Where have all the geniuses been hiding, and why have they suddenly been popping up everywhere?

When the first quarter's performance numbers come out next week, they will likely look impressive—again. In 2009, 95% of intermediate bond funds beat the Barclays Capital U.S. Aggregate bond index, according to Lipper Inc. And 68% of diversified U.S. stock funds beat the Standard & Poor's 500-stock index. Year to date, 58% of stock and bond funds alike are earning fatter returns than their benchmarks.

So does the average fund manager—long derided as the functional equivalent of a blindfolded chimpanzee—deserve an apology and a round of applause?

With funds performance numbers doing so well, many fund managers are looking like geniuses. But Jason Zweig says not so fast. He explains to Kelsey Hubbard how indexes don't always reflect what fund managers are doing.

In a word, no.



Consider the Barclays Aggregate, the market average against which many taxable investment-grade bond funds compare themselves. It gained 6% in 2009. The average intermediate bond fund, meanwhile, was up 14%.

Why? Two-thirds of the Barclays index consists of bonds issued by the U.S. Treasury and government-related entities. Corporate bonds are only 18% of the benchmark.

According to Morningstar Inc., the average intermediate-term bond fund looks very different—with about half its assets in government bonds, nearly 40% in corporates and almost 10% in foreign debt.

Why do funds deviate from the index? Funds charge expenses; market averages don't. A fund with 1% in annual costs has to beat the index by one percentage point to justify its fee. That prods managers toward riskier bonds: longer in maturity, lower in credit quality than Treasurys, or both.

Bond managers also have gotten a boost from Uncle Sam. Now that the U.S. has issued roughly $2 trillion in new debt to bail out the financial system—including $118 billion last week—government bonds make up even more of the index. At year-end 2007, Treasury securities were 22% of the Aggregate index; today, they are more than 29%.

That has shackled the index. Ten-year Treasury bonds lost 9% in 2009—while intermediate corporate bonds gained 16% and below-investment-grade, or "junk," bonds returned more than 57%.

Deviating from Treasurys by design, the average bond fund beat the index in 2009—and continues to do so this year. Thus, "it should be getting easier for active bond managers to beat the market," says Gregory Seals, fixed-income director at the CFA Institute in Charlottesville, Va.
[Intelinvest] Heath Hinegardner
But the recent hot streak among bond funds is merely the inverse of 2008, when Treasury bonds excelled and everything else smelled. Intermediate Treasurys gained 18%, while high-quality corporate bonds broke even and junk bonds fell 30%. That year, 87% of all taxable-bond funds lagged the Barclays Aggregate index.

It is a similar story with stocks. Ever since mutual funds began in 1924, they have always favored stocks that are smaller than the market average. Managers tend to own roughly 100 stocks—versus the 500 in the S&P index—and to have more concentration in the smallest among them. Therefore, managers outperform the S&P 500 whenever small stocks do better than large.

Take 2009: The stocks that had fallen the most in the crash fared best in the recovery. Small stocks lost 26% in the fourth quarter of 2008 and 15% in the first quarter of 2009, before soaring 27% for the year. So the apparent brilliance of many managers is merely the flip side of their earlier inadequacy. In 2008, only 37% of diversified U.S. stock funds beat the S&P 500, even as the index lost more than a third of its value.

What about the longer term? As of last week, 60% of diversified U.S. stock funds had beaten the S&P 500 cumulatively over the past 10 years—a striking reversal of the historical record, since roughly two-thirds of funds have trailed the index in the long run. But if you measure the funds against an index that includes small stocks, the rate of outperformance drops to 55%. Count the track records of the hundreds of funds that went bust and the winning proportion falls below half.

So the world hasn't been turned upside-down. Fund managers haven't become a flock of Einsteins, and low-cost index funds remain the best choice for most investors.

When to sell gold

When to Sell Gold (SocGen)

The Turkey Principle

Eight years ago, Blockbuster stock was around $30.
Today: About 30 cents. So if you have 10 shares, you still have about enough to rent one last video–so long as your broker waives any trading fees.

This is a disaster movie, right next to Titanic on the shelf. But who went down with this ship? Probably not anyone who had walked into a Blockbuster video store recently and taken a good look around. You could smell the doom years ago.

(How were they ever going to compete with Netflix or the Internet? Year after year, my local Blockbuster could never even remember to order plastic bags.)

There's a message for private investors in there. Never hang on to a stock if you have a bad feeling about the company as a consumer.

Instead of investing in what you know and like, sell what you know and hate. Call this the Turkey Principle: On the stock market, it's a lot easier to spot a turkey than an eagle. The irony is that most investors waste most of their time hunting for eagles.

Blockbuster isn't an isolated example. A few days after the video store chain warned it may have to file for bankruptcy, smartphone maker Palm announced "disappointing" sales. The shares, which had risen as high as $18 last fall, slumped to $4.

To hear some people tell it, Palm "surprised," "shocked" or even "stunned" the market with the news.

Really?

This suggests no one on Wall Street had walked into a cellular store recently. Or heard of the iPhone. Or even just looked around on any street, including Wall Street, or in any bar at what smartphones people were using.

You have to wonder just who was bidding up Palm shares last fall. Palm's days have probably been numbered since Apple announced the iPhone in 2007, if not earlier. The Palm Pre, launched last year, just looked like too little, too late.

Cue the Turkey Principle.

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For two decades, many private investors have been trying to get rich by blindly buying shares in their favorite stores, restaurant chains and the companies that make their favorite products. They were following Peter Lynch's advice to invest where they shopped. Mr. Lynch, the former manager at Fidelity's Magellan fund, made this notion the cornerstone of his 1989 best seller "One Up on Wall Street."

