Muhlenkamp Q4 2013 investor conference call transcript (see Ron Muhlenkamp 2013 letter here)
Some of the things that we’ve been talking about the last three or four years came to fruition in 2013. We had a good year, but we’ve been warning people for a couple years that interest rates should move up and, in 2013, they did. If you’re watching CDs and passbook savings, you still haven’t seen interest rates move up on the short end of the scale, but a little further out [they did] and everybody’s benchmark is Treasuries. The 10-year Treasury went from 1.6% to around 3% at year end; the 30-year Treasury went from about a 2.5% to about 4% at year end; so it was very hard to make money in bonds last year. We do think that probably 80% or 85% of the damage has been done. We think that 10-year Treasuries should be on the order of 3.25% to 3.5%, and 30-year Treasuries on the order of 4.25% to 4.5%, but it’s still very difficult to make any money on the short end.
I’m about to go back to the Money Show in Florida [January 29-February 1, 2014] which draws a lot of Americans from all walks of life. Florida gets a bit more retirees than the other Money Shows, so the big focus last year was “How can we get more income on our portfolio?” In response, we came back and wrote an essay titled, Be Careful Dealing with Creative Sources of Yield. Folks, it’s very difficult to get income on your portfolio. Most of the things that are legitimate have been done.
Bonds had been bid up too high; utilities, we think, are on the rich side; most REITs are on the rich side. But, if you demand income, Wall Street will promise it; for example, we heard people last year talking about payout as if it were yield. In some cases, people were getting principal back and they were calling it yield! We warn you: it’s very hard to get decent yields or incomes and still have your assets protected in this market. If you demand it, you can get products that promise it, but I don’t think the promises will pay off.
Anyway, bonds have been done; they turned in the middle of last year. We’ve been warning you for a couple years about commodities. Commodities, by and large, last year were down, so it was very hard to make money in commodities. It was hard to make money in emerging markets, including China. China is trying to redirect its economy—it’s a slow process, these things always take longer than they should. We didn’t specifically warn you about emerging markets, but we did avoid them, so that, too, worked pretty well for us last year. Part of the trick last year was to be in U.S. based stocks—and not in bonds or commodities or emerging markets. We avoided those. It’s been very hard to make money in cash, as you know.
The calendar keeps turning over and time keeps passing, but Europe really hasn’t solved its problems—it’s just no longer in the headlines. You’ve all probably noticed that regardless of the crisis, after a while, it’s no longer news and it moves off the headlines. Maybe the U.K., maybe England, maybe parts of Europe may get interesting before too long. Actually, Mexico could get interesting before too long, but we think it’s a bit early. We have not put money in any of those areas just yet.