Insights into the world of high- and ultra-high net worth investing
December 15, 2009- Vol 3, Issue 50
We were deeply saddened to learn that
Chris Browne, a former Partner in the firm Tweedy Browne, passed away on
Sunday, December 13. Tweedy Browne's webinar, originally schedule for
tomorrow, has been postponed. We extend our sympathies to Chris'
family, friends and former colleagues.
Barton Biggs, the former Chief
Global Strategist for Morgan Stanley who now runs the hedge fund Traxis
Partners, says the high-quality,
large-capitalization stocks in the S&P 100 are now undervalued by
one standard deviation. In our interview, Biggs also discusses his
fears and how investors should protect themselves from the worst-case
The plights of California and other states reveal an ominous threat our economy faces: underfunded public pension liabilities.
We examine the size and scope of this
problem, focusing on whether the underlying assumptions used to
calculate liabilities are realistic.
Our article last week, Morningstar's Ratings Fail over a
Full Market Cycle, drew two responses from readers and a response from
Morningstar. John Rekenthaler, Morningstar's
VP of Research, says the three-year time
period we chose was arbitrary and does not necessarily reflect a full
market cycle. We also have a letter regarding our article last week, The Investment Value of Art.
Many advisors have told Dan Richards they receive a positive
response from the quarterly review letters they've sent over the past year
based on the templates he has provided. Here's a template that can be a starting point for a year-end review
articles below ...
than just a year, "2012" has quickly become synonymous in pop
culture with "the end of the world." Mariko Gordon of Daruma Asset Management takes a
look at our collective
fascination with this and other arbitrary dates, particularly those that
relate to stock performance!
reasons for Jeff Gundlach's
termination from TCW and his future plans have become subjects of great
speculation. We will leave it to others to answer those questions and
instead focus on one important issue that
was raised in a conference call TCW held with investors last Friday.
Vitaliy Katsenelson, a
frequent contributor to these pages, reviews his thesis for secular market
cycles, why the US markets remain locked in a range-bound
state, and what it will take for them to exit from that state.
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"The overall market, including small-cap and medium-cap stocks, is
about fairly valued based on normalized earnings the way we calculate them,
but big-cap stocks, like the S&P 100, are about one standard deviation
Barton Biggs on Undervaluation in
the S&P 100
The Next Black Swan?
Underfunded Public Pensions
Unlike collapse of
the subprime market, which unfolded over a relatively short period of time,
the problems with public pension plans will grow over the next decade or
two. In present value terms, though, they appear to be of the same
order of magnitude.
The Next Black Swan? Underfunded
Letters to the
Editor - Morningstar Responds
Our article last week, Morningstar's Ratings Fail over a Full Market Cycle,
drew two responses from readers and a response from Morningstar. John
Rekenthaler, Morningstar's VP of Research, says the three-year time period
we chose was arbitrary and does not necessarily reflect a full market
cycle. We also have a letter regarding our article last week,
The Investment Value of Art.
Letters to the Editor - Morningstar
A Template for a
Dan Richards' year-end client letter template reviews the market activity
in 2009 and offers an outlook for the mid term and long term with an upbeat
and optimistic tone. You can customize this letter to reflect your
own outlook and how you believe portfolios should be positioned for the
A Template for a Year-end Letter
Mariko Gordon argues that we ought to be looking at rolling periods of
short-, medium- and long-term performance. Our bias towards discrete,
calendar-based chunks of time means less of a feel for the cycles of
performance, as portfolios and their different underpinnings (growth versus
value, large versus small, garbage versus quality) wax and wane, rather
than end abruptly.
The End Is (Not) Near
In a conference
call hosted by the incoming management team of Tad Rivelle and Bryan
Whalen, who joined TCW through its just-completed acquisition of MetWest,
Rivelle stated categorically that there was "no plan" to merge
TGLMX with MetWest's fund, the Metropolitan West Total Return Bond Fund
(MWTIX). We doubt that is true.
"Human emotions don't let valuations (P/E ratios) remain in their
average normalized level of 15, and so they are driven to extremes, on both
sides of the mean. Returns from stocks over short (one year) and
intermediate terms (5, 10, or 15 years) may have a significant disconnect
from their earnings growth. And the disconnect between earnings growth and
stock market returns may persist for decades, or even longer."
Investing in Range-bound Markets
from Advisor Market Commentaries
It is easy to find reasons to be negative. In fact, being negative is all
the rage. Unemployment is very high, the economy is still losing jobs,
credit availability is weak for small business, mortgage and loan defaults
are high, and Congress seems more interested in playing politics than in
good policy. Within a questionable banking reform bill passed by the House
is authorization to audit Federal Reserve monetary policy, which would
undermine Fed independence. This is awful beyond belief. I suppose policy
could be worse. They could pass more spending bills for which they do not
have adequate funding, but the Administration is considering such a
proposal, too. What passes for economic policy merits widespread outrage.
The above notwithstanding, there is also reason for hope and optimism.
"Gathering Momentum" by
Dr. Charles Lieberman of Advisors Capital Management
On November 20, 2008, the TIPS spread hit a low of 0.04%. That is, the market
expectations of annualized inflation over the subsequent 10 years was, for
all intents and purposes, zero. As of December 9, 2009, this spread had risen to 2.09%. As Chart 5 shows,
the recent ascent in these inflation expectations was about as steep as was
its descent in late 2008. As investors, should we be alarmed by this sharp
reversal in inflation expectations?
"Did Bernanke Get Grilled for
the Sins of Others?" by Paul Kasriel of Northern Trust
Those of my readers who have known me for awhile will testify that I am not
given to understatement so you will understand the following
comments. My last newsletter on the healthcare debate was without a
doubt the most commented on and attacked of anything I have ever
written. To some of my critics I have to say- first do you kiss your
mother with that mouth? And it is physically impossible to do some of the
things you suggest.
"Healthcare, Nationalism, and
OODA" by Dennis Gibb of Sweetwater Investments
in Advisor Perspectives
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