March Matrix Notes

I could do a follow up on why I'm a MACROVALUEQUANT, but who has time, its time to unload my thoughts and unplug from the matrix. I do a lot of reading on the train and listening to the radio and have started taking notes. In the past few weeks, I've tuned into the following discussions and readings:

Ray Dalio (find his discussion on CNBC)
Mr Dalio is the hedge fund titan who runs Bridgewater Associates and rarely makes tv appearances (I heard). After a few moments of defending his unusual methods running his firm, the man behind the world's largest hedge fund was very open about the cycle of leveraging and deleveraging and where the US is at in its cycle after the crisis. He talked about the following subjects:

He noted US Equities are cheap and will benefit from currency devaluations
The money flows will benefit equities
Portfolios are not properly weighted, too much in dollar denominated currencies
Gold is a currency that many are underweight
Stimulus will last through the 4th quarter, and private credit growth will be needed

Dr. Tan (Wall Street Journal)

Dr. Tan, head of Singapore's soverign wealth fund sees US growth well above the average economist surveyed by the WSJ. He went on to say that American's aren't as optimistic about their outlook as foreigners are of their future. Contrary to many average folk, he sees the risk of inflation low due to the slack in the US economy. But take note, his outlook shifts to an increased risk of deflationary pressure if oil spikes above $100. He went on to talk about the importance of rebuilding America's physical infrastructure and secondary schools.

Stimulus

A few people continue to note that the Federal Reserve will be ending Quantatative Easing this year. The outlook could shift dramatically at that point because the stimulus did what it was supposed to do, act as a bridge until the markets got healthy and the private sector could take over. However, the thing is will the private markets be able to infuse as much jolt into the economy as the Fed was able too??

Bonds

Much has been discussed about bonds and Pimco's exit of the bond market...well kinda. They are fond of long term bonds. And it may make sense to look at foreign bonds which could have higher yields as emerging markets have seen an increase in their assets due to the commodities boom.

Japan Reconstruction

The next most talked about subject is Japan. First off, we should remember that the situation is difficult to believe and our prayers will need to be with all the people in Japan as they continue to rebound from a serious nuclear situation. Many economists are already talking about the impact of this type of disaster...Japan reconstruction spending will be good for equities and over time the Yen will weaken. We've seen the Japanese stocks move sharply and I would continue to watch these stocks as money will likely continue to flow into funds like the EWJ, the Japanese ETF.

Amazon & Taxes

I never spend much time thinking about the great business model of Amazon and how it became one of the lowest cost provider of goods. The simple answer is taxes, Amazon benefits from a loophole it identified and it is not required to collect taxes on goods sold where it doesn't have a physical retail presence. Amazon is under attack as more states strapped for cash will look to find all possible revenue sources...like Amazon. See Illinois's recent law to tax Amazon.

Surprise Takeaways

Housing starts fell 22% in Feburary, these were really low numbers that caught many by surprise as dismal readings.

US equity markets have the highest profit margins in over 18 years.

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My takeaway has remained consistent in the New Year. I believe like most that QE2 has provided the juice for stocks which have doubled in the last few years.

• I think you have to still sell some of your winners. High corporate profit margins (highest in 18 years) mean the likelihood this stock rally party may come to a screeching halt is increasing.
• Keep the search on for strong yields - Dividends, Foreign Bonds (New consideration)
• Maintain exposure to non-denominated currencies as noted by Mr. Dalio (Gold, food and metals that are actually used to make things)
• Believe in US equities but understand that OIL IS ABOVE $100, this is a REAL potential for deflationary impact - Dr. Tan
• And housing may have begun to hit a bottom...if housing starts continue to fall, then this begin to put the housing market in an equilibrium.