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Sleuth Challenges and Solutions: john mauldin

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  1.  
    • CommentAuthorkrishna
    • CommentTimeJan 10th 2009
     Report Post# 1
    I have been a regular reader of mauldin since about 2000. For those interested, here is his 2009 forecast...

    http://www.frontlinethoughts.com/gateway.asp
    Thankful People: slam608
  2.  Report Post# 2
    Krishna, he certainly makes a good case for deflation. And it's interesting that he likes TIPs, which would seem counterintuitive. But I like them too, on a dip from the current price.
  4.  Report Post# 3
    http://www.europac.net/#

    click on "The Fed's Bubble Trouble"........
    • CommentAuthortuck
    • CommentTimeJan 11th 2009 edited
     Report Post# 4
    Hutchinson at the Prudent Bear is another who thinks that the bear market rally should last through the 1st half of 09 before a retest of lows. I respect his opinion and don't see any obvious flaws in his analysis. However he could be wrong. Very wrong. The rally may be over already. This isn't a prediction. Except about unpredictability.

    One prediction. You won't see flow charts used to sell bail outs or stimulus packages.
  6.  Report Post# 5
    The Fed Bubble bond scenario is beginning to play out. Ironically, it reminds me of that beacon of cynicism, "Catch-22", where "everyone gets a share", but only Milo Minderbinder comes out ahead.

    LOL........the relevant question becomes: everyone gets a share..............of what?
    • CommentAuthorfarley 5
    • CommentTimeJan 12th 2009
     Report Post# 6
    Spreadtrader - Didn't you see this?

  9.  Report Post# 7
    I see it.........where's the voucher for the helicopter fuel?

    I just want to know when I should run outside to pick up my share off the ground. Perhaps the Easter Bunny will bring it?

    What bothers me most is that the folks who were supposed to be smart enough to prevent this, are now the same ones I'm being told I should trust to fix it.......

    You know the saying........."screw me once, shame on you......screw me twice......"
    • CommentAuthorkrishna
    • CommentTimeJan 12th 2009
     Report Post# 8
    More surprising predictions, this from Dougie Cass, notorious (should I say successful) short seller.

    http://www.thestreet.com/story/10455209/3/kass-20-surprises-for-2009.html
  11.  Report Post# 9
    These are more than surprising; many sound like jokes, not serious predications.
  12.  Report Post# 10
    Looks like John Mauldin and I are not the only ones who like TIPS. Here's an excerpt from a Bloomberg story today:

    At a time when central banks are attempting to prevent deflation, the hottest investments in the government bond market are securities that protect debt holders against rising consumer prices.

    Inflation-linked debt from the U.S. to Japan returned 5.77 percent since November, including price gains and reinvested interest, compared with 1.55 percent for the government-bond market, according to indexes compiled by New York-based Merrill Lynch & Co.

    Pacific Investment Management Co., Vanguard Group and Fifth Third Asset Management, which oversee a combined $1.8 trillion, are scooping up so-called linkers on speculation efforts by policy makers to reignite the global economy will lead to faster inflation than is currently priced into the securities. Yields on U.S. Treasury Inflation-Protected Securities, or TIPS, indicate almost no rise in consumer prices for the next decade.
    • CommentAuthorkrishna
    • CommentTimeJan 12th 2009
     Report Post# 11
    Does anyone know how TIPS work? Do you get a yield = current inflation level+base coupon yield, or are there capital gains when inflation rises?

    There are many other inflation plays, without resorting to TIPS....
  14.  Report Post# 12
    I think people are looking for safety these days, plus dividends, so TIPS fill the bill if the price is right. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you receive the adjusted principal or original principal, whichever is greater.