During the bull market of the 1990s, investors did OK. But then, everything went up anyway.

In the last decade the results of following this strategy have been mixed–or worse.

People lost their shirts on hot consumer companies like JetBlue and Krispy Kreme Donuts. Those investing in everything from Gap to Amazon to Coca-Cola to Sony suffered huge losses, sometimes for years. Even if the stock did, eventually, turn, many had already sold in disgust.

It's not enough to like a company's products. If you want to make money betting on a stock, you need to understand a lot more about it–from the valuation to the fundamentals, including the balance sheet and the cash flow.

So when does a consumer have an edge over Wall Street? When it comes to spotting a turkey.

After all, it's easier for companies to lose money than to make it.

And the professional investors on Wall Street are constantly being snowed by corporate investor relations machines. Companies, analysts and advisors are busy putting the best positive spin on things. Consumers who never hear from the I.R. team, but who walk past the stores every week, may get a clearer view of what's really going on.

Investors who "sold where they no longer shopped" got out of turkeys from Circuit City to General Motors to Sprint long before Wall Street.

There are ways for ordinary investors to take this a step further, and actively bet against the next Blockbuster, if they want to.

You can buy "put options" on many stocks, for very little money, through any broker. A put option is simply a bet that the stock will fall below a certain price by a certain time: In other words, it offers a leveraged bet on a stock collapsing. If you bet right, a small stake can turn into big profits. If you bet wrong, all you can lose is the (small) stake.

But for most people, just making sure to keep the turkeys out of your portfolio is achievement enough.
Source: WSJ

A few ideas from J. Altucher's hedge fund buddies

(from WSJ)
I was procrastinating writing this article at 5 a.m., so I pinged every hedge fund manager on my IM list to see if anyone could force-feed me investing ideas.
Hedge fund manager No. 1: Small manager, less than $100 million in assets under management. His biggest macro belief is that inventory rebuilding is going to drive economic growth for the next several years. He pointed out that Caterpillar (CAT) announced on a recent call that even if its sales are flat over the next year it would have to buy steel nonstop to rebuild inventory. This, in turn, will drive jobs, housing, growth into 2011 and beyond. This is not a “new normal” but “enormous growth.”
“So what are your favorite ‘green shoots’ stocks?” I asked.
Any of the basic-materials stocks that are going to be fueling this inventory rebuilding, he answered: Reliance Steel (RS) (Disclosure: I own it), Valspar (VAL), Cliff (CLF), Vulcan Materials (VMC). These stocks have a long way to go in this rally. And the rally is not going to stop. There’s an enormous pile of cash on the sidelines that’s just now coming into this rally.
Hedge fund manager No. 2: At his previous fund, hedge fund manager #2 handled all the short-selling. He had enormous years in 2007-2009 shorting and then going long financials and then left to start his own fund. Now he’s focused on media stocks.
I shorted BIDU yesterday afternoon and wanted to know what he thought before he gave me his brain dump on the media stocks. (Here’s an argument from Sean Udall at Minyanville as to why BIDU might be a short and SOHU might be a buy.)
“Its just going straight up,” he said. “It’s like the opposite of catching a falling knife. I wouldn’t get in the way of that.”
“But what about the rumor that SOHU might be snagging the GOOG business in China?”
But he ignored me and started telling me about the top positions in their portfolio:
Virgin Media (VMED): 20% free cash-flow yield, we are expecting 30% free cash flow growth, and VMED is steadily improving its balance sheet, improving its video offerings, and we expect BSkyB to begin carrying VMED shoon.
Liberty Starz (LSTZA): It’s the Encore and Starz cable channels. 30% EBITDA margins. Trades for a multiple of 4.5x EBITDA. Long term contracts with movie studios and cable companies so earnings are very stable but there is upside to these estimates in any economic recovery. Most media companies trade at multiples double to what LSTZA trades at.
Hedge fund manager No. 3: Specializes in small biotechs.
“My number one position by far is Sunesis Pharmaceuticals (SNSS),” he told me. SNSS makes Vorolexin, a drug for treating AML leukemia. Phase II results showed that they increased the survivability of AML patients.
Hedge fund manager No. 3 gave me three atalysts on SNSS:
“1.) 1Q10 regulatory update on Voreloxin from the FDA
2.) Several presentations at ASCO, showing Voreloxin in mature data sets; including cytarabine combination data
3) Finalization of a partner for ph. III testing in AML.
I expect this to be a $3-$5 stock in a few months,” he concluded.

VRX buys back $500 million

Yahoo finance)
ALISO VIEJO, Calif., March 30 -- Valeant Pharmaceuticals International (NYSE:VRX - News) announced today that its board of directors has authorized the repurchase of up to an additional $500 million of its securities, including its outstanding senior notes, convertible debt or common stock under the securities repurchase program approved in October 2008 and increased in May 2009. This repurchase authorization raises the aggregate repurchase authorization to $1.0 billion from $500 million over a period ending in March 2013. To date, the Company has repurchased approximately $415 million in total of its convertible debt and its common stock out of the $1.0 billionnow authorized under the securities repurchase program.

Music is medicine, music is sanity

Robert Gupta, violinist with the LA Philharmonic, talks about a violin lesson he once gave to a brilliant, schizophrenic musician -- and what he learned. Called back onstage later, Gupta plays his own transcription of the prelude from Bach's Cello Suite No. 1.

