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BijaAdvisors

Seeds of Thought

@BijaSeeds

An eclectic mix of market commentary, observations and ruminations
Issue 15-4
February 3, 2015

Are Treasuries Overinvested?
Yesterday, in a long call with a senior portfolio manager who oversees a $1 billion portfolio, we
discussed how to position for my macro view. Everything about it argues for being long US
Treasuries and long large cap US equities. The problem it would seem, is that long treasuries is
the position of choice for just about every prevailing view, which naturally begs the question as
to whether this is the right time to be holding them. With the 10-year at 1.66%, you could make a
compelling argument that they are overinvested, that any growth or employment data that beats
expectations even slightly, would see those positions liquidated en masse.
Indeed, you could make that a compelling case, but I think you’d be mistaken. The fundamental
problem facing the global economy and the central bankers tasked with managing it, is that
wealth simply refuses to move from financial assets into the real economy. The problem isn’t that
too much capital resides in US Treasuries, or that they are overinvested, but rather that
everything else is underinvested, and there simply isn’t enough supply of US Treasuries to satisfy
demand.
The current environment can only
be described as one of extreme risk
aversion. Money isn’t being
invested, so much as it is being
parked. Evidence of this is plentiful
(See Baa chart to begin). Hi-tech
firms, those traditionally investing
heavily in R&D and making
aggressive acquisitions are instead
sitting on mountains of cash, money
market instruments and treasuries.
The dramatic increase in wealth
disparity has resulted in consistently
higher savings rates and lower
velocity of money. More and more,
investment managers are allocating with an eye toward career risk rather than investment risk,
opting for safety in numbers over a desire to outperform. There is no getting around the fact that
the world is indeed very different post-crisis.
So the question is, if we are at extremes in risk aversion, what can derail it? What would lead to a
shakeout in Treasuries? Well, the obvious caveat is that markets are not perfectly efficient. We

Important disclosures appear at the back of this document

Bija Advisors

Seeds of Thought

could see a short-lived, yet very painful shakeout for no good reason whatsoever. There’s a
simple way to cope with that scenario (See 5ySwap1 Trade Write-Up).
The less cynical path to a shakeout in treasuries would be for growth to positively surprise
investors, resulting in a sharp push out along the risk curve. This is the reason I like being long
large cap US equities. If capital is to make its way further out along the risk curve, I expect the
S&P 500 to be among the first beneficiaries (See Argument for the Next Bull Run). To begin
with, so many companies are sitting on hordes of cash. Valuations are low, because the return on
cash is so low. If potential for returns improve, so too should the present value of that cash.
Taking a step back, I still believe the likelihood of a sustained rally in growth is highly unlikely.
Big picture fundamentals are all stacked against it. However, I also believe the short-term blip
due to oil has more potential than the market seems to be expecting. In the end, it will be perhaps
the greatest and most damaging head fake of all time.

Rise of the Creatives
Last week, after seven months of preparation, I installed the
Alien Campsite, my 7th art installation in the mountains of
Santa Barbara. It earned praise from the US Forest Service
and those who made the 15 mile drive up a winding, narrow
mountain road to see it. A crew from YLE, Finland’s national
television network flew in to film a segment for an upcoming
series, a writer from Newsweek made the trip to gather
information for a feature he is writing about my work and a
world renowned photographer did a photo shoot.
Unfortunately, two days later gale force winds ripped through
Southern California’s mountains and did enough damage to
the campsite that it had to be removed. In the days that
followed, I received photo and interview requests from
numerous magazines, newspapers and outdoor themed
websites, a request from a music festival to do an installation
and booked two speaking engagements.
As you know, it is my belief that with technology continuing
its march up the cognitive scale, replacing human input along
the way, beginning in agriculture, then manufacturing and now
service industries, skills will once again be revalued. While we
can’t know for certain what will replace services as the
dominant sector going forward, I contend the most likely
candidate is the creative. If I’m right, the experience I am
gaining as an artist, is both timely and valuable, giving me a
front row seat to how original content creators are being
valued and the winners and losers are being determined. It’s
fascinating stuff, particularly because the areas in which I
work, namely fiber art and installation art, are two of the least
conventional and most avant-garde, leaving the playing field
wide open and the rules yet to be defined.
Issue No. 15-4

