The Fiscal Cliff is forecast to represent 2.9% of GDP drag in 2013 if nothing is done, according to the Congressional Budget Office (CBO). Although it was originally intended as a mechanism to force Congressional compromise around bringing the Federal budget under control, with less than seven weeks until the automatic tax hikes and  spending cuts take effect the focus is now clearly on simply avoiding the blunt instrument of fiscal policy that it represents.

The CBO’s analysis breaks down the different pieces of the Cliff and calculates the impact of each on GDP. Assessing the likelihood of compromise on each one provides an interesting perspective on the likely resolution.

1) Raise Taxes on the Rich – this has received the most attention by far. The President wants to raise taxes on those single tax filers making more than $200,000 and joint filers making more than $250,000. The Republicans will likely agree to higher taxes in some form. That will be one consequence of their poor showing in the election. “Rich” may eventually be defined as income above $500,000 or even higher, but it really doesn’t matter. That’s because the CBO estimates that even if tax rates for this group were restored to their “pre-Bush” level and investment income was all taxed as ordinary income, the entire impact would be to slow GDP by 0.1%. The optics matter because the “shared sacrifice” that must ultimately include entitlement reform can only occur in conjunction with some sacrifice from the 2% or 1% (depending on the definition of “Rich”). The Republicans have already indicated some flexibility on their opposition to new taxes so while it will grab headlines, wherever they ultimately settle on this issue it won’t impact the economy much.

2) Allow the temporary reduction in the payroll tax and emergency unemployment benefits to lapse. This is probably going to happen – neither party has expressed much interest in extending these. The CBO believes this is worth 0.7% to 2013 GDP.

So now we have 0.8% of fiscal drag already imposed on the economy, as well as the effects of Hurricane Sandy (estimated to cost 0.5% during the current quarter). Let’s look at the remaining components of the Cliff as measured by the CBO.

3) Restore the pre-Bush tax rates on everybody else. This is worth 1.3%. The Republicans are against this, and the President has focused on raising taxes on the rich. How hard are the Democrats really going to push to raise taxes on the middle class under these circumstance? It’s likely both sides will agree to defer this item.

4) Automatic cuts in Defence, 0.4%. A complete non-starter.

5) Automatic cuts in non-Defence Discretionary spending, 0.4%. There’s some room for symbolic cuts to remain, by way of demonstrating resolve, but it’s unlikely to be close to this figure.

The beauty of the Cliff is Congress created it and Congress can alter it. Neither side is likely to find much benefit in causing more GDP drag than the 0.8% or so illustrated above. So having decided they’ve done enough, or made a “down payment” as John Boehner has said, the Cliff will be avoided. The announced settlement will include a commitment to a broad-based overhaul of the budget and perhaps tax reform, to be negotiated in 2013. Will they include another Fiscal Cliff by way of forcing Congressional action? Possibly, although the President will undoubtedly push back on that.

Under different circumstances during these negotiations the President and Congressional leaders would be maintaining a watchful eye on the bond market for its approval of fiscal discipline, and to a lesser degree the rating agencies. Except that, as a barometer of such things the Bond market no longer works. The Federal Reserve is by far the biggest buyer of bonds and since they’re not economically motivated interest rates won’t be allowed to respond by voting on the outcome. Perhaps the most powerful visible incentive on budget makers to negotiate difficult compromises will be silent at this time. As such, the motivating features for both sides will be contemplating the visible cost of fiscal drag through tough decisions without the benefit of lower borrowing costs for the government or the penalty of higher costs if action is insufficient.

Equity investors are enduring a difficult time right now, and that may continue through year-end. However, it seems likely that a fairly modest GDP headwind and catastrophe avoided will be where we ultimately wind up. We can all wring our hands about the long term cost of such an approach, but take the world as you find it.

We continue to own solid businesses with good prospects and strong balance sheets that will be around no matter what happens, because we’re probably going to see another can kicked down the road. We like Microsoft (MSFT) whose cashflow generation continues and is priced at an attractive less than 7X FY June 2013 EPS ex-cash; Berkshire Hathaway (BRK-B), which at under $85 is close to levels at which they could buy back stock (as much as 10% above $76.29 book value, or $83.92). We recently added to Kraft Foods Group (KRFT) which yields almost 4.5% and will comfortably cover its $2 dividend with $2.60 of EPS next year. Following a good earnings report we sold Energizer Holdings (ENR) since the battery business is shrinking by a startling 7% per annum and they’re likely to have to cut pricing to stay competitive which will hurt their margins. And we maintain an investment in the Gold Miners ETF (GDX) since reflation is where central banks are going and Europe is demonstrating the futility of too much fiscal discipline too soon.