Getting tasered by a shotgun

The bullets can go up to 100 ft!
Each battery is crammed with enough juice to dole out a full 20-second cycle of pure "non-violent" punishment. 20 seconds! Good lord, that's a long time to be gettin' Tasered. It also has such neat features as three "torsion spring fins" which help the XREP stay straight and fly right into the fleshy part of that guy trying to steal an air conditioner.

Time to Take Profit on Long Polish Zloty Positions

In 2009 Poland’s economy outperformed regional peers and the EU as a whole, growing 1.7%. However, signs point to a negative growth surprise in Q1 2010. Consumers proved resilient throughout last year’s downturn, but recent indicators suggest they are tightening their belts. Given the dimmer private consumption outlook, RGE believes the National Bank of Poland (NBP) has no scope for rate hikes in 2010. Moreover, the chances of a rate cut have risen. We now assign a 30% probability to this scenario. This change in the rate outlook should provide additional support for short-rate receivers in Poland.

So Many Booby Traps In Trading And Investing (part 1)

To do well in the stock market in the long run, there is a number of issues you must address in order to gain meaningful annualized returns.

If you're going to participate in the stock market, your goal is to build up your assets in a big way as the years go by -- to make the endeavor worthwhile.

So, you cannot afford to be monkeying around or chasing your own tail year in and year out. An example is day trading, where over 85% of traders eventually blow up their accounts and only 1-2% have any consistency in making money. And even if you do make money, your funds have to continuously compound to make it worthwhile.

Let's say you have $100,000 in your account and you make $75,000 per year as a full time trader. But you take out $75,000 for taxes and personal expenses each year. You net account value is still $100,000 by the end of the year. This scenario offers no compounding for all your effort and stress.

True, you have more freedom than working at a corporation because you're your own boss. But, assuming median income is around $75,000 where you live, you're probably much better off to go work for a corporation. At least you get better health coverage, virtually guaranteed salary, possible year end bonus, and potential promotion and raise. You get no guarantees in trading.

In the above example, to build up your account you would need to either increase your returns, add additional funds to your initial capital base, or decrease the amount that you withdraw for personal spending. As a full time trader, adding additional funds from other sources besides trading is generally not an option -- especially when your only source of income comes from trading. Cutting back on personal spending/expenses is a possibility but generally very tough because most of us are accustomed to a certain lifestyle for many years. So that leaves the last route to increase funds is by generating a higher return on your investment.

I got news for you. A 75% annual return is already very difficult, if not impossible, to achieve even for the seasoned pros. Remember, Warren Buffett has an average annualized 23% returns for the last 45-50 years. Most traders and investors will earn significantly less than 23% average per year in a 30-year period. Most can't even get an annualized 10% return measured in decades. Thus, it is generally much easier to get funds from outside sources and to force yourself to be frugal, than it is to increase your annual stock market returns.

With such a delicate balance, such as the example above, your principle and returns must be preserved at all costs. You absolutely cannot afford to "monkey around" with your trading or investing. For instance, once your account takes a big hit, it may already be game over for you, sometimes without you being aware of it at the time.
Why do so many traders act like monkeys?

Altucher rips the bears with SPX 1300

As the market continues its climb of 70 percent-plus off the lows, and the gap widens between the housing and stock markets, the bears are convinced of a downturn -- any day now. But our guest James Altucher, managing partner of Formula Capital, disagrees.

"The bears have been consistently wrong throughout this whole rally," Altucher tells Aaron in the accompanying clip. "If you followed the bears' advice at the bottom you'd be dead broke right now." For full disclosure, Altucher did not call the market crash in 2008. "Better to be consistently bullish than consistently bearish."

Altucher points to the common arguments the bears make -- and why they're wrong:

Lots of homes are in foreclosure or under water: That's true but there are bright spots in housing data including the Case-Shiller reports, Altucher notes. That housing index has been up the past six months, suggesting prices are stabilizing, he adds.

All the growth we're seeing is just inventory rebuild. Businesses cleared their inventory in anticipation of the 2010 Great Depression that never happened. Now businesses are scrambling to restock, spurring growth in the economy that's likely to last for one to two years at least. "People are going to be surprised how fast and furious this inventory rebuild is going to happen," Altucher says.

Unemployment is 9.7%.Yes but other jobs data show a rise in part-time hours, hourly pay, hours per week, and number of temporary workers. And these are all precursors to gains in fulltime jobs, Altucher explains.

"Before this is fully over we're going to see new all-time highs again. And I do think that we're going to see 1,300 by the end of the year on the S&P," Altucher says.
"Better to be consistently bullish than consistently bearish."
But he's still wrong about solars, and had been calling them "scams".

Tech and banks

Undercover SPWRA buying

Firms that have been loading up on SPWRA/SPWRB late 2009-2010:
Fidelity +6.0M
BlackRock +4.3M
Platinum Investments +2.9M
Sound Energy Partners +3.1M

Odesnik plea a dark cloud on tennis

KEY BISCAYNE, Fla. -- It looks like the posse finally caught up with the outlaw, only it was the wrong posse -- a development is bound to lead to endless investigations, discussion and controversy. That, too, is ironic, given how clear-cut the case was against tennis drug policy violator Wayne Odesnik.

It was Australian customs officials -- the same guys who nab chain smokers trying to bring in an extra carton, or boozers going one fifth over the line -- who found eight vials of HGH (human growth hormone) in Odesnik's possession when he entered Australia at the beginning of this year.

