New Historical Fiction -- Divided Loyalties: Algiers 1941 - a novel

Here is a link to a PDF of a draft of the first third of my new historical novel. The manuscript is off to CreateSpace for line copy editing, so this is the final draft of the manuscript.

Any comments will be welcome.

The link to the PDF stub manuscript is here. Divided Loyalties.

Balenciaga Exhibit at Musee Bourdelle in Paris

We walked from our beautifully situated little apartment just off a corner of Luxembourg Gardens up past the restaurants of Montparnasse and turned onto a side street to the Musee Bourdelle to see the exhibition of fashion by famed Spanish designer Cristobal Balenciaga, who was a reigning couturier in Paris between 1937 and 1968 during the fashion golden age of haute couture. 

The exhibition was staged by Paris fashion museum Palais Galliera in the museum of Antoine Bourdelle (1851-1929) who was a follower of Rodin. Accordingly, the museum is full of heroically sized bronze sculptures of that era. The Balenciaga dresses are staged in and around the monumental sculptures across several rooms of the museum--all to good effect.

Balenciaga was noted for his work in black, but what strikes the contemporary viewer is the cleanness of the lines and the overall modernity of the fashion. He established the modern standard for elegance The black accentuates the clarity of vision of the designer. 

Fashion is a fascinating area in the larger world of art because it involves great vision combined with excellence in craft. Balenciaga rose to master seamstress before launching his own house in San Sebastian in 1919. Top couturiers drive hundreds of millions of dollars, if not billions, in retail sales around the world--so it has a big impact. Only a few metropolitan regions around the world have the industrial and commercial infrastructure to support a world-class, high-end fashion industry.

We previously saw several years ago a vast exhibition of work by Yves Saint Laurent at Le Petit Palais in Paris. A long line to get in and the exhibition was jammed, mostly with women of all ages, but a fascinating journey through the contemporary fashion with its beautiful styling and elegance of presentation. 

We finished the afternoon with a late lunch on the terrasse of Le Select and watched Paris walk down the sidewalk in the summer sun. 

The Myers CPA Investment Letter 2017 Sensible advice for self-directed investment portfolios

The Myers CPA Investment Letter 2017

Sensible advice for self-directed investment portfolios

Forecast for 2017 …  the crushing consensus on the equity side … the S&P 500 will end next year up another 5 percent gain from today’s level, according to the median forecast of analysts …  FT 12/5/16

Vanguard: The investment environment for the next five years may prove more challenging than the previous five, underscoring the need for discipline, reasonable expectations, and low-cost strategies…Stocks. After several years of suggesting that low economic growth need not equate with poor equity returns, our medium-run outlook for global equities remains guarded in the 5%–7% range.

TREND LINE: The dashed trend line of 6.3% is the US equity rate of return since 1801 and this rate has been remarkably consistent over 30- to 50-year time frames ever since (the 6.3% graph is adjusted for dividend reinvestment to be comparable to the S&P 500 basic index).

Best commentary for 2017.

Trumponomics will set the pace for market uncertainty in 2017 with policy shifts casting a long shadow, warns Allianz’s Mohamed El-Erian.

Four macro themes will dominate the coming year, monetary policy detaching from data dependency, uneven global policy rebalancing, the risk of an over-strong dollar and dealing with the anti-establishment surge.

“Investors would be well advised to book some profits while also rebalancing some of their remaining risk exposures in favour of sectors that have lagged behind (such as traditional tech), and also to emerging markets with strong balance sheets, limited currency mismatches and sound management.”   -  Mohamed El-Erian, FT, 1/8/2017

Worried about Trump? Don’t try “to time” the market because evidence shows it cannot be done. The big drawback: most “timers” miss the rebound where the significant gains are made. Experience with 2008-09 shows that well-diversified portfolios weather just about anything short of an overthrow of the government. The reinvestment of dividends is key—you don’t want to miss out on this often overlooked feature. Dividend reinvestment ensures the investor is buying additional shares during a downturn at a substantial discount—this gives a big kick to long-run performance. Exceptional returns occur when the market recovery gets underway—as it always does. The Wall Street homily is correct: the money is in the holding, not the trading.

Recommendation. Keep portfolios well diversified. One strategy is to balance into thirds:

·       Income: bonds, public utility ETFs, and high-dividend yield equity funds.

·       Balanced funds: Wellington Fund and/or Wellesley Fund (these are both balanced funds of blue chip stocks and bonds).

·       Growth: broad-based stock index funds like the S&P 500 fund and broad-based international equity funds like the Vanguard World Fund (which is also a good dividend payer).

