2015

Goofy, Esoteric Securities are a Red Flag

Financial entertainment got a holiday gift with the fiasco surrounding the Third Avenue Focused Credit Fund.  The fund halted withdrawals amid investor outflows which was “shocking” according to Barron’s.  The sharks are circling as the media has had easy filler content – “Worried About Your High-Yield Bond Fund?” and so on.  The thing is, the Third Avenue Focused Credit Fund was not a high yield bond fund and even cursory due diligence would have revealed this.  That anyone was caught off-guard by this development should be the real story here. I still have my notes from my due diligence on the fund in January of 2013.  The number one thing that stands out is that it is/was a DISTRESSED CREDIT fund.  This means that it invested in illiquid and sometimes non-performing stuff.  I say stuff because they didn’t hold just bonds.  The fund also held equities and other securities from restructuring…


No Picture

It’s Forecasting Season

  From the Fairway Wealth Management Blog: As the leaves fall from the trees and the temperature starts to drop here in Cleveland, I am reminded that forecasting season is right around the corner. The same people who predicted $200+ oil, hyper-inflation, and multiple Federal Reserve rate hikes for 2015 will be begging for you to believe that they know what is in store for 2016. They do not. Beware predictions of what the market will do, particularly if they are precise. It may be an interesting game to play for fun, but anyone making a prediction on the S&P 500 out to two decimal places is a charlatan. Predicting the markets is like predicting the weather except that meteorologists realize that predicting the exact weather conditions twelve months in advance is lunacy. The financial entertainment industry is not as self-aware. On December 31st, 2016, what will Cleveland’s exact temperature…


1.21 Gigawatts

On October 21st, 1985, Marty McFly went back in time 30 years to escape Libyans, save Doc Brown’s life, and turn his dad from a weenie into a hero.  He also wound up with a rad 4×4, but before he could take it for a spin, Doc Brown stopped by in a flying DeLorean to whisk him 30 years into the future, to 2015.  Hijinks ensued as bully Biff Tannen got ahold of a sports almanac from the future and made a fortune betting on sports, but Marty saved the day with skateboarding, 1980s pop culture references, and a soundtrack provided by Huey Lewis and the News. Since this month marks the date that Marty and Doc Brown arrived in the future, it provides us with a convenient frame of reference for what a 30 year time period feels like.  From 1985’s perspective, 30 years into the future felt like…


No Picture

3rd Quarter Commentary

This year’s market movements are not unexpected nor are they out of the ordinary.  The S&P 500’s average return is about 10% with an average drawdown of 14% sometime during the year.  Many pundits called for a correction (stock market drop of 10% or more) this year and were lauded for this supposedly bold stance.  History tells us to expect a drawdown of 14% each year and this year we got one of 12%.  Again, this is not unexpected.  We should only be surprised if there isn’t a sizable drawdown during the year.  I admit, it would be highly entertaining if we had a panic button we could hit here in the office that set off klaxons and red strobe lights in the event of market emergencies.  Unfortunately, that button would be largely unused.  Negative returns are part of a normal market and we are a long way from hitting…


Love

The Federal Reserve must be barraged by lonely singles looking for dating advice because they recently put out a working paper called “Credit Scores and Committed Relationships”.  The Fed finds that people with similar credit scores tend to get together and that the higher the credit score, the more trustworthy the person.  Having a high credit score doesn’t necessarily mean you’re relationship material so much as it lowers the likelihood of a breakup due to financial disagreements.  There are jerks with high credit scores, too.  Here’s a nice summary of the paper if you don’t feel like reading all 55 pages. The Wall Street Journal is another unlikely source of relationship advice, but they’re giving it a shot anyways, saying grammar has become a major factor in the dating scene.  There are even apps that will comb dating sites for you and grade prospective partners’ grammar for you!!! If you’re…


Federal Reserve – Data Driven?

Janet Yellen pulled the markets offside with a hard count yesterday.  Instead of a hike, we heard about global weakness that suddenly warrants the Fed’s attention.  The market reacted as though there was a hike – you could say we’ve been in the red zone the last two days (I can’t help myself).  Most concerning is that the Fed continues to move the goalposts (last one, I swear).  Janet Yellen has insisted that under her guidance, the Federal Reserve will be data driven, but so far this hasn’t played out.  The first bogey was unemployment.  When unemployment recovered quicker than expected, they kept lowering the target, delaying a possible rate hike.  These delays were understandable as there was certainly room for improvement in the economy.  Now, however, the US economy is looking quite robust.  Unemployment has vastly improved and GDP looks good.  Inflation is low, but some top-of-mind costs (school tuition,…


ARPKD

Saturday, September 19th is the Northeast Ohio Walk for PKD.  Please take a minute to read about a cause that is near to my heart. My son, William, has ARPKD (autosomal recessive polycystic kidney disease).  This is a genetic disease that led to complications after he was born and ultimately shut down his kidneys.  William went on dialysis and was lucky to have a kidney transplant when he was 2 years old.  He needs to take about a dozen medications every day to manage the transplant and everything that goes along with that. The great news is that William is doing incredibly well now.  He is going to kindergarten and doing all the other things a boy his age does such as sliding down the stairs on his butt, riding the dog like a small horse, and sneaking downstairs early in the morning to eat ice cream for breakfast. If you’d…


Taking Paper Losses to the Bank

You are probably aware that August was an eventful month for stocks – in a bad way. The S&P 500 was down 6.03% bringing year to date returns to -2.88%. A diversified portfolio would have cushioned against the drop somewhat, but allocations to Emerging Markets and Commodities hurt returns. The monthly numbers aren’t even the scary part.   Read the rest on Fairway Wealth Management’s website here. Photo by Philip Taylor PT


Wild Monday

So what happened to the market on Monday? I don’t know and anyone who says they do know is full of it.  Because investing involves lots of numbers and math, it is easy to assume that there are clear answers to questions like this.  Math is constant.  2+2=4.  Investing is not constant.  2+2= whatever the next guy is willing to pay for it and that person might value 2 differently than you or I.  Increasingly, the next guy isn’t even a person at all, it’s a computer.  Math serves more as a frame of reference in investing than as an absolute. Ok, that was a boring non-answer.  I’ve found that people asking about investing don’t actually want an update on the reality of the markets so much as a quick story  – the more outrageous, the better.  We want someone to blame when the market goes down and we want someone to tell us…


The Fear Trade

The fear trade is alive and well even in this incredible bull market.  Listen to AM radio for an hour and you will likely hear at least one commercial for gold or annuities. “Are you prepared to lose 20, 30, even 60% of your life’s savings in the next stock market crash?  It’s not a question of if it will happen, but WHEN it will happen!!!” “Tired of losing money in the stock market?” Humans are hardwired in such a way that pain registers more significantly than gain.  The predisposition to obey fear has been passed down through the generations in order to avoid and escape predators.  The caveman who investigated a rustling in the bushes ended up as a bear’s lunch.  The caveman who ran away lived to hunt another day.  Today’s environment is different.  The humans who give in to fear run straight into the jaws of the…