritage Auctions said the sale was "the most a United States copper coin has ever sold for at auction.
Real Estate:
On our radio show we have discussed the property bubble in China. If you think purchasing real estate in the US is difficult, consider what China has done to control real estate speculation. First home purchases require a 30% down payment. Second homes require a 50% down payment and additional property acquisitions are not eligible for financing. In our opinion, if Fannie Mae and Freddie Mac had done that, we would not have had the excess building and sub-prime lending that were precursors to the current global malaise.
While the Chinese real estate bubble is real, its impact on the economy may be less severe than headlines suggest. While fixed investments in China have reached an historically high percentage of GDP, the housing portion is estimated between 10 - 15% of total fixed investments. A major housing collapse would affect China's GDP by 1% according to research from Morgan Stanley. This does not seem to imply a hard landing that has been suggested by some recent articles.
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