Stocks Plus other Investments

The Stox Plus section develops ideas and strategies. The asset universe includes: bonds, collectibles, commodities, currencies, stocks, real estate, intellectual properties and derivative products. These asset classes are more than alternatives: They are complementary and may provide interesting diversification properties. They also influence decisions.


Cash, money, coins and tokens - refer to various objects and notions as to what should be a currency, monetary unit or proxy, or a recognizable and mutually acceptable means for exchange. Money simply defined is a medium of exchange, a store of value, and a fungible or divisible unit of acceptance for transactions.

When cash is king parties try to hold on to their monetary or currency holdings expecting that investments, commodities or other goods and services of interest will drop in price relative to the unit. Thus, these parties expect to get more transactional quantities for a given unit of exchange.

Over time there has been much misinformation as to what money really is. In many countries money consisted of currency in circulation be it coinage or certificates for various denominations. These certificates represented an ownership right in a specific amount of gold or silver subject to strict fineness and established alloy composition. Over that timeline as physical backing eroded or was dispensed with, money supply series could be composed of various other items such as demand deposits and credit marked-to-market among other things.

As countries substituted notes or other paper for certificates these countries effectively separated people and other parties from stores of value.

To put it simply and accurately, if someone was forced to redeem a gold or silver coin for a plastic coin or “token” would the transaction be equal, equitable or even fairly comparable? No.

What if one had to exchange gold or silver rings or earrings for plastic ones? Again, the answer is no.

What if you had to exchange your labor for plastic trinkets? You know the answer. That is why it is necessary to have sound money be it domestically or internationally.

That is why it is essential that money or cash retain value and economic merit for AND between transactions.

The more variables and arguments – not reasons – others interject into the discussion and process is designed to separate you from your money. Money has been around in various forms for thousands of years. When it is debased or made unreasonably “complex” is when economies and cultures breakdown.

If things were the same the perhaps money should be the same. If things progressed, advanced, or became financially better then maybe the coins and currency should be backed by more metallic content not less. However, history has demonstrated time and time again that when money is debased, peak standards often coincided with peak money.


Lifestyle Adjustments - refer to changes in various aspects of living, enjoyment, savings, investing, and debt management among other things.

To benefit from growth one must profit from increases in income, wealth and/or relative reductions in expenditures including debt service.

When growth is lacking or financial pools are draining it is necessary to try to reduce outflows. Increases in debt are not permanent solutions but increase the leverage and likelihood of default.

Therefore it is vital to readjust lifestyles and even standards of living. Previous enjoyments of relatively high consumption/expenditure standards must be addressed. Deficits for individuals, businesses, organizations and governments occur when there is insufficient income to cover outlays. By continuing with these practices the result is increased burdens.

Efforts to “restore” and maintain over-consumption are faulty because they require further increases in debt obligations and/or asset sales. In fact, those sales of bridges, buildings and roads continue which reduces the infrastructure and asset base. For many, the sale of securities to generate cash is only providing a temporary, unsustainable fix.

Prudent savers and investors are impaired due to extremely low interest rates because the income streams have pretty much evaporated. See related features and links on this site.

These changes impact currencies, travel, education, charities and contributions, medicine, archeology and other pursuits.


July 2000.

Overlays - Refers to strategies and tactics for deploying funds and assets within a portfolio.

At an elementary level, it refers to a complementary position in futures and options relative to a stock and/or bond portfolio.

Often cash positions consist of treasury securities and other marginable instruments. Therefore the investor or portfolio manager can alter allocations and exposures with these derivatives. Effectively, they are overlaid on the core holdings.

Foreign exchange and currencies (forwards, futures, options) are implemented relative to other assets. A manager can reduce or expand currency impacts on a portfolio. This activity may also be referred to as an overlay.

It can be seen that overlays can do double duty. One can be a risk management technique, and the other can leverage, expand or diversify holding exposures.

Similarly, commodities can be overlaid against financials such as stocks, bonds, and currencies.


