22 September 2007

Friday arvo in the Titanic's Sydney suite

These superannuation managers employ investment and asset management professionals to ensure the funds are in the approved asset type consistent with the underlying mandate. They cannot be geared in any way. The returns above benchmark are the concern of the asset manager, whereas the returns of the overall superannuation is my friend's concern (ie switching from bonds to equities, credit to govt, short to long duration).

He has been arguing to reduce exposure to long end bonds and move to cash plus short end funds.

The asset managers said sure, except to get out of the existing fund he would have to cross a massive 80 point spread on some of the corporate bonds (apparently the fund marks the assets to "mid" - half way between the bid and the offer) and no one has actually crossed the spread on corporate bonds in the last 3 months. No one has bought or sold a corporate bond in Australia of any note in the last 3 months.

His candid discussion with the debt experts revealed that they think they are like the engineers in the Titanic whereas the guys in the equity markets are "like the 1st class passengers up on deck smokin' cigars". "One of us is wrong, and I don't think it's us" he said. He believes the Dow and S&P could reach 15 000 to 16 000 as part of the blow off top, that could be over within a few short weeks but that it was all valuation changes due to collapsing dollar prior to a massive collapse.

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