    As for interest, TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

    You can buy TIPS easily through TreasuryDirect, but I like the TIP ETF.
    Thankful People: stockcrazy10, krishna
    • CommentAuthorfarley 5
    • CommentTimeJan 12th 2009
     Report Post# 13
    Hey, Krishna - Had to plow again today. Come back. Here is an easy way to do tips. Read the prospectus here:

    http://us.ishares.com/product_info/fund/overview/TIP.htm?qt=TIP
    Thankful People: krishna
    • CommentAuthorkrishna
    • CommentTimeJan 14th 2009
     Report Post# 14
    yeah - I've been doing a lot of shovelling too......
    • CommentAuthorasafp
    • CommentTimeJan 15th 2009
     Report Post# 15
    Somebody tell Algore that I'm freezing my arse off in Florida today.
    • CommentAuthordharouff
    • CommentTimeJan 15th 2009
     Report Post# 16
    it 'only' got down to -9f last night here
    • CommentAuthorkrishna
    • CommentTimeJan 18th 2009
     Report Post# 17
    I have no idea if this is true, but if yes, then does it begin an unwind of the $? F5?

    http://seekingalpha.com/article/115246-foreign-governments-dumping-u-s-assets?source=email
    • CommentAuthorasafp
    • CommentTimeJan 18th 2009
     Report Post# 18
    Current events remind me of the scene in "Gone with the Wind" when the Civil War begins and everyone is elated about it. From what I'm seeing in the media, there is great celebration and optimism across the fruited plains although I don't know anyone personally who is very optimistic.

    Never seen anything like it in my lifetime.
    • CommentAuthorslam608
    • CommentTimeJan 18th 2009
     Report Post# 19
    Listen to spread trader, the suckers rally looks like it's about to begin.
    • CommentAuthortuck
    • CommentTimeJan 19th 2009
     Report Post# 20
    I'll add Cara to the list of bear market rally supporters. However the daily indicators I look at stock futures, commodities, global markets, news are still negative. I realize that bad news can be heavily discounted. But not all of it. Imo they overreached on rigging the unemployment stats with the silly birth/death numbers. Sometimes word of mouth overcomes the mega media hype machine.

    Over at Bloomberg today I read an article where some CA bureaucrat was touting infrastructure. They were building a jail. It was financed by selling an asset. A judgment against tobacco co.s. And of course taxpayers are going to pay for the operation when its finished. What a wealth creation machine! Thank God we don't have Rockefellers and Carnegies exploiting us in these enlightened times.
    • CommentAuthordmanson
    • CommentTimeJan 21st 2009
     Report Post# 21
    My biggest fear is that because there is so much "hope" and "change" in the air that some very heavy legislation will be put through that will crush the middle class, and since Obama supports it, people will accept it and sign their own doom.

    He's got fans like a Hollywood celebrity and right now he can do no wrong in their eyes. With the media 100% behind him, the government can get away with murder. I just hope there is enough smart and brave people who will keep things from going too crazy.
    • CommentAuthordharouff
    • CommentTimeJan 21st 2009
     Report Post# 22
    Remember to the clueless crowd in D.C. middle class is between 100 & 200k even though average household is around 51k. I think their income should be equal to average household, the vp gets 2x, & the pres. 4x. Any way the true middle class is toast.

    And

    'I'm from the government, I'm here to help you.'
    • CommentAuthorkrishna
    • CommentTimeJan 22nd 2009
     Report Post# 23
    • CommentAuthorDarrell
    • CommentTimeJan 22nd 2009
     Report Post# 24
    The middle class was killed by the CRA, with the help of big gov., Fannie, Freddie, Accorn, NACA, etc. Hope and change folks, no mention of hard work, budget, etc., Hope and Change. krishna, the predictions are....hit and miss???
    • CommentAuthorkrishna
    • CommentTimeJan 22nd 2009
     Report Post# 25
    who knows???? I report, you decide?????
    • CommentAuthorkrishna
    • CommentTimeJan 24th 2009
     Report Post# 26
    Another point of view on what's to come.....

    Cumberland Advisors’ portfolio management strategy starts with a few assumptions. In the United States both financial policy engines are at full throttle: they are the fiscal engine (deficit spending of $1.5 trillion or more) and the monetary engine (see: www.cumber.com for the weekly updated description of the Federal Reserve’s balance sheet and programs). As Dr. Wojnilower notes, and we agree, this “vigorous support” is expected to arrest the economy’s decline by the 2nd half of 2009. The Fed’s own forecasts are reasonably consistent with this conclusion; they argue that it is the target of Fed policy to bring this result to reality.

