FCI is proud to report a position in the Barclay Top 20 CTA Performers; based on 5-yr compound annual returns, out of a total group of approximately 290 CTAs managing over 10m. Past returns are not necessarily indicative of future returns.
Domestic Public Debt, Do the Numbers Add Up?
May 18th, 2010By Craig Kendall, President of FCI
In 2000, our total debt as a percentage of total GDP, was about 70%. Today it is close to 120%.
In 2008, our total debt as a percentage of GDP was 85%: and now 18 months later it has increased by 41%.
Think about the debt on an individual level; take your income, and figure the amount of taxes you pay. In order for you just to stay even with your standard of living, increase your tax liability by 41% (i.e. your take home is going to be reduced by 41% starting next week).
This is what every US taxpayer is going to have to do, just to keep the US in good credit standing with the rest of the world (holders of US treasuries).
Oh, and don’t forget, you will have to start saving 5% more from every paycheck, because it is now going to take more in life savings to support you during retirement.
Mainstream economists are telling us the economy is in recovery; individuals believe the economy is improving, and individual spending will therefore increase. By the same logic, government spending will decrease.
So in addition to a 41% reduction in your paycheck, a 5% increase in personal savings, an increase in the cost of home ownership (because we are going to have higher interest rates), you are being asked to spend as much as you did in the past. Did I forget to tell you charitable organizations today need more giving from individuals, now more than ever before? So be sure to add to your budget an increase in annual giving to those less fortunate.
Also take into account the 16 million people who have either lost a job, or have taken a reduction in salary. Those facing unemployment and lower wages have additional financing burdens.
In summary, you do the numbers and figure it out. Once you do, you will be known as the one who was able to “Squeeze Blood out of Turnip” as they say.
Consider this; how are the numbers (debt, GDP, etc.) going to add up in a balanced format to allow for a successfully executed debt-reduction-plan under the current terms? Unless each one of us is able to increase our individual annual income by approximately 50% per year, my guess is that something is going to fall short.
Maybe that is why our markets are in such a state of turmoil, why the equity markets are starting to fall, and why certain other countries’ currencies (countries that are starting to default on debt) are starting to devalue quickly.
How can one generate a commendable rate of return by investing in the equity markets given the current forecasts? Remember, the equity market is also counting on more spending in our economy.
Not a sermon, just some thoughts.
FCI May 2010 Disclosure Documents Now Available!
May 17th, 2010We have great news to report! The FCI Disclosure Documents for the CPP and OSS programs are updated and available on the FCI web site. We thank you for your patience, and for the trust and confidence you have shown in Financial Commodity Investments. (FCI). We look forward to actively assisting you and servicing your managed assets for many years to come. Feel free to contact us should you have any questions.
Please click here to access the new CPP and OSS disclosure documents.
Sincerely,
The FCI Team.
Treasurys Gain After 30-year Bond Auction
May 17th, 2010(The article below is a reprint. FCI business partners receive account-specific analysis via email)
Bond Report
May 13, 2010, 4:28 p.m. EDT
Treasurys gain after 30-year bond auction
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices turned higher in afternoon trading on Thursday, pushing yields back down, amid lingering concerns about the ability of Europe to solve its fiscal imbalances.
Long-term bonds briefly declined after the government had to pay a higher yield than traders expected at its auction of 30-year bonds.
Yields on 2-year debt (U.S.:UST2YR) fell 3 basis points to 0.84%.
Uncertainty about the situation in Europe has tended to prompt a shift out of assets considered riskier and into those perceived as safer, including U.S. Treasury bonds. The U.S. dollar rose to the highest level in more than a year. Read about euro, dollar.
“There is talk of cash coming over from Europe seeking the safety of Treasurys as well as the higher yields,” said strategists at Action Economics.
German bunds maturing in 10 years yield 2.88%, while 30-year bonds yield 3.73%.
The current U.S. 30-year bond (U.S.:UST30Y) yields 4.44%, down 5 basis points on the day.
Auction results
The Treasury Department sold $16 billion in 30-year bonds on Thursday at a yield of 4.490%, a little higher than traders anticipated. See bond auction results.
Bidders offered to buy 2.60 times the amount of debt sold, the best for a new sale in two years and compared to 2.33 times at the last four sales of new 30-year bonds.
Indirect bidders, a class of investor that includes foreign central banks, bought 32.5%, versus 38.4% on average at the last four comparable auctions. Direct bidders, which includes domestic money managers, purchased another 21.8%, compared to a recent average of 12.3%.