November 1999.

Visit the Selective Indexes and Tables. These illustrative tools quantify ideas of relative value and market capitalization for firms in industries such as technology or finance. To visit, simply click:

  • Indexes/Tables: Investment Firms

  • Indexes/Tables: Satellites


    April 1999.

    Concerned about the stock market's accelerating performance with narrowing leadership or breadth? Perhaps, it is time to consider an asset allocation into precious metals. The Sage of Omaha, Warren Buffett, already made his move into silver bullion. This is understandable because it reduces the margin of error or spurrious assay results. It was not too long ago that some mining companies "salted" the assay samples to fraudently suggest substantially higher ore content.

    If you mathematically or graphically view the precious metals such as gold or silver, they give a strong appearance of negative correlations to major stock indices. This is particularly noticeable over the past 20-25 years. In fact, silver and gold peaked in 1980, the same year that many strategists claim that the stock market registered an historic secular bottom.

    This statistical property of negative correlation can be helpful to balance securities portfolios. It can act as a counterweight or hedge. With Y2K around the corner, you may begin to see a movement towards hard assets as token to moderate financial insurance policies. Since some important money managers have chosen bullion or precious metals stocks, they are less vulnerable to potential millennium bug problems which would impact book-entry or book-form registrations. The latter terms describe ownership recorded on computers and not by certificates.


    March 1999.

    What are the institutional and individual ramifications of the Euro? What does it suggest for corporate and banking costs and profits?

    There are many. The compression of the initial eleven member currencies into one standard unit is analogous to converting eleven different train track gauges into one uniform benchmark.

    This standardization should generate cost savings because hedging or risk management expenses are expected to decline. The Euro minimizes multiple currency conversions. Each step or crossrate conversion entails a spread or difference between the bid and the offer. These spreads should now contract due to a market which exhibits greater depth and breadth.

    On the profit-side, corporations such as manufacturers, services, and importers/exporters should benefit from a trimming of currency transactional costs.

    On the other side, banks and currency exchange companies should experience a reduction in profitability. This is because of the tighter spreads and reduction of multiple step hedges. Foreign exchange operations are a key and principal business for many banks throughout the world. This euro-effect will also spillover into derivatives activities. Again, it would negatively impact profitability. For those owning bank shares in their portfolios, it may be useful to evaluate the currency implications of such investments.

    For more EURO CURRENCY UNIT information, resources, and links connect to Barkley's Euro Resources Desk.


    Previous Feature: Types of Hedge Funds.

    There are numerous types of Hedge Funds. They reflect different investment styles, product lines, and geographic regions. Among the more common varieties are:

    • Bond Arbitrage
    • Convertible Securities
    • Currencies and Major Foreign Markets
    • Emerging Markets
    • Equities
    • Macro or Mixed Products and Strategies
    • Mortgage Backed Securities.
    • Stocks and Bonds.

      As each name suggests, the hedge fund focus on a core approach.

      Bond Arbitrage Hedge Funds try to capture interest rate differentials or spreads due to mispricing or better financing than general market participants can attain. Sometimes, there can be a yield pickup due to convergence between two instruments, a pricing discrepancy due to inefficient evaluations of senior and junior credit risks, or relative value differences.

      Convertible Securities Hedge Funds generally look to purchase the bonds or preferred securities and sell common shares against these long positions. The intent is to hedge interest or dividend paying securities with low or no dividend common shares. In the event of a default the bonds and other securities have priority to the common shares. Also, the bonds or preferred stocks usually generate positive cash flows whereas the short positions are generally not responsible for dividend payments. Therefore the fund should have a positive cash flow and protected by relative seniority position in corporate securities. These funds also use warrants and options as portfolio instruments.

      Currencies and Major Foreign Market Hedge Funds invest in securities and derivatives which go across borders. These funds try to capitalize on interest rate differentials between currencies, varying investment climates for different countries, relative volatilities in equity or credit markets, and variations of the other hedge fund themes.