    This massive stimulus is applied because there is (1) an extreme negative wealth effect (see the Barclays quote above) and (2) a decline in employment and (3) pressure on incomes. Note how this may not play out into a profits debacle (outside of the financial, housing, and consumer discretionary sectors).

    Also note how the appearance of no positive outcome prevalent in many forecasts is dependent on the failure of the two-engine stimulus.
    We are on the other side. Instead of saying that stimulus fails and the economy just sinks and sinks and sinks, we are saying that stimulus in this massive amount succeeds and that the economy will stop sinking and plateau. Subsequently it will start to expand as all the pent-up demand begins to convert to spending and economic activity.
    We are saying that markets change their pricing because they are forward looking. They usually bottom in the midst of the bleakest outlook and they often bottom BEFORE the economics appear to turn. History shows that over time, financial markets are able to change prices to reflect forthcoming changes in economic data. That is why markets are viewed as leading indicators. They are not forecasting the change; they are measuring the behaviors and sentiment of the investors who are forecasting the change. Markets move as a result of actions by those who are seeing a change earlier than economists can compile the data to demonstrate that the change is at hand.
    Financial Markets do NOT forecast well in a strategic sense. If they did the oil futures curve would have warned of $140 oil when the price was $40 and it would have warned us of 40 dollar oil when the price was $140. Markets did neither accurately.
    Financial markets measure the present consensus sentiment. They price it every day as folks make their real money commitments. The price tells you what the existing psychology is; it doesn’t tell you what it will be and it doesn’t tell you when it will change. Markets measure; they don’t forecast.
    Here are some samples of current measurements that are not forecasts. Readers may judge for themselves if these are market forecasts of doom or if they are measurements of market dysfunction and extremes of psychological damage. Then each reader may decide and act according to his/her own view. In doing so he/she will become one of the many agents that make up the very markets we are measuring. Readers and their actions will be measured along with all the others.
    Thankful People: stockcrazy10, destry, farley 5
    • CommentAuthorkrishna
    • CommentTimeJan 24th 2009
     Report Post# 27
    Part 2

    Here is the evidence. You decide.

    When the 90-day T-bill trades at zero interest it is measuring something. It does that on the same day that the two commercial banks used by Cumberland Advisors for our firm’s own deposits are paying us over 3% on our cash. Both of those yields are backed by the United States of America. The risk of loss is equally nonexistent. So why are they so different? Because they are measuring two different things: zero interest on US government Treasury obligations is driven by one set of investors; 3% interest is driven by a different set. Each is measuring a unique subset of cash and cash equivalent yields. Market measure; they do not forecast.

    You can loan your money to the United States of America for 30 years at 3% and that is a taxable instrument. You can loan your money to a high-grade state credit and get 6% (in some jurisdictions we are getting clients as much as 7%). The tax-free yield on long duration in the United States is double the taxable Treasury yield. Markets are measuring the psychology of fear. They are not forecasting that all states and local governments are going to default.

    Those who do not accept this principle that markets measure are doomed to lose sleep trying to understand behavioral malfunction in the realm of sentiment. In dysfunctional market periods like the present one it is critically important to sort through this issue. Each investor has to determine what they are missing when they see an anomaly. Understanding what the market is measuring helps clear up the puzzle. Remembering that markets are measuring and not forecasting maintains the balance while the puzzle is being solved. Here are more examples.

    The credit default swap on the State of California is priced higher than the credit default swap on the country of Turkey. Does anyone really believe that the US is more likely to default than Turkey? No disrespect for the Turks is intended. Maybe if California Governor Schwarzenegger had the Turkish parliament instead of his legislature, he would have a budget passed and his credit default swap would be priced differently.

