Update from the recently absent Armchair Fiduciary

Sorry folks, but I have been quite busy preparing for the arrival of our new bundle of joy and generally settling in to our new house. These crazy markets have also kept the new job busy. In any case, it is already clear to me that the arrival of our daughter will limit the frequency of my posting. I have shared a lot of what I have to share in the last year or so, so from now on it will likely just be incremental stuff. In other news, our house in Denver closes tomorrow. We managed to get it under contract in a mere 7 days and after quite a wrangling period over the inspection (I mean who really expects a 1906 house to be like new construction? Seriously!). Ulitmately, we are selling for about 5% less than our asking price. We bought the place in 2003 and did a ton of work to it. All in we will make a modest profit despite selling in the worst housing downturn in years. It is also a good time to have some extra cash flowing in so I can average down on my recent purchase of mutual funds which is under-water for now. I intend to wait for the next major sell-off in the market before putting some money to work as I beleive this rally will not last for more than a month or two. I think there will be a chance to average in at the lows again in the fall.

Getting More Fully Invested

Remember that cash I kept on the sidelines when I bought some mutual funds a few weeks ago? Well, I was able to put some of it to work last week then the market followed Lehman into the toilet mid-week. I bought more of both JARFX and MINDX. At this point I am fairly fully invested (at least until I sell my house). I just think cash and bond yields are too low given the completely obvious presence of inflation if you have filled up your car or gone to the grocery store lately. I would rather own almost entirely stocks at this point in time. I also believe that the U.S. market has at least begun to discount the recession we are about to experience. Stocks usually start to bounce before the economic data does. The election of Barrack Obama will probably not be well recieved by the market (I think he is likely to win) and could set us up for another more leg down in fall. Nonetheless, I think he will surround himself with smart people and will avoid being a "tax and spend" liberal, but ought to rather be a "tax and balance the budget" liberal. Furthermore, I think the fed funds rate at 2% ought to stimulate the economy by early 2009. Overall, while it may not be a straight line up, with a long-term view I think now is a good time to own stocks as they are one of the few ways to fight off inflation's devastating effects on your wealth.

When Facebook Doesn't Cut It: The Case for Attending Reunions

Facebook is a great tool for staying in touch with old friends. With its help I have learned when my friends got married, changed jobs, moved, had a baby, or just got a little too drunk last weekend. However, there is no substitute for hearing the story about those drunken escapades from the horses mouth or meeting someone's new spouse. For some things the difference between Facebook and seeing someone in person is akin to the difference between playing Guitar Hero and actually playing the guitar. I for one can annihilate Slash in Guitar Hero, but on the real guitar the only thing getting annihilated would be my audience's ears.

In any case, I decided Facebook wasn't cutting it for me and went to my five year college reunion this weekend. I ended up being absolutely stunned at the efficiency of the event. I saw my four roommates who live in Michigan, Ontario, New York, and Washington D.C. One of my friends was in from Shanghai. I saw friends that I hadn't seen or spoken to since graduation and I even got to spend time talking with some people that I didn't know that well when I was in school. From a financial perspective (how else would I think about it?) the experience of my college reunion was extremely cost efficient. The whole weekend ended up costing me about $1,000 including a flight and lodging. It would have cost many multiples of that to see all those people in any other setting. More importantly I reconnected with lots of people that I care deeply about and had a great time doing it. The next time you get an invite to a high school or college reunion, I highly recommend going. Once you get there you will be very glad you did (and your wallet will be too because the alternative is quite costly).

The best last minute travel deals on the planet? Lastminute.com

So if you didn't notice from the lack of an Armchair post, I needed to take an unexpected trip last weekend for family reasons. While this type of trip is not ideal, lastminute.com kept it reasonable for me from a financial perspective. I got a plane ticket and a car rental for several days for around $400. The process was easy and the trip came off without a hitch once I booked it.

Lastminute.com is probably not for everyone -- it does have some drawbacks. The tickets are non-refundable and non-changeable. The "packages" which include car rentals or hotels tend to be better deals than one item alone. The inventory is limited. For instance I wanted to fly into one particular city and by the time I decided to book the ticket (after about 20 minutes of deliberations) the original flight itinerary was no longer available. Instead I had to fly to another city about 45 minutes away from my ideal destination. It was a minor inconvenience, but in the grand scheme of things it was worth it to pay $400 for what otherwise might have cost me $1500.

Do you know any other websites that offer great last minute deals (or deals generally)? If so, be sure to share them in the comments.