      Emerging Market Hedge Funds narrow their investment horizon to issues in markets which are not as mature or liquid as the previous group. However, these less developed markets are believed to offer greater risk adjusted rates of return. A general perspective is akin to "getting in on the ground floor."

      Equity Hedge Funds try to long position themselves in stronger or outperform issues while selling short weaker or poorer prospect securities. Variations of this are: trading large cap issues versus small caps; using derivatives for enhanced returns; specializing in program trading; or using leverage to magnify returns.

      Macro Hedge Funds are those which are more benchmark or index oriented. They tend to be top-down in approach rather than bottom-up. These Macro Hedge Funds employ strategies using actual securities, commodities, currencies, futures, and derivatives. They also use various degrees of leverage to try to outperform the market or benchmark indices.

      Mortgage Backed Securities Hedge Funds generally focus on being long the actual mortgage backed securities and short some proxy such as TBAs (To Be Announced), futures, Treasuries or derivatives. These funds typically purchase highly rated agency paper, CMOs, or REMICs and finance the positions in the "repo market." This financing can often result in gross asset, principal or market values of $10 billion for an initial cash/equity position of $1 billion dollars. In some respects it is comparable to buying a house with borrowed money. It is the borrowing which magnifies the performance. If the market quickly jumps 10 percent higher, then the buyer doubled his investment. Here, it would be 10 percent of $10 billion or a $1 billion profit against an initial capitalization of $1 billion. However, if the market declines by 10 percent, then the original investor is out.

      If the market went down 25 percent, then the original investor is gone but the lending institution (bank or brokergage firm) is on-the-hook for $1.5 billion. Effectively, this is what has been recently occurring in the financial industry. The lenders are becoming defacto new investors, holding losing positions, because of defaults.

      Stocks and Bonds are combinations which are analogous to "Balanced Mutual Funds" but, depending on the underlying charter, can use higher degrees of leverage or derivatives.

      These are simple definitions. The actual programs are more complex. Some funds may deploy one or more of these approaches at any time. Some are restricted to one class of securities or markets. The degree of leverage varies between programs and managers.

      If you need to know more or require an independent evaluation, then contact us. As experienced consultants, it's our business.


      Previous item was: Market Strategies: Dynamic, Passive or Somewhere in between?

      Investment and Risk Management strategies range between dynamic and passive. Both have advocates and detractors. Which one is right for you? It is a question which must be asked and answered because money has time value. This site continuously offers insight and analysis about the asset management process.

      Dynamic strategies aim to surpass simple buy-and-hold strategies. These activities can generate tax events and incur significant cumulative transaction costs. These costs include commissions, fees, and the bid-offer spread differentials. Together, these costs reduce gross returns. Therefore, active management must exceed market performance on an after-expense basis. This task is difficult, but many managers have demonstrated that it is not impossible.

      Passive strategies are often pegged to the performance of an index. These indices are considered as a market benchmark. As such, the results "average out" both the risks and the rewards. After a point, the larger list of securities dilutes returns so that the portfolio only yields the market risk-free rate with a normalized adjustment for risk.

      Second previous item was: Owning a real piece of Cyberspace.

      It is more than an idea, it is an investment. The recent errant behavior of PanAmSat's Galaxy IV dramatizes the world's dependence on wireless communications. The demand for orbital satellites is rapidly growing. The recent incident alerts us to the potential for interlaced satellite constellations (networks) which are designed for primary transmission purposes as well as backup or overflow conduits.

      There are many reasons for this. Here are a few. The fastest way to jump start an economy is to leapfrog traditional technologies. It is easier to go cellular than lay miles of cable.

      Satellites have comparative advantage. While phone lines and satellites can transmit global images, only properly equipped satellites can make them.

      A portfolio with an eye towards growth cannot be complete without at least one focused satellite stock. There are a number of different companies available for investment.

      But which one should it be? Click here to learn more.

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