    The credit default swap price for the United States is higher than the credit default swap price for Campbell Soup. No disrespect to Campbell Soup. I like it on a cold winter day. But I think the US has a better chance of paying its debt than the soup maker. And both of them use the US dollar to make the payments. Campbell makes soup; I own some cans of it and bought it with my dollars. The US government makes those dollars and has unlimited dollar productive capacity and negligible cost of production or materials.

    Markets measure; they don’t forecast. If they were forecasting, they would be saying that Turkey soup is more likely to pay the dollars it owes than is US Treasury and the US’ largest state.

    Ok. Let’s sum this up as we approach 2009. We believe the economy will bottom in 2009 and the bottoming will be in the data during the second half of the year. We believe that the stimulus combination of massive fiscal and massive monetary will work. And we are applying that assumption in our portfolio management.

    Clients who do not agree with us have asked us to take a more cautious view, and we do so for them. We are a manager of separate accounts. We are not a common fund. Our job is to meet the client’s objectives and not impose our will on the client. If the client asks, we offer what we think is our best guess of the future. If the client wants to be riskless and in US government credit only, we do it.
    Thankful People: stockcrazy10, destry
    • CommentAuthorkrishna
    • CommentTimeJan 24th 2009
     Report Post# 28
    part 3

    That said, we are recommending to our clients that they use an asset allocation of 50% stocks and 50% bonds. Cash is at zero. Remember that the classic efficient frontier is 70% stocks and 30% bonds. So we are 20 points under on the stocks side and 20 points over on the bond side. The reason is that bonds are soooooo cheap that they warrant overweight.

    Both sides in this 50-50 stock-bond mix are fully invested. On the stock side we only use exchange-traded funds (ETF). We do this domestically in the US, and we do this abroad. And we do this in other asset classes like currencies and commodities and precious metals.

    On the bond side we are emphasizing high-grade credits. The junk bond market is very cheap, but it requires a special set of skills and we do not apply them at Cumberland. Clients who use junk bond allocations are using other managers. We are in investment-grade bonds only, whether taxable or tax-free. On that note, our clients are also fully invested and favor longer duration.

    As this financial turmoil period enters its third year in 2009, we expect the various sectors to heal and the spreads to narrow. This will occur piecemeal. We already see it in some areas. The results of the application of stimulus by the Fed will be seen sector by sector and will have its own accelerator. Investors who wait until the air has cleared are taking no risk, but they are also not going to get a reward.

    Right now markets are measuring extremes in risk aversion by investors. That explains high cash balances and zero-interest T-bills. As each market clears it will gap to another level. It will not trade there calmly and slowly. The lesson to be learned from high-volatility measures like the VIX is that markets can gap. When they do so, an investor sitting on the sidelines has very little chance of getting in. The most money is made in markets when measures of risk aversion are extremely high and then markets turn.

    Remember, when you see a parabolic curve you have no way to know when it will stop and turn. You can only learn that after the fact. Most markets today are showing us this parabolic formation. They are measuring extremes at several standard deviations from mean and at record levels, levels that have never been seen before.

    I know this statement is redundant; I repeat it for good reason: Market spreads and risk indicators are at levels never seen before. They are measuring, not forecasting.

    2009 may just work out to be a good year. 2010 may be even more robust. At Cumberland we want to be in it, not out. Stay tuned.

    David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok -at- cumber.com
    Thankful People: stockcrazy10, destry
    • CommentAuthoroptimism
    • CommentTimeJan 24th 2009 edited
     Report Post# 29
    Happy trading to all.
    Thankful People: stockcrazy10, Darrell
  32.  Report Post# 30
    Follow up on post #12...........good explanation for the rationale for TIPS.........

    “The way to think about the relationship between TIPS yields and straight Treasury yields is that the nominal yield on a security is equal to the ‘real’ yield plus expected inflation. At present, we have extraordinarily depressed nominal yields, but relatively high real yields, which means that the inflation rate implied in TIPS is extraordinarily low. Indeed, in order for TIPS to achieve the same total return as straight Treasuries over the next decade, we would need to observe a slight but sustained deflation over that period.

