John Maudlin is forecasting (linked below) a recession, if we aren’t already in one, as are other economists/market commentators. So let’s make our own guess as to what lies ahead. It’s obvious that the US unemployment-rate is too high. It’s obvious that this country still has too many cars, houses, malls, banks, etc. and not enough people able/willing to buy/use them. It’s obvious that this country has too many old people relative to young people (though the ratio isn’t as adverse as it is in other countries). It’s obvious that this country has invaded about six countries too many. In short, even without the dubious help of Europe, the US has set the stage for a sustained period of domestic, economic stagnation. (Until things get worse, they won’t get better, because nowhere is there the political will to make the needed reforms). Meanwhile, global commodity demand (and global warming) will mitigate the deflationary pressures that normally accompany our own recession. So my forecast is for low economic growth in the US for the next 10 to 20 years with continued, strong inflation. In other words, we face a situation slightly worse than Japan’s “lost decades”, but never a total breakdown. About a month ago, an article (linked below) appeared that speaks to these concerns: Inflation ETF Special: 25 ETF Ideas To Fight Rising Prices. When you review their list of ETFs, you’ll notice that many overlap. So that got me to wondering (1) How was I presently allocated? and (2) Could I put together a better list? My Current Allocations by Dollar-weightCorporates 66.1%Chapter 11 1.9% Agencies 4.6%Nat'l Munis 10.9%OR Munis 9.1%I-bonds 1.4%CDs 0.9%Cash 5.1% As we know, the Fed intends to keep interest-rates near zero through the end of 2013. That kills any near-term opportunity to buy bonds that are a proxy for interest-rates. Bets on credit-worthiness can continue to be made. But as the economy sputters, the risks in that asset-class increase exactly as returns decrease (due to buying pressures from yield-hogs and increased issuer failures). So, maybe, it’s become time for me to learn some new tricks. With a small chunk of money, say $50k-$100k, could I create an effective offset to the most-at-risk portion of my present holdings? I could continue to shop the bond market hard, because it’s what I know and like. But I would also set up a technically-based, long-short, trading gig using a constrained universe of ETFs such as the article suggests. Some poking around this morning with indicators suggests that the gig would be viable. So the real question is, “Am I willing to do the work?” That’s the big unknown. I like my free time. I like the low-effort and modest time that bond-investing requires. Trading ETFs --it’s all trading, no matter what words are used-- is a demanding gig if one intends make wages. But if my forecast is correct, I have no choice but to rotate at least some money out of a “B&H individual bonds” strategy and into something else. The “else” is what I’m trying to decide. Given that I hate stock investing and don't want to do work that FOREX requires, that leaves me with commodity and country ETFs as about the only things that have sufficient liquidity, ease of access (which isn't the same thing), and intrinsic interest to work as diversifiers for me. Charlie---------------------------- http://www.frontlinethoughts.com/#recessionhttp://etfdb.com/2011/inflation-etf-special-25-etf-ideas-to-...
My Current Allocations by Dollar-weightCorporates 66.1%Chapter 11 1.9% Agencies 4.6%Nat'l Munis 10.9%OR Munis 9.1%I-bonds 1.4%CDs 0.9%Cash 5.1%
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