Timing is invariably difficult, but it’s possible to see a negotiated solution that can turn out fine even if it once again delays the day of reckoning.

MLPs have been weak recently. On Monday the Alerian MLP Index (AMZX) sank almost 2%, on a day when equities were broadly unchanged. For the month, MLPs are down 4.7%, although still up almost 6% on the year. Much of the damage has taken place since the election. As the chart shows, MLPs have lost 3.6% since President Obama won re-election to a second term. However, most other income generating sectors and the overall market are all down more than 3% (REITs have held in slightly better).

Clearly the Fiscal Cliff and its resolution have weighed on the market. A failure to prevent automatic sequestration and tax hikes would probably tip the U.S. into another recession and concerns over that outcome have anecdotally been a headwind to capital spending and hiring for several months. But investors are also starting to contemplate the impact of tax hikes on various sectors, and are adjusting prices accordingly. Higher taxes on dividends and capital gains have seemed likely all year. Congressional inaction would result in dividends being taxed at over 40% (including the Affordable Care Act surcharge) for high income taxpayers, a substantial leap from the current 15%. While the proposals being floated don’t go that far, higher taxes on investment income at least for some taxpayers seem likely.

Which is why the retreat in MLPs may be the start of an opportunity. Most MLP income is treated as a return of capital with a consequent adjusted cost basis for the holder. Taxes on this component of income are ultimately paid when the MLP is sold and are assessed at the taxpayer’s ordinary income tax rate. Wholesale tax reform could of course change this treatment, although that’s not currently on the cards and in my opinion is highly unlikely. Supporting capital formation in support of energy infrastructure seems like a sensible strategy for the U.S. at all times, but especially as the U.S. is just a few years away from being the world’s largest oil producer and increasingly energy independent. And private equity managers continue to pay just 15% on their carried interest from running funds (Mitt Romney is an example) and while ultimately that obvious loophole will surely be closed, its continued existence reveals the power of lobbyists. Holders of MLP units are passive investors, so not in the same category as PE managers whose income is effectively taxed at 15%. And Congress has estimated the tax treatment of MLPs as being worth just $300 million, not an obvious target.

So if taxes on conventional investment income rise, MLPs might in fact be relatively more attractive. In the near term fund flows out of all income generating sectors may continue to pressure the sector. The Alerian MLP ETF (AMLP) has drawn in many smaller investors who don’t mind (or don’t realize) that the 1099 they receive rather than a K-1 costs them 35% of the return they might otherwise earn. Short term flows from these investors may continue to put pressure on MLPs in general. But nothing fundamental has changed for the underlying businesses so there’s little reason to take realized, taxable gains.

Amazon asked me to write a piece for their blog promoting certain books, so I was happy to oblige. You can find it here.

Having been pushed into the background in recent weeks by the election, the Fiscal Cliff is now at the forefront of investors concerns. Basic game theory dictates that a resolution should not occur until late in December. Negotiators won’t know if they have extracted the maximum concessions from the other side if they agree too soon. In addition, since America returned approximately the same set of leaders to power that engineered the Debt Ceiling mess in the Summer of 2011, there’s little reason for high expectations. Ultimately, one would think the Democrats are more inclined to compromise to get a deal, since it is “their” economy. However, for Republicans so opposed to taxes, a failure to agree will result in automatic tax hikes and just what they don’t want.

The one caveat to all this is that, living in the North East U.S. and having just endured the disruption of Hurricane Sandy, the economy is a little more vulnerable than a month ago. Losing power for days on end can really mess with your productivity. On balance we expect a compromise that will avoid the more dire forecasts, but it won’t be an easy road to get there. In our Deep Value Equity Strategy we’ve raised from more cyclical names. Yesterday we invested a small amount in McDonalds (MCD) which remains under pressure because of disappointing sales, and today we added to Kraft Foods Group (KRFT) which reported earnings yesterday and now sports a dividend yield of 4.55%. Yesterday’s earnings report was good and although their payout ratio is high at 77% based on 2013 EPS guidance of $2.60 supporting the $2 dividend, we think it’s well covered and an attractive investment here.

But we continue to hold back some cash because of the increasing likelihood that the market will respond poorly to the undoubtedly messy negotiations.

