Diary of a Financier

About

The Diary of a Financier

Into this Diary, I record my empirical thoughts–subjective or objective, financial or existential. As a Diary should be, this is my time-capsule, my notebook, my confidant. Writing is the discipline of my self-education. It is an outlet of my intellectual curiosity. From the time it consumes of my days, it yields multiples in professional and personal self-improvement.

Recognize that I write for myself, but I do welcome the eyes of the public. I implore your contention. That’s why I have not adorned this Diary with a lock. Petrified in these pages, my entries forever carry the weight of scrutiny. For that, I am better.

About Romeo Fayette

I am a partner atop a Private Client practice, wherein we manage all matters finance for families & institutions around the globe–whether investment, planning, banking, or credit. While I wear many hats in managing our team, I am a Portfolio Manager first and foremost. Commanding a liberal arts mix of philosophy, psychology, physics, cynicism, originality, history and humility, Investment Management rests at the intersection of my aptitude and my interest. After my introduction to the sell-side, I built (from within) a practice where my success is dependent on my being right, not just sounding right. I own my decisions. For that, everyone is better.

This all sounds altruistic. Maybe the bravado just feeds a competitive spirit within me? In good markets and bad, I get anxious and sometimes awake at night to check overseas markets. Is that because I’m a good steward? Or is that some self-serving, obsessive, compulsive pursuit of pieces to the puzzle? Sometimes I suffer from a hint of masochism, because I often can’t find the social utility in certain channels of the financial sector. There are great minds here. There are also misplaced minds here, best served elsewhere. I’m constantly evaluating these notions, my place.

Capital markets were the world’s first social proxy, and I know I’ve found a place therein. The intellectual capital that exists in the blogosphere stores similar potential energy. This emergence is well-timed, because society has evolved, and the mainstream media–who were the liaison between the people & the politics–have been compromised. Converting brainpower & bickering into real solutions, the blogosphere may usurp that responsibility to police. This Diary is my little corner within that new republic.

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  1. I’ve been reading your blog for a year. Thanks to your bookshelf article bout Steve Jobs, I was directed to the “About”. Glad I was! I truly enjoyed learning of your motivations, ideals and humility…and most of all, your passion!!!

  2. Do you have information on investment minimums, fees, and so on for your services?

  3. Your listing of pros and cons of various aspects of the market condition is just about the most ludicrous example of financial analysis I’ve ever come across. This type of evaluation works fine in picking out a toaster but the financial markets are a complex set of interdependent data sets. You just throw out the data you dislike with an explanation, it’s a data point not subject to being dismissed. It’s not a pro or con they are facts. 1) lowest bear level in years, 2) VIX very low (almost no fear in the market), margin debt through the roof, highest in 20 years (no money on the sidelines), 3) RUT just formally met the criteria for a correction down 10%, 4) QE has levitated the market for past three years, 5) one misstep from war, 6) US dollar status as “World Reserve Currency” under threat, 7) banking stocks down trend and heading to correction range (while using 0% money), it goes on and on. 8) SPX trading at 26.5 and 26.7 PE when using current earning or the better current earnings with the companies weighted for capitalization within the index, not using future earnings. At what PE is the market to high priced for your taste? I can point out many more data points that are Bear indicators but you have an answer for them all, which I appreciate. Your type of guidance is what causes stampede selling when you don’t even tell your clients things are dicey and that they should at least raise cash and hedge up a bit. So I thank you I’ll cash the check as your clients stampede out in the coming months.

    • Not sure to which “analysis” you’re referring, but isn’t this an example of factual data with heed to “complex set of interdependent data sets”:
      https://thebuttonwoodtree.wordpress.com/2014/05/15/bull-v-bear-11/

      As for much of the data you present, I would suggest you to evaluate those points within a larger, historical context. For example:
      1. Lowest bear level in years- This is a high frequency (weekly) indicator, so it’s susceptible to noisy reads. While bears are at lows, bulls are lowly too, so the bull/bear ratio is far below its norm due to a lot of “neutral” respondents. (https://thebuttonwoodtree.wordpress.com/2014/05/11/top-newsstuffs-may-5-11/)

      2. VIX low & margin debt high- I agree. Persistently low VIX signals complacency, but it’s a poor timing-mechanism for calling a market top (i.e. exuberance). On the other hand, in April & May I did say margin debt was the “single variable [that] could cause the market’s first correction since 2011.” (https://thebuttonwoodtree.wordpress.com/2014/04/06/top-newsstuffs-march-31-april-6/ & https://thebuttonwoodtree.wordpress.com/2014/05/04/top-newsstuffs-april-28-may-1/)