Long View. There are 4 billion people working in the advanced and advancing economies and this number is growing every year. Having investments that are tied to cash income from this vast amount of work through dividends means you are using the compound-interest law to build an ever-larger stake in the ever-larger future world gross income. (Which is why you don’t want to see your future wealth “fried” by adverse climate change from global warming! You personally might think “national” but your investments are very international.)

Vanguard Funds 12/31/16

Name of Vanguard fund	Fund Number	Current yield	1-yr	5-yr	10-yr
GNMA bond fund	0036	2.07	1.84	1.95	4.36
Intermediate Term Corp bond	1946	3.48	5.03	4.50	-
REIT index fund	0123	3.98	8.50	11.78	5.23
Wellesley Income	0027	2.64	8.08	7.29	6.66
Wellington fund	0021	2.37	11.01	10.44	6.89
S&P 500 Index fund	0040	2.11	11.93	14.62	6..94
US Hi-Dividend yield	0623	3.04	16.75	14.23	7.02
Small-Cap Value Index	0860	1.85	24.78	16.36	-
Emerging Market index	0533	1.70	11.73	1.44	1.87
Emerging Market Select	0752	1.44	16.86	2.74	-
Total Intl Hi Dividend yield	0530	2.35	12.03	-	-
Total World Stock index	0628	2.14	8.67	9.74	-
ETFs
Intermediate Term Corp bond	VCIT	3.48	5.27	4.40	-
US Hi Dividend yield	VYM	3.12	16.89	14.31	7.14
Total US Stock Mkt	VTI	1.97	12.74	14.64	7.23
Total Intl Hi Dividend yield	VYMI	2.40	15.75	-	-
Total World Stock Mkt (incl US)	VT	2.30	8.47	9.73
Utilities ETF	VPU	3.55	17.56	10.71	7.10

The Vanguard Emerging Market Select fund, which is a managed fund, did quite well compared to the comparable index fund, which suggests that stock picking in the emerging market world does pay off. Both the US Hi-Dividend Yield fund and the International Hi-Dividend Yield fund have done well and from a defensive point of view have relatively low weights in banks and are “choosy” in the banks they have included in the portfolios. The International Hi-Dividend fund includes Toyota, Taiwan Semiconductor and similar international multinational heavyweights. Mostly Canadian and Australian banks; Vanguard has wisely avoided large positions in European banks. Both funds should be relatively strong in an overall downturn.

The S&P 500 Index for year 2016 came in at 10.77% increase (The Vanguard S&P500 index fund came in 11.93% with dividends less management fee).

 

Schwab Intelligent Portfolios.  Like many of my clients, I have several brokerage accounts as a matter of safety and diversification including one at Charles Schwab. At the beginning of 2016, I set up a Roth IRA at Schwab using their intelligent portfolio service. I filled out a risk profile indicating medium-high tolerance for risk around a wealth-building long-term goal. The program then selects and manages a portfolio of mostly Schwab ETFs (exchange traded funds which are very similar to mutual funds). The portfolio beat the Vanguard S&P 500 Index fund by 2.8% in 2016 (and 2.0% over the US Total Stock Market ETF) – a remarkable result.

How does it work? You open a Portfolio account, put money in (no transfer of securities), fill out the risk profile, and the artificial intelligence-based portfolio management makes a selection of ETFs, The IP program will periodically buy and sell as its assessment of relative values and the markets changes, but these were rare. It mostly holds (so far).

What does it cost? Nothing! (Schwab makes its money on the very modest management fee in the ETFs.) Frictionless, no commissions on the trades.

Key point. The intelligent portfolio artificial intelligence program is expert at making sophisticated relative value judgments based on deep data across the entire universe of publicly traded securities – worldwide and going back decades. It is unlikely human beings can match this level of judgment. Human managers can only outwit the computer when there is “something” not in the price (probably).

Below is a profile of the portfolio and the rates of return of the individual ETFs and their percentage allocation in the portfolio. Fund type FUND indicates a fundamental index is used as the measuring/guiding index. These indices are based on a composite of sales, profits, cash flow, etc, and are believed to be more stable and consistent indices than market capitalization indices which overweight “winners” at the top of a market cycle. Schwab is a specialist in fundamental ETF index funds. Approximately 53% of the portfolio is in fundamental index funds. So when fundamental indices are out-performing market cap indices, one can expect the IP account to do well. And I would expect fundamental indices to do well in a major downturn – very defensive.

The program also selects some investments that I for one would not normally chose, such as Gold, US Corporate High Yield Bonds, and Emerging Market Local Currency Bonds. Not obvious, but very intriguing once you think about it. (I’ve got a smart guy with wide-angle vision on my side!)