HGH is a banned substance used clandestinely (and how widely is a matter of wildly fluctuating speculation) by athletes seeking an illicit edge. Few doping cases in tennis (ref. -- Richard Gasquet) are as clear cut as this one. In fact, Odesnik pleaded guilty, will pay a (relatively minor) fine of $7,000 and will probably be forbidden to swing a racket for two years -- a fairly light sentence, it seems to me, given the brazen nature of Odesnik's actions.

But it will be the entire sport of tennis that goes on trial, because the first question that comes to mind when it comes to this case is, "Where was tennis's vaunted drug-testing program?" Were it not for a (presumably) regular customs agent stumbling across the HGH while sifting through a bunch of jock straps and liniments, Odesnik is unlikely to have been caught.

So, how many other guys are toting around more well-concealed vials of HGH, of the strain that can't be detected through the World Anti-Doping Agency's testing regimen (which is the one used by the ATP and WTA, in accordance with International Olympic Committee regulations)?

Granted, there's a chance that customs had some particular, calculated reason to give Odesnik a special onceover. And it's an uncomfortable fact that the guy is coached by Guillermo Canas, himself a former anti-doping violator (he served about 15 months, four years ago) who coincidentally announced his retirement from tennis on Friday. Canas took a "seen no evil" tack, noting that he did not travel, as some coaches do, with his protégé.

But those eight vials of HGH sure did.

So the real questions in my mind are: Was the Aussie customs agency tipped off? Was this some kind of sting operation, and if so, who was behind it and why was this approach chosen? How often was Odesnik tested in, say, the past 12 months, and what were the results? And lastly, what are the chances that Odesnik will tell all he knows about the shadowy world of HGH abuse (assuming he knows at least a little bit), and what kind of pressure can the ATP or ITF bring to bear on him to convince him to cooperate?

Many other people are thinking these same things, so you can expect the investigations and media attention paid to this case to ramp up. That means an astonishingly high degree of scrutiny on the drug-testing regimen and protocols. Given the formidable obstacles facing any anti-doping effort (in any sport), the only thing that nobody is likely to say is what most people would have said a few days ago, before the Odesnik case made the news: The drug-testing apparatus and methodology in tennis is pretty darned good; it's unlikely that drug cheats can go undetected, at least not for long.

We can take cold comfort in the fact that the posse finally did catch up with Odesnik, and it's bound to create more skepticism about tennis's drug policy than if Odesnik, like Canas, had been caught the old-fashioned way.
Source: ESPN

PTEN and SWN

Southwestern Energy Co. (SWN) jumped 5.5% to $39.79. Goldman Sachs placed the independent natural gas producer on its Americas buy list and its Americas conviction buy list.
Analysts removed Patterson-UTI Energy Inc. (PTEN) from their Americas sell list and upgraded the stock to neutral. Shares rose 4.4% to $14.13.
"We believe natural gas prices are near bottom," Singer said in a note to clients.
Goldman Sachs remains positive on oil prices. The brokerage sees natural gas prices rising to $6 per thousand British thermal units by the fourth quarter of this year, above the current futures price of about $5.
source: Among stocks in the spotlight,

Thousands Of Abandoned, Foreclosed Homes Threatened By Florida Hurricane

FORT MYERS, FL—In what forecasters are predicting will be the largest, most devastating disaster to hit Florida since the national economy collapsed, a Category 5 hurricane neared the Gulf coast this week, threatening thousands of repossessed and long deserted homes.
According to meteorologists, the incoming tropical storm could leave as many as 3 million residents every bit as homeless as they've been for the past year or so.
"Those who haven't already lost everything to the housing-market crash are urged to evacuate their homes immediately," said Robert Menken, head meteorologist at the National Weather Bureau. "That should be about 10 or 12 of you. Everyone else, please stay where you are, probably on the couch of some in-law who lives near Atlanta."
In preparation for the hurricane's landfall, the Emergency Broadcast System issued a number of safety warnings early Sunday. Due to expected high winds and torrential rain, citizens are advised to keep their windows and doors boarded up, as they pretty much have been through most of 2009.
In addition, any cars that have not been repossessed by local banks, or sold in a frantic daze by debt-ridden residents, are to be kept off the streets to prevent any further damage.
Floridians currently living out of their cars are likewise being ordered to pray for the best.
"I can't believe I would have had to leave my house behind had I not been evicted nine months ago," said Dale West, one of countless citizens who grabbed family members and rushed to the safety of a nearby church basement last April. "Just think of all the things I could have potentially lost had I still had them!"
"Dear God," West added. "How could something like this have already happened to me?"
The massive mile-wide storm system is expected to cause more than $120 million in damage to recently seized property, destroy hundreds of acres of highly leveraged land, and knock out power to thousands of homes that have been totally dark for weeks now.
Massive floods are also expected in the next few days, threatening to cut off dozens of unused roads and destroy prized possessions long ago abandoned and forgotten about.
"It's a ghost town around here," said Fort Myers native Carol Hodge, who saw some of the neighborhood's last few squatters flee on Monday. "Or, rather, more of a ghost town. People haven't really lived in this county since 2008."
Emergency crews from seven Florida counties and representatives from FEMA had already been dispatched to the default-ravaged state, though many said they believed the damage would be insurmountable.
"We rushed here as fast as we could, but it looks like we're too late," Bradenton EMT John Sarvis said as he looked over countless For Sale sign–riddled lawns and vacant model homes. "All the way from Vero Beach to Fort Lauderdale, it's an absolute wasteland. I doubt anyone will ever be able to live here again."