      3. $RUT correction- I covered that in a balanced fashion here, concluding that it was in fact a negative short term signal. (See “Size Divergence” https://thebuttonwoodtree.wordpress.com/2014/05/15/bull-v-bear-11/)

      4. QE levitation- I’ve covered QE ad nauseam. 3 quotes characterize my stance:
      i. “The deficit is the only thing really stimulating the economy. Deficit spending is the closest thing to money ‘printing’–as so many people habitually mischaracterize QE… QE tapering will trigger a proportionate de-risking only if the economy stalls. Then, capital would reverse its flow back down the pyramid towards risk-free assets.” (https://thebuttonwoodtree.wordpress.com/2013/06/17/tapering-reactions-whats-really-happend-so-far-what-will-happen-in-the-future/)
      ii. “the US is dealing with issues from a dearth of secular innovation, sustainable growth rates & demographics… monetary policy is a zero-sum game, a bridge over troubled water, and real growth requires natural resources, demographics, or innovation.” (https://thebuttonwoodtree.wordpress.com/2013/04/19/the-problem-with-mmtmr-and-all-your-other-economic-theories/)
      iii. “The short term [read: shotgun] solution of QE/ZIRP should’ve been succeeded or complemented by fiscal stimulus. No, not the Bush stimulus (tax rebates) that mailed checks to everyone; yes, long term investments in things like our alternative/renewable energy infrastructure, R&D, etc. [ARRA funds were not fully spent]… Now, 5 years later, were we to have implemented a combination of short term stopgap measures and long term kickstarters, I don’t think QE would’ve had to have been scaled-up the way it has, as employment & economic expansion associated with those investments would be yielding gains.” (https://thebuttonwoodtree.wordpress.com/2013/10/24/the-qe-counterfactuals-counterfactual/)

      5. One step from war- Geopolitics, especially war, would’ve kept you out of this market for the best days, weeks & months of the post-crisis bull run. Even were war to beset us, the history of such geopolitical shocks are ephemeral. (https://thebuttonwoodtree.wordpress.com/2014/03/09/top-newsstuffs-march-3-9/)

      6. USD threatened- I’ve mentioned the analogue between WWI Britain & modern USA many times. The “reserve currency status” threat is real, and an Asian/Chinese currency bloc may be the most likely successor, but that’s decades away, low probability, and even then the outcome is pure speculation. (https://thebuttonwoodtree.wordpress.com/2011/03/31/more-on-inflationdeflation-qe3/)

      7. Bank stocks ineffective- They’re (deservingly) paying billions in fines for crisis-era misdeeds, and the regulatory cycle has swung back a la Pecora Era, so their cash flows are being redistributed elsewhere in the economy as opposed to shareholders; spreads historically tight to benefit households & real economy; this is what happens to ground zero sectors after a crisis, but the broad market & economy move on

      8. SPX PE- PE ttm is 17.28. (https://www.spdrs.com/product/fund.seam?ticker=spy) What’re you looking at? Shiller CAPE? That has no merit as a timing mechanism within 24 months’ latency. Market becomes too highly priced for my taste when some combination of the following occur, with consideration to other variables:
      i. A combo of PE/PS/PCF/PEG far exceed historic averages, since “secular bull markets never end at fair value.” (https://thebuttonwoodtree.wordpress.com/2014/05/15/bull-v-bear-11/)
      ii. My valuation analysis, which controls for habitually overestimating analyst consensus (forward EPS), says investors have discounted-forward an unrealistic growth extrapolation (i.e. “price compression”)
      iii. Earnings yields drop back beneath IG bond yields (Baa)

      For every datapoint, there is a permutation or a counterpoint. I take each of my hypotheses and try to disprove them with such a null hypothesis. I end up with a multifactor, multidisciplined output that effectively controls for my cognitive biases — behavioral influences we all bring to the table.

      As for my clients, we’re a multifamily office, so I manage the majority of their assets with discretion.

      We do hedge when necessary, but our only hedges right now are junk credit spread wideners. No equity hedges today because this is the most dangerous part of the market cycle to hedge (i.e. the blowoff phase after fair value has been reached).

      I prefer to use cash as an equity counterbalance here, so you might notice that we have 8% cash right now, since I post our core portfolio’s positioning in real time. (https://thebuttonwoodtree.wordpress.com/2014/05/15/bull-v-bear-11/)

      Further, our Beta is benchmark-weight (0.76 for a 60/40 portfolio).

      Your thoughts?

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