Region	Name	Fund Type	Rate of return	% allocation
US	REIT		5.45	2.70
	LARGE CAP	FUND	19.09	14.19
	SMALL CAP	FUND	29.41	17.64
	LARGE CAP		13.38	10.53
	SMALL CAP		25.98	5.67
				50.73
INTL	EMERG MKTS		19.18	3.98
	EMERG MKTS	FUND	39.85	5.67
	LARGE CAP	FUND	11.95	9.59
	SMALL CAP	FUND	12.66	5.61
	ALL CAP		5.78	6.93
	SMALL CAP		6.48	3.45
				35.23
OTHER	GOLD		4.35	4.09
OTHER BOND	CORP HI YLD		6.98	4.99
OTH BOND INTL	EM LOC CURR		5.53	5.57
OTHER INTL	VAN INTL REIT		1.97	1.96
				16.61
Total			14.73	100.00

Vanguard ETF Portfolio Selection Tool. Vanguard has a similar service except that it provides you a portfolio recommendation and then you go buy the ETFs in your Vanguard brokerage account or the new combined account. It doesn’t “hands off” manage the portfolio. With a similar risk profile as I used with Schwab, Vanguard came up with:

Fund name	Symbol	% Allocation	Rate of return %
Total Stock Mkt	VTI	42	12.74
Total Intl Stock	VXUS	28	4.71
Tot Bond Fund US	BND	21	2.54
Intl Bond Fund	BNDX	9	4.63
		100

Comment: This is a little too “bond heavy” for me. I would substitute VPU (the Utilities ETF) for about half the Bond Fund (say 11%). The International Stock fund lagged the Schwab choices mostly because this Vanguard fund is heavier on Europe and lighter on emerging markets than Schwab (and so “safer”).

Vanguard Economic Forecast

In Vanguard's latest economic and investment outlook, we discuss why the current low-growth, low-rate environment is not primarily the result of cyclically weak demand or secular stagnation. Instead, we believe the modest global recovery since the Great Recession is explained more by the intersection of three long-term, supply-side forces: weakening demographics, expanding globalization, and advancing technology.

Looking at the longer term, our long-held estimate of 2% U.S. trend growth is neither "new" nor "subpar" when accounting for lower population growth and excluding the debt-fueled boost to growth between 1980 and the Global Financial Crisis. Beyond the United States, we see a backdrop of "sustained fragility" for global trade and manufacturing, as the years ahead will present a series of risks that vary across economies.

Given our economic outlook, we project that portfolio returns will be modest across all asset allocations when compared with the heady returns experienced since the depths of the Global Financial Crisis. This guarded but not bearish outlook is unlikely to change until we see a combination of higher short-term rates and more favorable valuation metrics. In some ways, the investment environment for the next five years may prove more challenging than the previous five, underscoring the need for discipline, reasonable return expectations, and low-cost strategies.

Other voices – powering up US economic growth will be harder than it looks for the Trump administration

Protectionism, anemic saving, and deficit spending make for an especially toxic cocktail. Under Trumponomics, it will be exceedingly difficult to make America great again … Donald Trump’s economic strategy is severely flawed. The US president-elect wants to restore growth via deficit spending in a country with a chronic shortfall of saving. This points to a further compression in national saving, making a widening of an already outsize trade gap all but inevitable … That dynamic unmasks the Achilles’ heel of Trumponomics: a blatant protectionist bias that collides head-on with America’s inescapable reliance on foreign saving and trade deficits to sustain economic growth. – Stephen S. Roach, Project Syndicate 11/24/2016

The upside. Fiscal policy will be highly stimulative, drawing down on the global savings glut, pushing up growth and real interest rates everywhere. It will feel good for a while, and then the financial strains will emerge [large trade deficits and large federal deficits and increasing debt], and then Dr Doom can make his untimely entrance. – Markets Insight, FT 11/24/2016

China – someday this dog will bite! But probably not this year.

The dimensions of China’s liquidity splurge are startling. Ousmène Jacques Mandeng, formerly with the International Monetary Fund, has calculated that between 2007 and 2015 China created 63 per cent, or $16.1tn, of the growth in the world’s supply of money. China now has more money coursing through the arteries of its economy than the eurozone and Japan combined — and almost as much as the US and the eurozone combined.

… In his analysis, China’s crunch point will come when there is a disruption in the supply of money needed to pay total debts that amount to about 250 per cent of China’s gross domestic product, the highest level among any large emerging market.

-        FT 12/2/16

And does he understand that China’s private debt bubble is a powder keg under the global economy? … Today, China’s credit boom is underpinned by collateral almost as bad as that on which Bear Stearns, Lehman Brothers, and the rest were relying in 2007.  – Yanis Varoufakis, Project Syndicate 12/4/16

Vanguard and its market success

“Vanguard has topped a table of the bestselling fund managers globally for 2016 after drawing nearly $200bn from investors, eclipsing the total amount of new money raised by its 10 nearest competitors.” FT 1/9/2017