The world wants to go green

That's the truth, that's what most people want.
They want greener products that are better for the environment, themselves and their children. Even Warren Buffett is keen to the green.
source: Wal-Mart Stores Inc., Wham-O Inc. and Warren Buffett’s Garan Inc. are backing toys made from natural or recycled materials. As customers such as Ramos get choosier, sales of green toys may balloon to $1 billion, or as much as 5 percent of toy sales in the next five years, according to Earthsense, a Syracuse, New York-based environmental research firm.

Greek Deal Does More Harm than Good: Jim Rogers

Bailing out Greece will do more harm than good, as the country has never managed its budgets properly, and it's not about to start now, famous investor Jim Rogers told CNBC Friday.
The euro zone has been long deliberating a way to help Greece out in case it needs aid to finance its public debt.
Finally, on Thursday, a deal was struck between euro zone countries that will provide the country with a monetary safety net, with the involvement of the International Monetary Fund.
"The Greeks have never lived within their means, and I suspect this time they won't either, until they're forced to by either bankruptcy or by someone just refusing to give them loans," Rogers said.
When the European Monetary Union was created, participating countries agreed to a set of guidlines called the Maastricht Treaty that was designed to help keep the euro area fiscally sound.
Rogers says, though, even from the begining, several countries chose to ignore the treaty and play by their own rules. Rogers says it's not the treaty itself but the execution, or lack thereof, that is to blame.
"That's what the original treaty said in the first place, no one is going to have a deficit of over 3 percent of gross domestic product. And you see what's happened ever since.... nobody, well, very few people, countries in Europe have maintained that guideline," he said.
Other countries that sinned in similar ways to Greece are big players in the area, Rogers added.
"A few years ago the French came up with some phoney bookkeeping that was so absurd that even the Italians were stunned... and the Italians have been using phoney bookkeeping for centuries. This is rampant in Europe," he said.

Pimco's Bill Gross says sayonara bond buyers, you're dead

After pumping bonds like a weightlifter pumps weights, Pimco's Bill Gross is now saying bonds is overinvested and their best days are over. Time to move back to stocks.


March 26 (Bloomberg) -- Bill Gross’s warning that the almost three-decade rally in fixed-income has run its course may catch individual investors off guard after they poured $89 billion into bond funds this year.
The inflows through yesterday are running almost five times higher than deposits during the first three months of 2009, according to Brad Durham, co-founder of Emerging Portfolio Fund Research Inc., a Boston-based firm that tracks investor flows worldwide into mutual funds and exchange-traded funds. Investors reeling from losses during the financial crisis poured record amounts into fixed-income funds last year, missing the biggest stock market rally since the 1930s.
“The continued inflows make you scratch your head,” Miriam Sjoblom, a bond fund analyst at Chicago-based research firm Morningstar Inc. said in an interview. “We’ve seen time and again investors make these kinds of tactical decisions at the wrong time.”
Pacific Investment Management Co.’s Gross, manager of the world’s biggest bond fund, said yesterday in an interview with Tom Keene on Bloomberg Radio that “bonds have seen their best days.” Pimco, which announced in December that it would offer stock funds, is advising investors to buy the debt of countries such as Germany and Canada that have low deficits and higher- yielding corporate securities.
The prospect of a strengthening U.S. economy and rising interest rates makes an “argument to not own as many” bonds, Gross said in the interview.
Pimco’s Rise
Investors, spooked by the 38 percent plunge by the Standard & Poor’s 500 Index in 2008, weren’t lured back to equities by the market’s 74 percent rebound from its 12-year low in March 2009. Bond mutual funds in the U.S. attracted $409.4 billion over the past 14 months, according to Morningstar. Stock funds gathered $11.7 billion during the same period.
The surge into bonds made Gross’s Pimco Total Return Fund the largest mutual fund in history with $214.3 billion as of Feb. 26. Three of the industry’s top-selling mutual funds this year invest in bonds, with Gross’s fund topping the list, Morningstar’s data show.
Part of the reason that investors have been putting money into bonds is to reach for higher returns as money-market funds are yielding close to zero, Bill Eigen, manager of the $8 billion JPMorgan Strategic Income Opportunities Fund, said in an interview from New York yesterday. Rates will start to go up over the next two years, exposing investors in longer-duration bond funds to losses, he said.
30-Year Rally
Treasuries have rallied for almost three decades, pushing the yield on the 10-year Treasury note from a high of 15.8 percent in September 1981 to 3.89 percent as of yesterday. The yield reached a record low of 2.03 percent in December 2008 during the height of the credit crunch.
Excess borrowing in nations including the U.S., U.K. and Japan will eventually lead to inflation as governments sell record amounts of debt to finance surging deficits, Gross said.
“People have been making money on fixed income for so long, people assume it’s going to continue when mathematically, it cannot,” said Eigen, whose fund is the third-best selling bond fund this year, according to Morningstar.
“When people finally start to lose money in fixed-income, they won’t hesitate to pull money out very soon,” he said.
John Hancock Funds President and Chief Executive Officer Keith Hartstein said retail investors are already late in reversing their rush into bond funds, repeating the perennial mistake of looking to past performance to make current allocation decisions.
‘Rear-View Mirror’
“You can almost guarantee what this year’s top-selling mutual funds categories will be looking back to last year’s top performers,” he said. “It’s a great source of frustration trying to get people to stop looking in the rear-view mirror and to start looking forward.”
Hancock is telling clients that bond funds very rarely outperform equities over a decade, as they did in the 10 years ending in March 2009. In the following 12-month periods, they have never repeated the feat, he said.
He said Hancock’s most recent flow data indicate investors are just beginning to shift course.
“You have to look closely to see it, but the bond flows are down a little and equity fund flows were positive over the last few weeks,” he said. “We could be in the midst of that sea change.”
Gross, who co-founded Newport Beach, California-based Pimco, shares the title of chief investment officer with Mohamed El-Erian. The Total Return Fund advanced 16 percent in the past year, beating 54 percent of its peers, according to data compiled by Bloomberg. As of December, Pimco, a unit of Munich- based insurer Allianz SE, managed $1 trillion in assets.

