Sunday, March 27, 2011

Buffett Advises Against Long-Term US Bonds

Buffett speaking in India

In a recent post I referenced the Credit Suisse report that argues quite reasonably that long-term bonds are unlikely to be a good investment going forward. Of course, if you believe in efficient markets the prices of long-term bonds should already reflect that interest rates will rise in the future and, therefore, buying long-term bonds now should still be an OK investment. US short-term government bond interest rates remain near zero, but interest rates on 30 year bonds have risen significantly since the depths of the financial crisis:

History suggests though that the adjustment is insufficient. The Credit Suisse Report shows that there are long periods where bonds do not beat inflation in most countries with the partial exception of Switzerland. Now Warren Buffett warns against owning long-term US government bonds. His concern is both that inflation will reduce the real value of the bonds and that the dollar will fall in value against other currencies due to inflation in the US. It's hard to imagine the US Dollar falling in value a lot against the Euro, Pound, or Australian Dollar given how cheap things are in America but against developing country currencies such as the RMB that is possible.

My mother has a short-term USD bond fund and a longer-term Sterling related bond fund. We do want to reduce both of these and especially the latter. Snork Maiden and I have a variety of exposures to bonds though the total is only a small apart of our portfolio. The exposure is only 5.7% of net worth in total. The most significant types of bonds are Australian fixed interest and US corporate and mortgage related bonds. The latter are the main holdings of the CREF bond market fund, which did surprisingly well through the financial crisis (we should have had more of it):

This small level of exposure should be safe I think and I don't intend to lower it.

Job Interview on the Other Side of the World

Just heard. About one month's time.

Friday, March 25, 2011

Adjusting my Mom's Portfolio

We (my brother and I) are planning to reduce the allocation to bonds a bit. If you read the Credit Suisse Investment Returns Yearbook I think you'll understand why:

1. We definitely have too much in the Invesco Sterling Bond Fund. By my calculation it is 16% of her total net worth. This is a larger share than when I last blogged on it. This large share was all due to a mistake by Citibank... I plan to halve the allocation to this fund.

2. I plan to reduce the Janus Short Term Bond Fund by less. The two funds would each then each have about the same amount of money in them.

Also we want to:

3. More than double the investment in the Man-AHL fund. Visit these links to find out why I like managed futures.

4. We will ask for suggestions from the bank for new funds and asset classes to invest in. Including real estate and even alternative bond funds. Any recommendations from readers will be welcome. We can't buy US mutual funds but we can buy some international marketed variants.

Generally, we want to rebalance and diversify.

We also need to move some money around for my Mom's expenses and generally try to reduce the number of accounts she holds in different countries. We still have some problems left over from when my father died in 2002 with accounts still in his name that banks and government are being obstructionist about. You'd think that joint accounts would transfer automatically to the surviving spouse. But it isn't so simple always. If you are married I strongly recommend having some money in your own name in case you end up in a legal limbo too.


iSoft (ISF.AX) suspended its shares pending an "announcement". I just wish companies would explain something about why they are halting trading. The Guardian has the story. Apparently a partner firm looks ready to buy them out. My interest is due to our holding of Oceania Capital Partners (OCP.AX) who made a disastrous large investment in iSoft. Most of the loss of value happened very quickly last June and as OCP is trading way below NAV I didn't sell. OCP is also in a trading halt. At the current share price we are making a small profit of a few hundred dollars on our investment in OCP. At the NAV we would be making a profit of several thousand dollars. And the company is in the mode of winding up and returning capital to shareholders. With all these companies returning capital we need at some point in theory to make new investments in the private equity and hedge fund asset classes. The question is whether we can find good investments of that sort.

Wednesday, March 16, 2011


I thought I was just editing and improving my Facebook profile. It already said I was married but not to whom. So I updated that information. A bunch of Snork Maiden's "friends" now think that she just got married and sent her congratulations! Three years late. Only one of my 9 friends commented (on LinkedIn I have about 120 connections). Yeah, I don't understand Facebook much at all.


The Japanese stock market fell more than 16% in two days. If that reaction is rational it means that the net present value of the future profits of Japanese companies will be 16% lower than would have been without the earthquake/tsunami/nuclear accident. This seems to me to be an over-reaction. How much will Japanese GDP fall this year? The main economic impacts are damage to ports, oil refineries, and power stations on the east coast of Honshu. The impact of the tsunami damage and nuclear issues is unlikely to be very significant by comparison for the whole economy of Japan IMO. Some of these issues will be fixed fairly quickly (I'm guessing the oil refinery damage comes into that category) and others like the Fukushima nuclear power station cannot be fixed. I don't see why any of this should have pushed the German stock exchange 5% down at one point on March 15th. Anyway, I doubled my position in GTAA @ $25.11 using the money I transferred.

Wednesday, March 09, 2011

HSBC Gave Me a Lousy Exchange Rate

I did a wire transfer of AUD 10,000 from my Australian to my US HSBC bank account. The exchange rate turned out as USD 0.9808 per Australian Dollar. That's about 3 cents from where the official exchange rate was. That's really bad I think. Maybe I should have done the conversion to US Dollars at the Australian end. Would that have given me a better exchange rate?

More Hedge Fund Returns for February 2011

Credit Suisse-Dow Jones provide some preliminary results:

These show stronger overall performance and more variation among strategies than the HFRX results. HFRI is somewhere between the two:

Sunday, March 06, 2011

HFRX Index Performance February 2011

The HFRX hedge fund index gained 0.73% for February compared to 2.16% for the MSCI World stock index. All strategies saw gains and it is hard to see any pattern in the variations across strategies.

Wednesday, March 02, 2011

Moominvalley February 2011 Report

As usual everything is in USD. The AUD rose a little from 99.8 US cents to 101.7 US cents. This improved our returns in USD terms. World stock markets rose with the MSCI World Index gaining 2.16% for the month. Here is the summary account for February:

Non-investment income and retirement contributions increased as I earned money for the first full month at my new job (I started 10th January). Retirement contributions are up too of course. 19% of my pre-tax salary is going into my retirement account - (% is a contribution by my employer on top of my nominal salary and 10% is a voluntary contribution by me from the stated salary). The numbers should look like this throughout this calendar year now. Expenditure was a little high at $4,608, though there are some good reasons for that. Underlying investment returns were good.

Net worth rose in USD terms by $28k (rose by $A18k in AUD terms to another post GFC high) to $526k ($A517k) and all time high in USD terms.

There was little change in investment allocation. Investment return was a gain of 4.07% in USD terms. In AUD terms we gained 2.05% and in currency neutral terms 2.66%. All asset classes gained. Australian small cap and US stocks were the best performers in currency neutral terms followed by private equity.

What am I Going to Do with the EAIT Money?

As I mentioned I just got paid out $A7,500 or so from EAIT. With that and my next paycheck I'm going to buy $10,000 worth of US Dollars. i.e. move the money to America. I'll probably end up investing some more in GTAA when the move is over.