The reflation theme remains compelling, with developed country central banks fully committed to keeping interest rates below inflation. Owning gold bullion through the Gold Miners ETF (GDX) remains one of our larger positions. Corrections Corp (CXW) also held their earnings call this morning and are still working towards restructuring themselves as a REIT which we think provides further compelling upside. The Fiscal Cliff represents a potential source of uncertainty for them since the Federal government is such an important client of theirs, but while that may cause some short-term uncertainty we don’t belive it materially alters the value of the company.

It turns out that a state of increasing anger at the demonstrated fragility of our energy infrastructure may not be the best place from which to write objectively about the subject; nonetheless that is what I’m going to attempt.* Dark evenings huddled around a gas fireplace hoping the laptop’s battery lasts the length of the movie before 9:30 bedtime (well what else is there to do?) can become boring pretty quickly – indeed, I can report that it has done so already for many people.

Such discomforts of course are trivial by comparison. We are fortunate in that everybody we know is safe.  The stories of tragic deaths are heartbreaking and far too numerous. The flooding and destruction are way beyond our expectations.

We were mercifully spared water damage since we’re not close to the ocean and rainfall was less than expected. We suffered only minor property damage from this 100 year storm even though the extended loss of power is testing in its own way. There may be a bulge in births nine months from now, but don’t expect many babies to be named Sandra.

Energy infrastructure has long been recognized as in need of greater investment. For our part we have focused on its impact on MLPs and in particular the need for new pipelines, storage facilities and so on to move shale natural gas and oil from where it’s found to where it’ll ultimately be consumed. Several months ago for example we added Oneok Partners (OKS) to our MLP portfolio based on the strong growth prospects from their exposure to the Bakken in North Dakota. We’re also invested in the domestic natural gas theme through E&P names such as Range Resources (RRC) because of its abundance and low cost. While reliable delivery wasn’t a consideration, it’s ironic that 19^th century-style gaslight never ceased for those quirky enough to use it. Gas lines are underground.

In August 2003, wide areas of the northeast U.S. and Canada suffered a loss of electricity as a result of cascading failures caused by an evident weak point in the grid. Cross-border interconnectedness and minimal redundancies are no doubt efficient most of the time, but like just-in-time inventory there’s little room for error or Mother Nature. Much hand-wringing ensued about the aging U.S. power grid and need to upgrade its infrastructure. No doubt some work was done although the issue slipped from public attention soon after.

Nine years later the devastation wrought by Sandy has exposed a form of tail risk, though not the one familiar to investment professionals. Although the U.S. is in many ways the most advanced country on the planet, many Europeans express surprise at the 19^th century technology that relies on aboveground delivery of power using wires strung between utility poles. It increasingly looks like an overly optimistic way to deliver a service that needs to be available 100% of the time. Many other rich countries have buried the wires underground, whereas one of the less attractive features of suburban life in America includes the regular risk of power loss when a modestly vigorous wind blows down trees and cuts supply lines. It’s so predictable that one wonders why such vulnerability persists.

Industry estimates are that putting power lines and transformers below ground and therefore out of harm’s way (assuming they’re also protected from flooding) can cost up to ten times the cost of aboveground infrastructure and presumably utility customers or taxpayers are unwilling to meet the cost. This type of analysis relies both on accurate estimates of the probability of unlikely events as well as both the cost of those events and of mitigating against them. In many cases there’s more guessing than estimating involved. European population areas tend to be more dense, but not all of America is the wide open prairie and large metropolitan areas such as New York aren’t much different from London in that regard.

As people move to population centers, the per capita expense falls and studies have found the cost to be closer to five times such as this one prepared in the UK last year by the Institution of Engineering and Technology (an organization that promotes the exchange of ideas on science, engineering and technology). Besides, we will be spending more to compensate for the current delivery system in at least two ways: insurance coverage for anything related to a disruption of power such as business interruption and property damage will assuredly become more expensive as the revised loss history and increased demand drive up rates. In addition, many more businesses and an increasing number of private homes will invest in back-up generators to assure the reliability they need that the public system currently cannot provide. Installing a generator in one’s home is not a trivial undertaking, and yet the sound of their engines providing power to those neighbors whose risk assessment was accurate proves that reliable electricity is highly valued by many. I’ve never visited Baghdad, but apparently the noise of generators is a familiar evening chorus there. Enough said.