It’s generally deemed better for the broader bond market when more of an auction is sold to direct and indirect bidders, who are more likely to hold onto the securities, rather than sold to primary dealers, which often have to turn around and sell them into the secondary market, pressuring prices.
This week, the government received good demand at its sales of 3-year notes (U.S.:UST3YR) and 10-year debt, which were both for smaller amounts than the previous, comparable sales. Read about 10-year auction results.
Analysts also tuned in to comments on the economic outlook or monetary policy from Federal Reserve officials slated to speak during the session.
The U.S. central bank is watching consumer expectations about inflation closely and any deterioration would be a matter of concern, Fed Vice Chairman Donald Kohn said in a speech. Even though the Fed doesn’t “put much stock” into simple theories that excess reserves might automatically lead to inflation, these concerns may sway investors, Kohn said. Read more from Fed’s Kohn.
Minneapolis Fed President Narayana Kocherlakota said there “seems to be little threat of inflation” and he supports the Fed’s decision at its meeting last month to retain the pledge that interest rates could stay low for “an extended period.”
Treasurys stayed modestly higher after the Labor Department said 444,000 Americans filed first-time claims for unemployment benefits in the latest week, down from a revised number the previous week. Economists surveyed by MarketWatch expected claims to declined to 440,000.
Financial Investments Inc. (FII) Receives “Fantastic 50 Award” for a Third Year
May 3rd, 2010FOR IMMEDIATE RELEASE Virginia Investment Firm Earns Prestigious Business Award for the Third Consecutive Year
HERNDON, Va. May 3, 2010 The Virginia Chamber of Commerce has recently announced its 2010 “Fantastic 50″ list. For the third year in a row,
Herndon, Va.-based Financial Investments, Inc. (FII) has been named one of the 50 fastest-growing companies in the commonwealth and was recognized at the 15th annual Virginia’s “Fantastic 50″ Banquet held on April 29th, 2010
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This latest award for Washington, D.C.-area investment firm Financial Investments, Inc. (FII) may not be a surprise to president and CEO Craig Kendall, but that doesn’t mean it isn’t rewarding. In fact, Kendall says, he’s particularly proud of how his financial investments company has thrived amid one of the worst recessions in the nation’s history. “To do what we’ve done in this economic climate makes this more special,” says Virginia Chamber of Commerce honorees must be privately held, headquartered in Virginia, post annual revenues between $200,000 and $100 million, and demonstrate revenue growth and positive net income in each of the last four years. FII posted a total growth of 522% from 2005 to 2008, which averages out to nearly 58% annual growth. Awards and recognition are nothing new for FII. In addition to its latest selection to the “Fantastic 50″ list, the Virginia investment firm has twice been honored by Inc. magazine with a selection to its 500|5000 list recognizing the fastest growing, privately-held companies in the United States. FII has also been celebrated for its continued charitable endeavors in and around the Washington, D.C. metro area, including a second-straight top 10 ranking in the Washington Business Journal’s “Corporate Philanthropists” rankings. Kendall says this latest honor speaks to the continued hard work of FII’s small, but dedicated staff. “I’m impressed each and every day with the hard work our employees put in,” says Kendall. “The commonwealth of Virginia’s pro-business attitude has been a big help, and this recognition is really a testament to our employees and what they do for our clients.” Founded in 1997, FII is a registered investment management firm whose principal alternative investment programs consist of alternative investment products dealing with commodities, futures, equities, and equity indexes. The financial consulting company specializes in an alternative investment strategy that targets “Absolute Returns in an Uncommon Market.” As many of their competitors struggled, FII continued to earn an excellent reputation among its institutional and high net worth clients. FII and related entity FCI features approximately 300 institutional and individual clients located in 42 states and 15 countries. For more information about Financial Investments, Inc., please visit www.Financialii.com
 About Financial Investments, Inc.: Financial Investments, Inc. (FII) evolved from the original accounting firm of Kendall & Company, CPA’s, and is a registered investment management firm whose principal alternative investment programs consists of alternative investment products dealing with commodities, futures, equities, and equity indexes. Founded in 1997, FII and related entity FCI serve approximately 300 institutional and individual clients located in 42 states and 15 countries. The Herndon, Va.-based financial consultation and retirement planning firm has twice been selected to the Inc. 500|5000 list by Inc. magazine and to the Virginia Chamber of Commerce “Fantastic 50″ list of the state’s fastest growing companies.