Buffett: Railroads Are The Future

Buffett chuckles at the suggestion that buying the nation's second-biggest railroad is a sign of senility. He argues that railroads represent the future. They're best-positioned to haul the raw material and finished goods for a nation and economy that he insists are bound to grow. Unlike trucks, trains don't have to compete on congested highways. Nor do railroads depend on strapped governments to maintain infrastructure.
"They don't need the government to build them new highways and airports," he says in an interview with USA TODAY. "They've already invested heavily in their infrastructure and technology, and they plan to invest more to keep up with the growing demand.
"They're the only mode of freight transportation that can handle growth. What's not to like about that?"
Buffett foresees a dynamic and profitable future not just for BNSF but for the nation's rail industry; so much so that he chastises himself for coming to that view, he says, two years late.
"There are just four big railroads in the U.S.," Buffett says. "I know the people who run three of the four, and they're all good people. They will all have similar destinies. They will all do very well, especially Union Pacific and BNSF."
Counting the $8 billion in BNSF shares Berkshire already owned, the $26 billion in cash it paid for the remaining BNSF shares, and the assumption of $10 billion of debt, Buffett has invested $44 billion in the railroad.
Rail also is a capital-intensive industry. Buffett says, "If anything, we'll be investing more" in BNSF in the near term "as we build it for the future."

U.S. stocks end with fourth-straight weekly gain

NEW YORK (MarketWatch) -- Blue-chip stocks managed a tiny gain as investors grew less concerned about Greece's debt load, though some participants moved to take money off the table following a steady rally that had carried the market to an 18-month high this week.

The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,850, +9.15, +0.08%) seesawed before ending with a 9.15-point gain, up 0.1%, at 10850.36, up 1% for the week. The Dow was up 68 points at its morning high but struggled throughout the afternoon, especially after a South Korean navy vessel sank along a disputed maritime border with North Korea.
The Dow, Nasdaq Composite /quotes/comstock/10y!i:comp (COMP 2,395, -2.28, -0.10%) and S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,167, +0.86, +0.07%) all ended with a fourt- straight weekly gain, the longest such streak for all three indexes since the four-week period ending Aug. 7, 2009.
The market was helped by news that Greece's neighbors have agreed to a plan to bail out the debt-laden nation, if necessary, in conjunction with the International Monetary Fund. On Friday afternoon, the news prompted Standard & Poor's to affirm its ratings stance on Greece.
Though stocks have generally been on a strong run in March, the last two sessions have been rocky, marked by solid intraday rallies that gave way to lackluster finishes in the afternoon.
With the Dow hovering close to 11000, at levels not seen since the pivotal late-September 2008 period in the financial crisis, more traders have been willing to bet that the market is overdue for a correction to shake out speculative excess.
"You're seeing a lot of turbulence," said Dick Del Bello, senior partner at Conifer Group. "There's not a lot of bad news and a few good things out there that people are hanging their hats on."
The Nasdaq Composite Index slipped 0.1% to 2395.13, up 0.9% for the week. The index was hurt by a 1.3% retreat in Oracle Corp. /quotes/comstock/15*!orcl/quotes/nls/orcl (ORCL 25.74, +0.05, +0.20%) after the company reported a decline in fiscal third-quarter profit.
Driven by the news surrounding Greece, the euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.3411, +0.0134, +1.0093%) hit a 10-month high against the dollar Friday morning. It recently traded at $1.3419, up $1.3282 from late Thursday.
Treasury prices rose, with the 10-year note /quotes/comstock/31*!ust10y (UST10Y 3.85, -0.03, -0.83%) up 8/32 to yield 3.853%. See Bond Report
Gold ended higher higher while oil futures fell.

Index Close % Change
Dow 10850.36 +0.08
S&P 500 1166.59 +0.07
Nasdaq 2395.13 -0.1
Nasdaq 100 1952.63 +0.18
Russell 2000 678.97 -0.02
Sox Index 362.89 -0.53
Bank Index 52.3 -0.25
Dow Transports 4339.91 +0.12
Dow Utilities 376.36 +0.31
Nikkei 225 10996.37 +1.55
Gold - Front Month 1108.8 +1.34
Silver - Front Month 16.93 +1.16
Crude Oil 80.13 -0.5
Dollar Index 81.58 -0.72
Euro Spot 1.34 +1.06
Long Bond 20-year 115.44 +0.35
FOTM - Yen Spot 92.49 +0.26
3/26/2010 1:10:43 PM

The Great Reflation

Source: Fleckensteincapital I'd like to talk about the prospects of paper versus assets. In the most recent issue of the "GloomDoomBoom Report," Marc Faber reprises Tony Boeckh's soon-to-be-released "The Great Reflation" -- whose title (in case it wasn't obvious to everyone) denotes the process that we are in now and what lies ahead. Though I haven't had a chance to pick up a copy yet (thus I can't vouch for it), based on what Marc shares, the book certainly seems like it will be useful to folks.

