Biz Direct MarketKnowing When To Make A Good Decision

Bonds or stocks? A good alpha source this year has been BRIC versus BRIC. Since I disclosed it, long Colombia/short China returned +50%, long Indonesia/short India +30%, Bangladesh beat Brazil and Romania rocked Russia. Relative-value strategies don’t often make money on both sides. While economic expansion does not imply stock market growth, I’m more glad I didn’t tie up peoples’ cash in “risk free” cash. Long only? Too risky so I’ll leave the bond bubble to others. Absolute return is the safer alternative.

Seek alpha or bet on beta? Why does so much financial advice fixate on how much to allocate to various betas? The more “risk averse” the more in bonds? Is it sensible to recommend the same allocation at 1% yields as when they paid 10%? Can opportunity cost and default risk be ignored with coupons so low and borrowing so high? There are NO risk free bonds but at least higher yields delivered the fixed-income on which so many individuals and institutions depend. Financial regulation has as much chance of preventing the NEXT crash as ordering the ocean to stop rogue waves. Get sunk again OR benefit from them? You choose.

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