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Kendall. “Now, more than ever, our clients are putting their futures in our hands and trusting us to navigate this tricky financial climate, and this award just speaks to our results and our individualized customer attention.”Pimco Sees Risk of Deflation
April 15th, 2010Featured Post – HS Dent Blog Updates
Posted: 14 Apr 2010 07:37 AM PDT
The manager of one of the biggest and most successful inflation-protected bond funds does not see inflation; he sees deflation.
If there was ever an investor that had every incentive to forecast inflation, it would be Mihir Worah, the manager of the Pimco Real Return Fund and the largest holder of inflation-protected bonds in the world. As the expression goes, when the only tool you have is a hammer, everything looks like a nail. Worah’s investment mandate is to protect his investors from inflation, so following the analogy, he should see inflation nails that need hammering around every corner.
But, as Bloomberg reported this morning,
Pimco is “underweight” inflation-linked bonds in portfolios that focus on the debt, Worah wrote in a report on Pimco’s Web site…. “There is a near-term risk of flipping to deflation given our view that developed economies have not fully healed and consumers are not yet ready to stand on their own two feet,” wrote Worah, a managing director based at Pimco’s Newport Beach, California, headquarters.
Worah echoes BlackRock Inc., the world’s biggest money manager with $3.35 trillion in assets, which said it is becoming bullish on Treasuries because “there isn’t inflation in the pipeline.” See article.
We’re starting to see some intelligent minds move to our camp in the inflation/deflation debate. Our view remains clear — there IS no inflation right now. We continue to see mild, Japan-style deflation as the most likely outcome of the credit crisis and deleveraging.
Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy
And the streak continues…
March 12th, 2010
Did you know the S&P 500 Index has been up for 10 straight days now? Since 1980, this has happened only once….during January 1987.
Now you know.
Q&A – Responding to a question on my previous post – “How Do We Calculate Management and Incentive Fees …”
March 10th, 2010By Jamie Walters of FCI
A subscriber has written the following response to my ealier blog on how we calculate management and incentive fees in OSS and CPP. He writes “Thanks for the effort in explaining this but where did the $42 go in the CPP example? How can the starting balance in month 2 be $51,875 if the $42 was debited from the account? Is it actually billed in arrears? Definitionally, isn’t “account equity” less all manner of fees including management fees? Perhaps I have missed something here.”
Please refer to the original blog. My response to the subscriber follows:
Good question. The management fee is not billed in arrears. The management fee is billed on the first day of the month. For example, the February management fee is billed on the first day of February.
How can the starting balance in month two be $51,875? We calculate the monthly return based on the end-of-month account balance, which we refer to as the previous period’s ending net asset value (ENAV). All performance information is calculated on an accrual basis of accounting in accordance with generally accepted accounting principles. The beginning net asset value (BNAV) for the period shall represent the previous period’s ending net asset value (ENAV).
For an account that has just opened, we calculate the monthly return based on the BNAV. We do not subtract out the management fee that is billed on the first of the month to arrive at the BNAV. However, the ENAV for the first month will have the management fee deducted from it.
So in the CPP example that you are referring to in the blog, we calculate a 5% return before incentive fees as ($52,500 – $50,000) / $50,000. The account started with a $50,000 balance. This is the BNAV. The account ended with a $52,500 balance before incentive fees. That is how in the example, we have ($52,500 – $50,000) / $50,000. The $52,500 reflects the management fee that has been debited at the beginning of the period.
From $52,500, we debit the incentive fee for the period. In the example, the incentive fee was $625. This leaves a balance of $51,875 (=$52,500-$625), which is the ENAV.
By definition the ENAV for the period shall represent the BNAV plus or minus additions, withdrawals and redemptions, and net performance. Additions include both voluntary and involuntary additions. Withdrawals include both voluntary and involuntary withdrawals. Redemptions include both voluntary and involuntary redemptions. The net performance for the period represents the change in the net asset value net of additions, withdrawals, redemptions, fees and expenses.
Also, be aware that the return to the client is calculated as (ENAV – BNAV) / BNAV. In our hypothetical example, the return to the client is 3.75% (= $51,875 – $50,000) / $50,000, whereas the return before incentive fees was 5%. Just to be clear, the client would have seen a return of 3.75% net of all fees, not a return of 5%.
FCI would like to bring to your attention that there are substantial risks involved in trading futures and options on futures. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The volatile nature of the futures and high degree of leverage used in commodities may result in clients losing more than their original investment. Please consider carefully whether futures or options are appropriate to your financial situation.