Investors Face a Risky New World To quote Boeckh directly: "The Great Reflation, if left unchecked, will run into a brick wall in the next few years, and another implosion and deep recession will occur. The result will be even bigger budget deficits and lower economic growth. Logic says that if the last crisis was caused by excessive money and credit inflation, even more of the same should cause an even bigger crisis. The ultimate end point to this trend is worrisome to say the least. The new investment world will be extremely challenging for investors. There will be opportunities in the Great Reflation to make a great deal of money and equal opportunities to lose a great deal of money on the downside of volatility.

"Investors, unfortunately, do not have the luxury of riding out this turbulent period by sitting in short-term deposits and money market funds. After taxes and inflation, capital will erode. To earn decent returns, investors have to take some risk; but in the new world of money, these risks are above the comfort level of most investors. Investors must come to grips with this risky new world.

"To do so, it is essential to acquire a framework for understanding the dynamics of how the Great Reflation will play out, what indicators to watch, and how to shift assets within a portfolio to minimize high-risk, low-return assets and maximize exposure to lower-risk, high-return assets. In a world of stability, buy-and-hold investment strategies can be very successful. In the financial world of the future, there will be an even bigger disaster than the past 10 years."

Printing Won't Dodge a Day of Reckoning I suggest folks read that passage a couple of times and save it. What he calls "the new world of no money" should be thought of as the new world of moneyprinting. In any case, this fits my scenario that we may be entering a period which looks a lot like the '70s, though perhaps on steroids, given the complete disregard in the minds of policymakers for the potential of inflation. And, as a consequence, the willingness to print enormous amounts of money.

Regarding what all of this means, Boeckh says: "Unstable money is both a cause of instability and a reflection of underlying decay. It is an integral part of the negative feedback loop. Historically, it is difficult to think of any empire in decline that didn't eventually succumb to monetary debauchery. That is never a direct policy objective. It happens because it seems like the least bad alternative facing the authorities when they have to make big decisions in difficult circumstances."

Well, that ought to sound pretty familiar. As for Marc's investment conclusions: "Under the Great Reflation, I suppose that investors will need to be positioned most of the time in assets such as equities, real estate, commodities, and precious metals. I have deliberately decided to distinguish between commodities and precious metals, because I believe that precious metals will increasingly be looked upon as an alternative to cash deposits and money market funds, whereas commodity prices will continue to be driven more by genuine demand and supply factors than by monetary factors."

"No Absolutes in the Investment Process" Marc goes on to note: "There are no absolutes in the investment process. There are times when equities perform better than gold, despite moneyprinting and rapid credit growth, which is something we've certainly seen in the last year." But in the end, "gold seems to be the only stable currency." The road ahead promises to be unusually tricky. However, those who understand the macro environment will at least have a fighting chance at making their money grow in real terms.
Turning to the stock market, the indices rose almost 1.5% by midday, for no good reason that I could see. (BBY won at beat-the-number, but that hardly explains the early action.) However, the afternoon saw those gains surrendered as the indices closed essentially flat for the session.
Away from stocks: The dollar was mixed. Oil and precious metals were more or less unchanged. Fixed income was a tiny bit lower initially but was hit hard in the wake of a poor 7-year auction. Once the Fed gets nervous about rising rates and decides to end its exit from QE, life in the financial markets will get very interesting. (Currently, as far as equity investors are concerned, the bond market seems to operate in another solar system.)
Index Close % Change
Dow 10841.21 +0.05
S&P 500 1165.73 -0.17
Nasdaq 2397.41 -0.06
Nasdaq 100 1949.15 -0.14
Russell 2000 679.1 -0.67
Sox Index 364.83 -0.15
Bank Index 52.43 +0.17
Dow Transports 4334.55 -0.63
Dow Utilities 375.21 -0.59
Nikkei 225 10828.85 +0.13
Gold - Front Month 1091.3 +0.13
Silver - Front Month 16.6 -0.25
Crude Oil 80.16 -0.56
Dollar Index 82.2 +0.26
Euro Spot 1.33 -0.29
Long Bond 20-year 115.03 -0.7
FOTM - Yen Spot 92.7 -0.43
3/25/2010 2:15:46 PM

Strategists: Four Big Banks We Like

Financial stocks have been higher this week—so how will the sector be affected by new regulation and the Fed’s exit strategy? Chris Mutascio, managing director and bank analyst at Stifel Nicolaus and Fred Cannon, co-director of research and chief equity strategist at KBW discussed their sector outlooks.




The financial reform overhang is creating a positive opportunity for some of the higher quality large banks right now,” Mutascio told CNBC. “We think there’s going to be more bark than bite and that creates an opportunity to trade up from lower quality to high quality right now at pretty.
reasonable valuations.”

Mutascio likes Wells Fargo [WFC 31.49 0.63 (+2.04%) ] and Bank of America [BAC 18.11 0.54 (+3.07%) ].

In the meantime, Cannon agreed that the large banks are still the place for investors to be. He has “buy” ratings on JPMorgan [JPM 45.50 0.56 (+1.25%) ], Bank of America, and UBS [UBS 15.29 --- UNCH (0) ]. However, he advised investors against Citigroup [C 4.285 0.135 (+3.25%) ].

“When you talk about normalized earnings, it looks like a long way away in the future for Citi,” he explained. “They’ve got a long workout ahead of them and we think right now, go to the names that can producing good earnings and capital momentum next year.”

In addition, Cannon said some of the regionals that are actively buying up the failed banks will also perform well.

