Friday, September 23, 2011

"Notes from the Pimco Lunch with Rob Arnott"

We are fans.*
From The Reformed Broker:
Today I had the pleasure of attending a luncheon at the Ritz-Carlton in NYC to hear one of the great intellects of the investment management business speak - Rob Arnott, founder of Research Affiliates and manager of Pimco's All Asset Fund.

or those who don't know:
Over his 30-year career, Robert Arnott has endeavored to bridge the worlds of academic theorists and financial markets. His success in doing so has resulted in a reputation as one of the world’s most provocative and respected financial analysts.  Rob has pioneered several unconventional portfolio strategies that are now widely applied, including tactical asset allocation, global tactical asset allocation, tax-advantaged equity management, and the Fundamental Index® approach to indexation.
Rob spent some time giving us his views on the current economic picture, the big headwinds we face now and how we should be allocating for what's to come.
I'm jotting these nuggets down here off the dome, normally I take notes before putting out one of these posts but the food was actually decent so my hands were full...
(Mostly paraphrased except where in quotes)
On the Double Dip Recession:  It's already begun, especially when you look at structural GDP (GDP minus deficit spending by the government).  It looks like government spending will decline which virtually assures recession.

On Bipolar Markets:  "When bonds and stocks disagree, the bond market is usually right."

On Greece and the PIIGS:  By some measures of spending money we don't have, we are even bigger pigs here so we shouldn't be calling names.  Greece would be wise to "cross the river" sooner than later because the river is getting faster and will only be tougher to cross with every passing day.  (editor's note - I think he means default)

On Inflation:  It will continue to tick up through the end of the year (in the form of CPI), the rolling three year average inflation rate will start to look scary (5% annual rate) as we start to lose the deflationary 2nd half of 2008 in that rolling three year number.  Now imagine 2% Treasury yields and 5% inflation rate and how equities will respond to that....MORE
*A few of our Arnott posts:
Research Affiliates (Rob Arnott) Fundamentals Newsletter: "THE BIGGEST URBAN LEGEND IN FINANCE"
"Robert Arnott's Magic Indexing Formula"
Robert Arnott: "Why the U.S. GDP number may be as bogus as a three-dollar bill "
Investment manager Rob Arnott’s plan to weather the U.S. ‘debt hurricane’

Up and Down Wall Street: Rob Arnott "After Lost Decade, It's Still Tough to Find Returns "

 I became familiar with Mr. Arnott's work when he was editor of the Financial Analysts Journal. He is one of the best on expected returns....
A Really Smart Guy On Stocks, Bonds and Expected Returns
Robert Arnott IS one of the sharpest knives in the drawer. He lays out some high level thoughts in an approachable manner which, to my mind, is one of the signs of superior analytical thinking... 
General Electric Dividend: Good Sign or Management out of Ideas? (GE)
It is usually a good thing when companies dividend out cash to the owners rather than investing it in some self-aggrandizing managerial wish list. Robert Arnott and Clifford Asness did a nifty little 18-page paper that looks at the issue:
Surprise! Higher Dividends= Higher Earnings Growth  
What Risk Premium Is “Normal”?
I said earlier today, in "Will Green Investors Demand Higher Risk Premia?" that the short answer was yes and that I would expand (expound) on this idea. First though, it might be useful to link to a couple old pros, Robert Arnott and Peter Bernstein. If you know this stuff, this is a good brush-up, if you don't, this is a very readable 22 page PDF.
Rob Arnott on Consuelo Mack's WealthTrack

We have so many posts on Arnott that it is probably easiest to do a Google search of the blog: robert arnott