How Do We Calculate Management and Incentive Fees in the OSS and CPP Programs?
March 5th, 2010By Jamie Walters of FCI
Friday, March 05, 2010 @ 5:37:17 PM EDT.
In the Credit Premium Program (CPP), the fee structure is as follows:
| Management Fee: 1% |
| Incentive Fee: 25% |
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Consider the following example for CPP.
Start Date: First day of the month.
Initial account value: $50,000
On the first day of the month we take a management fee of 1/12 of 1% from the beginning of the month account balance of $50,000. Thus, FCI would take $42.00 for management fees from a $50,000 funded account. This management fee is for the starting month.
Let’s say that the monthly return for CPP before incentive fees is 5%, for example. This means that the account value has grown by 5% from $50,000 to $52,500 by the start of the next month before incentive fees. Just to be clear, a 5% monthly return before incentive fees is calculated as:
($52,500 – $50,000) / $50,000, and not as ($52,456 – $49,958) / $49,958. In other words, the beginning-of-month account balance used in calculating the return for the month is not net of the management fee that is withdrawn at the beginning of the month.
On the beginning of the second month, we would take 25% of the profit added to the account from the prior period as incentive fees. Thus, we would collect $625 (= 25% of $2,500) on the beginning of the second month as incentive fees. This leaves the client account at an opening balance of $51,875 (= $52,500 – $625.00) for the first day of the second month.
On the first day of the second month we take a management fee of 1/12 of 1% from the beginning of the month account balance of $51,875. Thus, FCI would take $43 for management fees from a $51,875 beginning-of-period account balance on the first day of the second month. This management fee is the management fee for the second month.
The balance of $51,875 for the start of the second month is the new high-water mark for the account as of the first day of the second month. This means that FCI will not collect any incentive fees from the account at the end of the second month (first day of month three) unless the ending account balance on the last day of the period is above the high water mark of $51,875.
Note that in this example, the account experienced no additions or withdrawals of funds by the client. In addition, the account was started at the beginning of a period; in this case, at the beginning of the first month, and thus, no time-weighting is involved.
In the Option Selling Strategy (OSS), the fee structure is as follows:
| Management Fee: 2% |
| Incentive Fee: 20% |
Consider the following example for OSS.
Start Date: First day of the month
Initial account value: $50,000
On the first day of the month, we take a management fee of 1/12 of 2% from the beginning of the month account balance of $50,000. Thus, FCI would take $83.33 for management fees from a $50,000 funded account. This management fee is for the first month.
Let’s say that the monthly return for OSS before incentive fees is 5%, for example. This means that the account value has grown by 5% from $50,000 to $52,500 by the start of the second month before incentive fees. Just to be clear, a 5% monthly return before incentive fees is calculated as
($52,500 – $50,000) / $50,000, and not as ($52,412.50 – $49,916.33) / $49,916.33. In other words, the beginning-of-month account balance used in calculating the return for the month is not net of the management fee that is withdrawn at the beginning of the month.
On the beginning of the second month, we would take 20% of the profits added to the account from the prior period as incentive fees. Thus, we would collect $500 (= 20% of $2,500) on the first day of the second month as incentive fees. This leaves the client account at an opening balance of $52,000 (= $52,500 – $500.00) for day one of the second month.
On the first day of the second month, we take a management fee of 1/12 of 2% from the beginning of the month account balance of $52,000 Thus, FCI would take $86.66 for management fees from a $52,000 beginning-of-period account balance on the first day of the second month. This management fee is the management fee for the second month.
The balance of $52,000 for the start of month two is the new high-water mark for the account as of the beginning of month two. This means that FCI will not collect any incentive fees from the account at the end of month two (on day one of month three) unless the ending account balance on the last day of the period is above the high water mark of $52,000.
Note that in this example, the account experienced no additions or withdrawals of funds by the client. In addition, the account was started at the beginning of a period; in this case, at the beginning of the month, and thus, no time-weighting is involved.
Be advised that because FCI receives Incentive Fees, it may be inclined to trade in a more speculative manner than if it received only a percentage-of-assets fee. Please refer to the disclosure documents for either OSS or CPP for more information at http://www.financialii.com/financial-commodity-investments/disclosure-document.html
FCI would like to bring to your attention that there are substantial risks involved in trading futures and options on futures. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The volatile nature of the futures and high degree of leverage used in commodities may result in clients losing more than their original investment. Please consider carefully whether futures or options are appropriate to your financial situation.