Qualcomm makes bullish break

Qualcomm (QCOM) raised its guidance for both quarterly and full-year earnings before market open today. The stock had been in recovery mode since experiencing a very large bearish gap down in late January of this year. But few expected such a positive fundamental turn in the business, and hence the shares moved quickly higher, with a bullish gap resulting. The stock has been repriced instantly in light of new information.

Price is beginning to fill the prior bearish gap, the big empty zone to the left of current price. Trader lore claims that in time all gaps are filled, which may be one reason that moves back into gap areas, whether bearish or bullish, often see increased momentum.

There is a bullish pattern that traders should be aware of on the chart. Actually, there are two, but the one in question today is a bullish, inverted, head-and-shoulders bottom.

If you close one eye and look at the price action before and after the big peak on the chart, you can see there was previously one half of a bearish head and shoulders top before this smaller bullish head and shoulders bottom formed. Rather than getting a right shoulder on the bearish pattern, it just gapped. It isn't that unusual to see these types of patterns follow each other, with each being the opposite of the preceding pattern.

The breakout for the smaller bullish bottom is the yellow neckline, last at the $41 area. The top of the pattern, its full potential, is to the $46 area. This is right where the stock previously broke down.

The second bullish pattern, which has already completed, is just below that yellow line, It was a somewhat stunted bullish pennant which never came to a point. It completed right where the shares opened today at the $42.54 level, and this is now key support.

Bove Says Shares of U.S. Banks May Quadruple by 2012

March 24 (Bloomberg) -- Bank stocks, the leaders of the biggest U.S. market rally since the 1930s, may quadruple over the next two to three years as loan defaults decrease, according to Dick Bove of Rochdale Securities LLC.

“Stocks are going to go much higher,” Bove, who is based in Lutz, Florida, said in a telephone interview. “The catalyst is the reduction in loan losses. That’s all that investors in banks care about.”

The Standard & Poor’s 500 Financials Index has risen 162 percent from a 17-year low one year ago as the U.S. government spent, lent or guaranteed more than $8 trillion and the Federal Reserve kept its benchmark interest rate near zero to end the worst recession in seven decades.

Bove said the financial industry has already seen a “bottom” in writedowns from the collapse of the subprime mortgage market that spurred losses of almost $1.8 trillion, freezing credit markets in 2008.

Financial shares had the only gain today among 10 industries in the S&P 500, climbing 0.2 percent.

A decline in provisions for bad loans may overshadow industry profits, he said. Earnings at banks in the S&P 500 are projected to fall 33 percent in the first quarter, before rebounding 63 percent in the second quarter, according to the average analyst estimates compiled by Bloomberg.

Improvement in Loan Quality

“Investors have decided they will bet on that rather than worrying about fundamentals,” he said. “The fundamentals are not good. The first quarter will not show any particular strength in bank earnings. What it will show is an improvement in loan quality and that’s all people are looking at.”

Nearly 60 percent of the “big public companies” will lose money in the first quarter, Bove said.

Bove is the highest-ranked analyst at estimating share- price movements of Morgan Stanley, according to data compiled by Bloomberg. The results of his predictions have been mixed. He recommended selling Lehman Brothers Holdings Inc. stock four months before it collapsed, helping investors avoid a 65 percent plunge in the shares. Bove raised it to “buy” on Aug. 21, 2008, and Lehman filed the world’s largest bankruptcy three weeks later.

While Bove has “buy” ratings for Bank of America Corp., Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., he said investors should sell SunTrust Banks Inc. and Wells Fargo & Co.

SunTrust

SunTrust is “not making any money,” he said. Analysts on average estimate the lender will lose $1.41 a share this year, excluding some items, according to data compiled by Bloomberg. “Why would I want to buy into a company that isn’t going to make any money for 12 to 18 months?”

On Wells Fargo, Bove said that “the earning assets of the company are declining, the non-interest income is declining and the non-interest expenses are rising.”

SunTrust’s spokesman Michael McCoy and Wells Fargo’s spokeswoman Julia Tunis Bernard declined to comment.

Bove expects that the dividends at U.S. banks will increase over the next two to three years. The S&P 500 Financials Index pays 1.05 percent of its average share price in dividends, compared with 1.83 percent for the S&P 500, according to data compiled by Bloomberg.

“The government at the moment is saying you can’t do it,” he said. “These banking companies were at one point in time yield vehicles and they were owned by income funds. The banks are going to get back to being that type of investment.”

VRX a new high

*I own this stock.

Risk Tolerance and CCME

With the market moving higher, more and more participants will start dipping their toes back in.
Investors and traders will inevitably become more risk tolerant. That means small caps and mediocre companies will get some play.
Right now, Chinese outfit CCME is on many traders' radars. The stock is up $1.6 on impressive earnings and guidance. There's also an analyst target price of $30 for this stock.

*Update: I have a position.

Index	Close	% Change
Dow	10836.08	-0.48
S&P 500	1167.72	-0.55
Nasdaq	2398.76	-0.68
Nasdaq 100	1951.84	-0.58
Russell 2000	683.66	-0.96
Sox Index	365.37	-1.91
Bank Index	52.34	+0.42
Dow Transports	4362.12	-1.09
Dow Utilities	377.45	-0.92
Nikkei 225	10815.03	+0.38
Gold - Front Month	1086.3	-1.58
Silver - Front Month	16.61	-2.45
Crude Oil	80.4	-1.84
Dollar Index	81.89	+1.32
Euro Spot	1.33	-1.3
Long Bond 20-year	115.81	-1.62
FOTM - Yen Spot	92.18	-1.93
3/24/2010 4:03 PM