Mike Cembalest of JPMorgan’s Private Bank recently noted a London School of Economics study (evidently they think harder about this stuff in the UK) which revealed the relatively low threshold of New York City’s flooding preparedness compared with other major cities, an issue picked up by New York State Governor Andrew Cuomo in the days immediately following Sandy. New York’s standard of preparation is to withstand a 1 in 100 years flood. Contrast this with Osaka (1:300), London and Tokyo (1:1,000) or Amsterdam (1:10,000). New York’s relatively low standard appears even less acceptable when compared with the value of assets exposed and higher per capita GDP (i.e. financial capacity) to improve protection. Inevitably when the rare event happens the ex-ante forecast appears flawed and yet statistically the sighting of one black swan doesn’t imply another, unless the future won’t reflect the history on which such forecasts are necessarily based. The black swan may have a family. Our weather appears to be changing in ways that make it less predictable and more volatile (yes, let’s buy weather volatility). As a power refugee living in what seems like 19^th century discomfort, it’s hard not to embrace the idea that a more robust energy infrastructure will draw greater political attention and support than it has in the past, and correspondingly more investment.

One positive outcome at least for financial markets is that the hit to 4Q12 GDP (estimated as high as 0.5%) is likely to make at least a short term resolution of the fiscal cliff far more probable than it appeared pre-Sandy. The legislated tax hikes and spending cuts that are set to occur automatically on January 1^st, 2013 without new legislation to avert them have been looming as an unresolved issue in recent months. There was little reason to be optimistic about a negotiated compromise to delay the sharp fiscal contraction that would result until Sandy showed up. Now, facing a regional economic catastrophe big enough to produce a stumble even at the nationwide level of economic output, a lame-duck, post-election Congress is likely to put partisan wrangling aside for once. One weather-related tail event is likely to head off another, following the pattern of 2012 for financial markets in avoiding each of the shocks that lurked in the wings while confronting a natural disaster none of us contemplated. Predictability is a virtue in many things; as it relates to power deliverability it’s probably now valued a little more highly.

*We regained power after six days, and as cold and miserable an experience as that was you quickly realize how much worse it has been for many others.

The entire eastern seaboard of the United States is waiting tentatively for Hurricane Sandy’s arrival. Our patio furniture has been safely stored indoors. Batteries and candles are well supplied in anticipation of the inevitable power loss, and with preparations done we wait for the slowly arriving worst storm many of us have ever seen. So naturally, I turned to Gretchen Morgensen’s article in the New York Times today (“The Perils of Feeding a Bloated Industry“). Gretchen focuses on the costs of active money management and questions whether society has received much benefit from the increasing share of GDP that is represented by the financial services industry. It’s a worthy question and one that society has a right to ask given events of the past few years. In this she highlights a recent academic paper (“The Growth of Modern Finance” by Robin Greenwood and David Scharfstein) and in clicking on the hyperlink to this paper I was fascinated to see included an estimate of hedge fund fees.

Readers of my book The Hedge Fund Mirage will be familiar with my assertion that fees had consumed fully 98% of the investor profits in excess of t-bills through 2010. I even posted a pie chart illustrating the fact on my blog a few months ago. If you look at the chart you’ll note that the 2% sliver of pie denoting the clients’ share only lasts through 2010. Including 2011 wipes it out, but since I couldn’t conceive of a negative slice of pie in two dimensions the schematic had to run only through 2010.

The Alternative Investment Managers Association (AIMA) in London, whose sorry task it is to defend past practices of their paymasters in the hedge fund industry, has made a couple of attempts to respond to the chief finding of my book (that all the money ever invested in hedge funds would have been better off in treasury bills), but even AIMA has not attempted a robust defense of the 2 & 20 fee structure. AIMA’s recent paper was effectively demolished here. They do rather lamely offer that fees have amounted to 3.5% per annum, and even though that sounds high to most people it’s based on the same flawed structure used throughout their paper which relies on a hypothetical investor with an equally weighted portfolio started in 1994. Whether such an investor actually exists or not is another matter – I think it’s more realistic to measure how ALL the money has done, and in 1994 while investors did well there weren’t that many of them.

