Driehaus Active Income Fund LCMAX

Not certain who is responsible for the management of shareholders assets in this fund.

Frankly don't care.

Unfortunate that the portfolio managers appear, by the performance of the fund,  to be utterly clueless. 

The liberal left................

The Beltway lobbyists are looting everything. 

You are truly on your own if you remotely believe anyone in Congress or the Senate is worried about you and the Main Street America you inhabit.

What you have been subject to the last few weeks is utter chaos at so many levels of government.

Imagine the DNC, Basement Biden crowd picking up where Obama left off.........

Could anything be more ugly for America?

Own bonds?

The following analysis shows how allocations to bonds helped limit downside in the last two equity bear markets.

• From September 2007 through March 2009, a simple 60/40 (S&P 500/7-10 Yr. UST) portfolio returned -23.92%. An all-stock portfolio returned -45.76%. The 40% allocation to bonds reduced losses by 21.84%.
• From January 2000 through September 2002, a simple 60/40 (S&P 500/7-10 Yr. UST) portfolio returned –16.41%. An all-stock portfolio would have returned -42.46%. The 40% allocation to bonds reduced losses by 26.05%.

Heading into the two bear markets mentioned above, the 12-month average yield on ten-year U.S. Treasury bonds was 6.66% in 2000 and 4.52% in late 2007. At their lows, the yields fell to 3.87% and 2.43% for 2002 and 2008, respectively.”

A cursory glance at current yields highlights that those benefits are no longer available.

Floored Yields

Holding U.S. Treasuries maturing in ten years or less is likely to provide no price appreciation if yields fall to their record lows. If that’s the case, and given such low yields, those bonds are essentially cash surrogates with outsized risks.

The question for those bondholders is, why hold such bonds? Given the yields are not much above cash yields, they must believe rates can drop to new records. If they did not think that, why not just hold cash?

There are likely two factors that would lead to lower rates for the full maturity spectrum of Treasury yields.

1. Deflation kicks in, boosting real yields, which entices investors to buy bonds.
2. The Fed shows intent to reduce Fed Funds into negative territory.

Deflation?

Currently, inflation expectations are reduced from prior-year levels but are ticking up gradually and still well above zero. It is reasonable expectations fall if the recovery proves elusive.

Contrary, the Fed seems more than willing to push unlimited amounts of monetary stimulus until inflation is running hot. That potentially raises other problems. As the saying goes, “you can’t put a saddle on a mustang.”

Negative Rates?

Most Fed speakers, including Jerome Powell, have come out against negative rates. They seem to have noticed that such policy has damaged European and Japanese banks. The banks own the Fed, and therefore it’s reasonable to assume they will not repeat the mistakes by the other central banks.

“There’s no clear finding that it (negative rates) actually does support economic activity on net, and it introduces distortions into the financial system, which I think offset that,” Powell said. “There’re plenty of people who think negative interest rates are a good policy. But we don’t really think so at the Federal Reserve.” 

-Jerome Powell on 60 Minutes 5/18/2020

We certainly do not rule out negative rates but believe QE is the Fed’s preferred option.

Hedging with Bonds

While the inflation outlook and the Fed’s perspective can change, it appears yields may be at a floor. Based on the table, 30-year Treasury bonds can provide a 10% return if they decline to record low yields. Every other maturity, assuming the floor holds, will deliver cash-like returns in a best-case scenario.

Portfolio managers are in quite a quandary. Will they consider Treasury notes with meager yields and little upside an equity hedge? Are they willing to hold higher duration price-sensitive bonds with limited upside as a hedge?

The benefits of hedging with bonds have certainly changed from years past. It seems unlikely that a 40% allocation of bonds can provide 20-25% downside protection, as was the case in the prior two recessions.

Other Bond Asset Classes

Investment-grade corporate bonds and mortgage-backed securities may also offset equity exposure. The benefit versus Treasuries is they provide a little more yield. The cost for the higher yield are additional risks. Credit spreads on such instruments have a habit of rising at the most inopportune times.

The Fed is actively buying those sectors and not allowing risk to be priced correctly. Accordingly, those risks are minimal for now.  Use caution, however, the risk is higher for individual securities versus funds and ETFs representing those sectors.

Corporate and mortgage bonds offer some additional upside if their respective spreads return to their record lows. For reasons described above, that incremental benefit is limited though. 

GMAFB..........Bubba Smollett

15 Federal agents.   15.   To explain a garage door pull.

To NASCAR.

God help us.

So sick of excuses from so many quarters in life............

I'm sick.
I am way too tired.
I have more important stuff to do.
I will do it for sure tomorrow.
I am way too busy.

The list goes on and on and on.

Chinese Virus

Wouldn't it be great if the criminal looters and rioters would have obeyed government mandates and stayed home to riot?

Here's wishing they would have stayed home and destroyed their own shit!

Wood Ducks

As a young waterfowler wood ducks were impossible to harvest in Minnesota, no birds, no season.  College years in Minnesota  there were a few but not many.  Now the birds are plentiful.

At the Ghost Ranch we raise probably a dozen to two dozen broods every summer.   At Pamelot we raise less than 5 broods per summer.   Nesting boxes are plentiful.  We do what we can to help increase numbers and we take our responsibility to control snapping turtle numbers very serious.

Here is a couple of pictures we were lucky to get.  Enjoy!

Fishing. It's all perspective.................