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Bristlecone Monthly News Digest
Greetings!
One of the more significant developments over the
last month has been the rise in interest rates. Yields on Treasury obligations have risen
across most maturities, from a 40 basis point increase in 2-year rates to an
80 basis point increase in the 5-year rate (a basis point is 0.01%.) These changes may not sound like much, but
the higher cost of borrowing may have negative implications for a recovering
economy. Some interpret the increase as
a sign of rising inflation around the corner. Others see it as a reflection of growing expectations
for a stronger economy. Interest rates
are still low by historical standards and, while we are not making any prediction, it might be a good idea to review how much inflation protection is built
into your overall asset allocation.
We've also spoken to a few investors recently who are sitting on a large allocation to
cash and fixed income as a result of volatility- and loss-induced fear and
paralysis. After a run-up of about 40% in the S&P 500 index since the March 2009 low, it might be tempting to remain on the sidelines. We disagree: having a roadmap in place to get back into the market after a sharp upturn is just as important as
having one after a sharp downturn. Let us know if we can help.
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Do CEOs Matter?
We've just been
through a period in which the CEO has been exalted as almost solely responsible
for a company's fortunes. This view,
promoted in no small part by CEOs themselves and executive compensation
consultants, partially served to justify skyrocketing executive pay. This
article from The Atlantic delves into academic research on the subject. Our own preference is for
competent leaders who focus on establishing a deep and winning corporate
culture over those CEOs out to make themselves into stars. The author, in the end, draws this lesson:
"CEOs can matter, but we all might be better off if they didn't."
Read the Article
David Brooks, of the
New York Times, also has an interesting look at the subject: In Praise of Dullness
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TARP: Federal Bailout or Sweet Deal for the Feds?
Some banks and other
financial companies (including portfolio holdings JP Morgan and American
Express) are expected to start repaying taxpayer-provided funds next week.
There has been much conflicting information about the true cost of TARP, and
much still is unknown. For the 10 banks
that will repay these funds in the coming days (the $68 billion amounts to
about 10% of the TARP plan), the answer is that taxpayers will actually be
rewarded with some pretty attractive returns, according to this study from Sandler
O'Neill-a brokerage firm-as published by Bankstocks.com.
Read the Article
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Michael Lewis Reviews Buffett Biography
Michael Lewis is one
of our favorite writers on matters financial and otherwise (see Liar's Poker,
Moneyball, Panic!). Here, he reviews
Alice Schroeder's new, authorized (at first, anyway) biography: The Snowball - Warren
Buffett and the Business of Life.
Although we gladly did, most of you probably won't read the nearly 1,000
page effort. If not, take a look at this
review, which covers the key themes of the book and, indirectly, provides a
still compelling, but more fully formed picture of Buffett's life.
Read the Article
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Peter Bernstein (1919-2009)
The great economist
and financial historian Peter Bernstein passed away recently. Bernstein
frequently wrote for such publications as the Harvard Business Review, the New
York Times, and the Wall Street Journal. We loved Bernstein's expansive
understanding of markets and economies and his intellectual treatment of
investment decision-making. He held an almost unmatched historical perspective
on such matters, and used it to write accessible material that was relevant to
every investor today. Bernstein's
particular focus was risk and we've linked to two examples: 1) a January 2008 video of an interview with
McKinsey Quarterly, and 2) an essay from the 1996 Harvard Business Review that
laid the groundwork for his book Against the Gods: The Remarkable Story of
Risk.
View the Video
Read the Article
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Bristlecone Value Partners, LLC.; All rights reserved. This
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