So I was interested to note that in the Greenwood and Scharfstein paper referenced above, hedge fund fees are found to be similar to my numbers. For example, the paper states that hedge fund fees reached $69BN in 2007, remarkably close to the $70BN estimate that I found and included in my book. Greenwood and Scharfstein weren’t focused on hedge fund fees necessarily in their paper, and they make a good point that active management can lead to more efficient security pricing and greater diversification which ultimately lowers the cost of capital for companies (you’ll have to read their paper to see why this makes sense, but I think it does). So they’re not highly critical of hedge funds (although they feel fees are too high) and they reach a similar place to me on fees.

But then I came across an earlier paper by Kenneth French in the 2008 Journal of Finance (“Presidential Address: The Cost of Active Investing“) and although Kenneth French focuses just on equity long/short hedge funds he estimates that the average annual drag of fees from 1996-2007 is 6.5%, virtually double what AIMA rather hopefully suggested. In fact, if I’d used his methodology I would have come up with even higher estimates in my book.

If some observers feel I’ve treated hedge funds too kindly on the fee issue, I can now understand why. It seems academic papers are all around showing that it’s been at least as bad as I’ve described.

For investors, 2012 has been a year so far of disasters that did not occur. The Euro did not implode; Greece was not unceremoniously dumped out; Israel has not attacked Iran; and other perhaps even less likely mishaps did not occur. Consequently, it’s been a good year for equity investors if you had the long term view or short term intestinal fortitude to remain invested.

But it seems to me that the next looming disaster, the “fiscal cliff” may not be so easily avoided. Corporations are increasingly voicing concern about slowing demand. Anecdotal evidence is that uncertainty related to the election and its immediate aftermath are causing many spending decisions to be put on hold. And it seems 3Q corporate profits, whether they were surprisingly good or not have included downward revisions to guidance more often than in the past.

Meanwhile, conventional wisdom is that after the election legislators in Washington will arrive at a compromise that avoids the worst of the immediate drag on the economy from higher taxes and spending cuts that current law dictates. The idea behind this structure was that it would force Congress to address the issue rather than submit to the blunt instrument of sequestration. Although many people seem optimistic that a solution will be found, I don’t think it’s so simple.

First of all, the election is intended to clarify popular opinion with respect to each party’s preferred solution (i.e. will we solve the problem with more cuts and less tax hikes or vice versa). And yet, the most likely electoral result is that Obama wins, the House remains Republican and the Senate is controlled by neither party (where a 60-vote filibuster-proof majority is required to push through contentious legislation). Don’t be confused by the various national polls – Intrade (where people bet money on the outcome) shows Obama with a 62% probability of winning (versus 38% for Romney). It may well come down to Ohio, and Romney’s improvement in national opinion polls isn’t nearly as important as what the people of Ohio think. Romney is not ahead in Ohio.

So there’s a reasonable chance that the Lame Duck session of Congress that will meet following the election (for only 12 scheduled days until January) will be approximately the same group to be sworn in to power early next year. This is the same group of legislators who almost took us over the precipice in the Summer of 2011 with the debt ceiling mess. The notion that the losing party will respect the popular mandate and make more of the concessions necessary to avoid the cliff seems fanciful. More likely is that the Republicans will claim that a weak Presidential candidate not truly loved by the rank and file failed to capitalize on the widespread unhappiness with Obama. Moreover, they’ll have little incentive to compromise because it’s not their economy. A 2013 recession might be the best way to start the fight for 2014 mid-term elections, from the Republicans point of view.

But whether you accept that analysis or not, consider that neither side will want to settle things until the last possible minute, for fear of foregoing the best available deal usually obtained through brinkmanship. Two or three extra weeks of bargaining in hope of a better political outcome will seem worth the possible short term economic damage.

They’ll work something out in the end. There’s little choice. But my bet is that between now and December 31 there will be moments when there’s reason to doubt that optimistic outcome, and in any event the economic damage caused by uncertainty is being inflicted every day.

How to invest through that period? We continue to own equities we like, but have trimmed positions in names that we believe are highly cyclical and hold some cash in case we are able to invest in one or two businesses at better prices than are available today. In our Deep Value Equity strategy one of our biggest positions is Berkshire Hathaway (BRK-A) which is attractively priced and not likely to cause too much concern even in the dark days of late December. We also have a big position in Microsoft (MSFT) – the release of Windows 8 looks underwhelming but its valuation and monopoly-like positions limit the downside in our opinion. The Gold Miners ETF (GDX) is a bet on central bank reflation and it’s been handily outperforming the S&P500 of late. And Corrections Corp (CXW) should reveal more about their REIT conversion in a couple of weeks.

