{"id":1295,"date":"2007-10-12T15:27:32","date_gmt":"2007-10-12T19:27:32","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1295"},"modified":"2007-10-12T15:27:32","modified_gmt":"2007-10-12T19:27:32","slug":"reflections-on-a-bull","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1295","title":{"rendered":"Reflections on a Bull"},"content":{"rendered":"<p>My <a href=\"http:\/\/www.prefblog.com\/?p=1290\">bullish correspondent<\/a> has been busy and gleefully siezed on <a href=\"http:\/\/www.prefblog.com\/?p=1289\">my comment yesterday<\/a> that:<\/p>\n<blockquote><p>There was good volume in the preferred share market today \u2026 and continued declines in the perpetual sector which, quite frankly, I am at a loss to understand.<br \/>\n<strong>&#8230;<\/strong><br \/>\nrate, the steepening in the past three weeks is stupendous. This is really strange!<\/p><\/blockquote>\n<p>and says that he is interested in my comments on his view that:<\/p>\n<blockquote><p>this is due to\u00a0 the Commercial paper\/subprime scare &#8230;.<\/p><\/blockquote>\n<p>Well, for what it&#8217;s worth, Mr. Bull, I think you&#8217;re right. I think we are seeing the confluence of a lot of factors:<\/p>\n<ul>\n<li>Retail is avoiding assets that they don&#8217;t understand &#8211; and retail, in general, doesn&#8217;t understand preferred shares very well.<\/li>\n<li>Retail is avoiding volatile assets &#8211; and perpetuals have certainly been showing volatility in the past six months.<\/li>\n<li>Retail is avoiding asset classes in which they have recently been burnt &#8211; there were a lot of new issues last spring, much of it probably sold to unsophisticated investors who watched the market prices tank before they&#8217;d even received their monthly statement<\/li>\n<li>Retail is avoiding asset classes which have not performed well in recent memory &#8211; performance of preferreds in general and perpetuals in particular has not been stellar for the past year or so<\/li>\n<li>Retail is attempting to time the market. They are waiting for the bottom, therefore they will wait until they&#8217;re sure that prices are going up, therefore, probably, they will miss most of any rally that happens.<\/li>\n<\/ul>\n<p>But, Mr. Bull, I want you to pay particular attention to my caveat: <em><strong>For what it&#8217;s worth<\/strong><\/em>.<\/p>\n<ul>\n<li>How can any of the above statements be proven? If I were to say that relatively high spreads recently were due to the Tri-Lateral Commission acting under the orders of the Illuminati, how would you prove me wrong?<\/li>\n<li>What predictive value does any of those statements have? They explain everything, cannot be falsified,\u00a0and predict nothing.<\/li>\n<\/ul>\n<p>I think we can agree that spreads are relatively high. And given this view, I will agree that a rational investment allocation model &#8211; for instance, one that says that the proportion of preferreds in a portfolio will be within a certain range &#8211; should probably be on the over-allocation side while long corporate\u00a0bonds should be on the under-allocation side.<\/p>\n<p>But the world is chaotic. We can formulate a beautiful asset allocation strategy &#8230; and tomorrow little green men from Mars will arrive with the secret of unlimited safe energy, requiring only extract of squid&#8217;s brain to run, which will give rise to a bull market in seafood and bear markets almost everywhere else.<\/p>\n<p>So I make a deliberate attempt to avoid calling the market. Not because I don&#8217;t think I&#8217;m smart enough, but because there are too many random factors, too many of Colin Powell&#8217;s Unknown Unknowns, to make such an exercise a useful expenditure of time. Instead, I concentrate on weighing small differences between the various preferred share issues &#8230; up, down, I don&#8217;t care what the market does, as long as I do a nickel better, I&#8217;m happy. I can compare apples to apples, and give you good advice as to which one will be better. I cannot compare apples to squid&#8217;s brains.<\/p>\n<p>If anybody tells you differently &#8230; find out why. Chances are, they&#8217;ve got great explanations and poor results.<\/p>\n<p><strong>Update<\/strong>: As if by magic, <em>Accrued Interest<\/em> has <a href=\"http:\/\/accruedint.blogspot.com\/2007\/10\/theres-no-time-for-sorrows.html\">posted on this theme<\/a> today.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>My bullish correspondent has been busy and gleefully siezed on my comment yesterday that: There was good volume in the preferred share market today \u2026 and continued declines in the perpetual sector which, quite frankly, &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23,28],"tags":[],"class_list":["post-1295","post","type-post","status-publish","format-standard","hentry","category-reader-initiated-comments","category-spreads-to-bonds"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1295","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1295"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1295\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1295"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1295"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1295"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}