    “My impression is that we are not near the point where there is any real risk of inflation, and we may very well observe negative near-term inflation rates (which is why it is important to be careful with TIPS that trade at a substantial premium to par, since the apparently high ‘real’ yields on near-term TIPS can be eroded by deflation). TIPS can’t mature at less than par, but if there is a deflation, the accrued inflation adjustment on these securities can be whittled down.

    “Suffice it to say that we are holding TIPS not because we anticipate a near-term resurgence of inflation, but because the real, inflation-adjusted yields available over the next decade are quite high on a historical basis, and will adequately provide for the maintenance and growth of purchasing power over time, regardless of the near-term course of consumer prices.”


    Source: John Hussman, Hussman Funds, January 19, 2009
    • CommentAuthorkrishna
    • CommentTimeJan 29th 2009 edited
     Report Post# 31
    Terrefic intewrview - grantham....

    http://www.forbes.com/intelligentinvesting/
    Thankful People: stockcrazy10, farley 5, Darrell
  34.  Report Post# 32
    I watched the interview with Grantham, then remembered what he had said back in October. These guys, even a guru like Grantham, engage in revisionist history so that they appear to be prophets. Read this interview back in October, when he was singing a different tune:

    http://www.smartmoney.com/investing/stocks/still-holding-back/
    Thankful People: spreadtrader, Darrell
    • CommentAuthorDarrell
    • CommentTimeJan 29th 2009
     Report Post# 33
    Remember, we must be nimble. They appear to be very nimble.
  36.  Report Post# 34
    • CommentAuthorkrishna
    • CommentTimeJan 29th 2009
     Report Post# 35
    I am not trying to defend geremy grantham (heck I dont draw any commissions from him) - but what he has said in the forbes interview appears consistent with what he has said in the brief barrons interview...maybe more evolution around the edges, but hardly any diametrically opposed views - he is still calling for lower S&P lows in both interviews. where his position has changed (not in barrons piece, but in another piece I read) is on China - in the forbes interview he appears far more down on China's prospects.
    Thankful People: stockcrazy10
    • CommentAuthorGukdorak
    • CommentTimeJan 29th 2009
     Report Post# 36
    The CFA Bermuda keynote speaker tonight for thier forecast dinner was John Maudlin. It was an interesting speech. I also got to talk to him and his wife for about an hour.

    Among the higlights is that he reiterated his TIPs recommendation and he also belives the Fed will do everything in its powere to prevent deflation.
    Thankful People: stockcrazy10, krishna, Darrell
    • CommentAuthorfarley 5
    • CommentTimeFeb 28th 2009
     Report Post# 37
    Don't 'Buy and Hope:' How to Survive Until the Next Bull Market
    http://bit.ly/BHGIF

    $1.75T Deficit, Higher Taxes, "Bogus" Stimulus: But John Mauldin Sees a Silver Lining
    http://bit.ly/nI2aD

    Must see TV. F 5
    • CommentAuthortuck
    • CommentTimeFeb 28th 2009
     Report Post# 38
    RE Mr Mauldin's summary: If any individual wants to get ahead in this environment is he more likely to accomplish it with work or by working the system? Or by going outside the system? There's tremendous expertise out there on working the system from ghettos to boardrooms. And there's also some on creating wealth. Going outside the system? Better profit margins less paperwork.
  41.  Report Post# 39
    This is from John Mauldin's 'Outside the Box'

    Fighting Recklessness with Recklessness:

    "...You can play hot potato with the toxic assets all day long, and only outcome will be that the public will suffer the losses that would otherwise have been properly taken by the banks' own bondholders. You can tinker with the accounting rules all you want, and it won't make the banks solvent. It may improve "reported" earnings for a spell, but as investors who care about the stream of future cash flows that will actually be delivered to us over time, it is clear that modifying the accounting rules doesn't create value. It simply increases the likelihood that financial institutions will quietly go insolvent..."

    http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/04/06/fighting-recklessness-with-recklessness.aspx
    Thankful People: Darrell

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