Yesterday I sat through presentations at a conference on alternatives sponsored by Investment News. The participants were largely financial advisers looking for alternative sources of investment income for their clients’ portfolios given the poor prospects in fixed income currently. This is everybody’s problem and I certainly can sympathize since we do the same thing ourselves every day.

I was struck by one presentation from a large consulting firm. They produced the familiar chart showing long term returns on hedge funds compared with other asset classes and used data going back as far as 1990. No surprise that they recommend a sizeable (20-30%) allocation to hedge funds. There was no consideration given to the miniscule size of the industry back in the early 90s when returns were good, so in their statistical analysis each year receives equal importance in arriving at their result.

It occurred to me that this type of promotion of hedge funds doesn’t incorporate any evaluation of whether hedge funds are cheap. Every other asset class in a portfolio lends itself to at least an opinion of whether return prospects are good or not. For equities (both public and private) P/E ratios and growth prospects for the market can be examined; in Fixed Income yields and spreads can be compared with other assets, and even in real estate you can look at cap rates. But hedge funds don’t lend themselves to any of this type of analysis. For the proponent of hedge funds, it’s ALWAYS a good time to invest. Past returns over many years are what they use to predict the future, since hedge funds can’t be cheap on a price/book basis or offer a compelling current yield. Such a view would only change (and even then probably too slowly) in the face of continued poor returns (rather like the past several years). What a thoughtless approach.

Meanwhile, Blackstone has launched a fund to buy up the stakes in hedge fund managers owned by banks and others that are looking to exit, either for regulatory reasons or because return prospects are poor. In effect it’s a fund to take out the providers of seed capital. Quite innovative, it’ll be interesting to see how they do.

I spent the day in Chicago where I’d been invited to debate the merits of my book, The Hedge Fund Mirage, with a pleasant fellow named Ed Butowsky who runs a fund of hedge funds. I’ll leave it to the audience to decide who won – it is the season of debates after all. I’ll simply say that I continue to much prefer taking my side of the debate than the other!

What I did find interesting though was the clear focus of so many financial advisers on alternatives in various forms of packaging. The tyranny of low interest rates is causing investors to look high and low for something that can generate a return greater than bonds while not blowing up in a collapsing equity market. There are “liquid alternatives”, which are mutual funds that do some hedging, business development companies that offer some very attractive yields, REITs and managed futures.

There probably are some interesting investments among some of these offerings. However, it’s still asset allocation that is the most important decision, and bond avoidance must surely be a cornerstone with negative real yields as far out as one can forecast. A barbell consisting of one part equities with four parts cash can provide the same return as the ten year treasury note as described in previous blogs (assuming 4% annual growth in S&P500 dividends) and bonds are unlikely to be much of a diversifier since rising bond yields (whenever that happens) will no doubt cause a sell off in equities.

I’ve noticed Intrade has seen a drop in Obama’s odds of winning, now down to 58% although he’s still the favorite. It does seem to me though that the likeliest outcome is a return of the status quo in two weeks at which point we’ll be looking to the same legislators who brought us to the brink of fiscal disaster with the debt ceiling crisis last year to resolve the fiscal cliff with only 12 days when Congress is in session. I don’t see how we can expect an agreement much before the very end of the year, timing which we ensure each side has extracted what it can in negotiations but will not be kind to any business that relies on capital spending or solid forecasts of consumer demand.

Most recently we sold a little of our natural gas E&P exposure since we continue to like the sector but valuations had made it somewhat less attractive. The New York Times ran a piece over the weekend warning investors that profits in natural gas are hard to find. However, it could also have been called “Don’t Invest with Aubrey McLendon, Chesapeake’s CEO” based on the examples the writer used. Less leveraged companies with lower production costs are still to be found, but overall we have about one third less direct exposure to this sector than was the case six months ago.

The biggest position in our Deep Value Equity Strategy remains the Gold Miners ETF (GDX) which we think is supported by efforts at central bank reflation on the downside and should rise with other commodities if equities resume their rally. We’re also awaiting news from Corrections Corp (CXW) on their possible conversion to a REIT. We expect the company to provide an update in the next few weeks.

I’ll be making an appearance with two other hedge fund authors Jack Schwager and Steve Drobny, discussing the state of the hedge fund industry next month.

http://www.hedgefundintelligence.com/Article/3102473/Market-wizards-or-masters-of-mirage-Noted-authors-Schwager-Lack-and-Drobny-to-discuss-at-Symposium.html