Book Review: The 4-Hour Workweek

During my five hours of "mechanical delays" on United Airlines this weekend, I read "4-Hour Workweek" by Timothy Ferriss. While I would view some of the book's suggestions as a little impractical, in a way Tim's ability to think outside the box and dream outrageously is what makes the book an inspiration. Despite thinking there is no way I could do some of what this guy suggests, I did find myself thinking about a lot of other things that I could do beyond what he suggested. The four key principles I took from the book were as follows:

1) Dream big-- its ok! Chase those dreams.
2) Retirement is not a dream.
3) When you aren't on track to fulfill your dreams, change direction. This can be scary, but often the costs are way less than you think.
4) Global arbitrage isn't just for corporations. You can benefit by outsourcing some of your work or at least capturing the arbitrage on vacation in low cost geographies (too bad the dollar has weakend so much since he first published the book in early 2007).

At the end of the day I'd say this book was a good read. It will force you to evaluate your life and determine whether or not you are living by the golden rule of happiness: "Do what you enjoy."

Making Some Bets

Well, I decided to make some bets today. I am putting new capital to work in several mutual funds including: RRPIX, MINDX, EUROX, and JARFX.

This will leave my current allocation of funds not invested at my employer as follows:
FNMIX - 3.9%
MAKOX - 11.4%
MINDX - 12.2%
EUROX - 12.2%
RRPIX - 19.6%
JARFX - 20.3%
CASH - 20.4%

The rational for the new buys is as follows:

RRPIX -- this is a 125% inverse of the 30 yr. treasury bond fund. I think inflation will tick up here over the next year or so to between 4-6% and expectations that the fed will raise rates will increase. People will sell 30 yr. treasuries as a result.

MINDX -- I like India long-term. The 20% sell-off this year represents a good opportunity to start investing in that view.

EUROX -- I also like Eastern Europe long-term. Russia still cheap given the move in oil. This fund has big bets in Russia for now. I hope the managers will allocate to other Eastern European countries as Russia gets more expensive.

JARFX -- I like this divesified international fund. Driven by a team of stock pickers, this fund keeps sector weightings that match the index. It has consistently generated alpha since its launch in 2005.

CASH -- I am keeping plenty of ammo in case there is another flight to quality (as I think there likely will be) so I can add to all of these purchases.

In case you are wondering why I buy mutual funds and not individual securities (since I pick equities professionally for a living) the reason is simple: The trading restrictions at many investment firms are very stringent (including mine). If I have a good individual idea I am obligated to put it in my fund for investors. Because I don't pull the trigger on any of the individual mutual fund holdings (the fund's manager does), I am allowed to trade the funds freely under our compliance policy. I do generally eat a fair amount of my own cooking (i.e. allocate the majority of my liquid capital to the fund I work at) because I think it aligns my incentives with our investors'.

Is the Inflation Beast Coming to the U.S.?

I think there is a high likelihood that inflation is coming to the U.S. in a bigger way over the rest of 2008. So far there is little evidence of serious inflation. Indeed for the first 3 mos. of 2008 the CPI ticked up at only a 3.1% annual rate. After a 4.1% increase in 2007 this doesn't appear to be too alarming. But, here is why I think inflation may tick higher. First, the Fed just injected a bunch of liquidity into the economy (by drastically cutting interest rates) and that tends to drive inflation. Second, with oil at $125 I think we should see that creep into the cost of many goods. Finally, with the dollar weakening and many of our goods coming from outside the U.S. I would expect many finished goods consumers buy to creep up in price. Goods from China in particular where the government is letting the Yuan strengthen should become significantly more expensive in dollar terms over the next few years.

There is not a lot you can do about inflation. You can hope that your wages will increase at the same rate as the goods you buy, but my guess is they won't. The only thing I can really suggest is that you save a little more than usual. Why? Because as things get more expensive you may need to tap into that savings to buy goods that are still quite affordable now. Furthermore, if inflation does rear its head then the Fed is likely to raise rates to put the breaks on it. If the economy is not healthy by then it may slow further as a result of higher interest rates. If that happens there may be higher unemployment and if you are one of the unfortunate ones to experience downsizing you will need that extra savings. Something I am thinking of doing (I still haven't pulled the trigger yet) is buying an inverse long bond fund that will hopefully benefit if inflation takes off. I have a hard time believing investors will accept 1% or lower real yields on long-term treasury bonds for too long . For those of you wondering
"real yield" means the yield after taking into account inflation -- for instance the "nominal" yield on the 10 year treasury note is 3.77% today, if inflation is 3.1% then the "real" yield is a paltry 0.67%. If inflation takes off, I think that bond yields will also likely rise (and the bonds themselves will fall) so the inverse long bond funds should perform quite well.