February 3, 2015

Bija Advisors

Seeds of Thought

I am experimenting with the marketing of branded gear, promotional material, social media,
installations, representation and now, artwork sales. Rather than fighting technology, I am
embracing it. I have opened a store, sold gear and earned mark-up that would have Louis Vitton
salivating, yet I haven’t spent a penny on inventory, retail space or employees. I have built a
following of more than 20,000 women between the ages of 20 and 35, from 41 countries and all
50 US states, the mother load for marketers, and am garnering the kind of publicity that
corporations pay agencies hundreds of thousands a year to develop. The world’s largest yarn
manufacturer supplies all the yarn I need (40,000 yards so far) and pays me to share photos of
my progress. I am in negotiations with outdoor clothing manufacturers about representing their
brands and being booked to speak to a wide variety of audiences, from private schools to
universities, at corporate events and global conferences.
All of this has been accomplished in my spare time, maximizing efficiency through the use of
technology, taking advantage of the developing barter
economy and capitalizing on the demand for original,
unique content. The next step involves converting the
momentum into artwork sales. I’ve chosen a piece
that has real potential to become an iconic
representative of the burgeoning, yet still
underground style known as yarnbombing. It’s a 10
foot wide, hand crocheted replica of an American
flag, made specifically for the Lizard’s Mouth
installation in which I wrapped 18 massive boulders
in Los Padres National Forest with fiber art. It was
photographed by Scott London, with photos of it
appearing on the cover of numerous newspapers and
soon to be included in the Newsweek feature, among
others.
Rather than selling the flag through a
gallery, I’m experimenting by offering
it for auction on E-Bay. If it doesn’t
reach the reserve price in the next
couple of days, the bids will become
part of my dataset. I’ll then offer it
again to coincide with the magazine
publications, TV show airing, etc.,
gathering more data and gaining more
insight along the way. If someone does
steal the piece in this early auction,
well, then it will serve as an anchor for future auctions.

Question Everything
As an advisor/analyst/writer, there exist a few quantifiable statistics I can monitor to assess my
performance, including number of subscriptions, number of emails opened, how many times they
were opened, click-throughs, forwards, and opt-outs. I can use this data to adjust the time of day
Issue No. 15-4

February 3, 2015

Bija Advisors

Seeds of Thought

and day of the week they are delivered, document format, and content, but of course there are a
multitude of factors to consider beyond the obvious. Observations are unlikely to be statistically
significant for each iteration, so I must rely on industry studies, my own intuition and feedback
from others.
Sometimes people offer feedback voluntarily. Other times you have to invite it. In either case, the
feedback, like any other data, gains in value when it is corroborated. I will admit, as it is with
most people, what I know about myself, what I believe others perceive about me and what is
actually perceived are not necessarily in complete alignment. When marketing, it’s important to
have a firm understanding of your product and how it is received by the target market.
Regardless of the product, when you’ve developed it from scratch, it’s often difficult to see it
with fresh eyes, as a prospective customer would. When the product is you, it’s nearly
impossible.
In an effort to see myself with fresh eyes, I invited a number of old friends, new connections,
former colleagues, acquaintances several times removed and current clients to describe me and
what I do, in their own words. The cynic will say that the pool of contributing participants is selfselected and so biased, and you are probably right. However, more than positives or negatives,
what I’m seeking are common threads that cut across ties and periodic history, providing an
understanding of how I am catalogued by others.
I found these two to be both eloquent and enlightening.
A senior pension fund manager offered this brief, yet thoughtful feedback. “While everyone
else is scrambling to answer the who, what, where, when and how questions, Duneier is
focused on understanding the ‘Why’.”
A senior real money PM overseeing a $2 billion emerging market fixed income portfolio
called me his market therapist. “Don't expect Stephen to provide all the answers. Look at him
as an instigator. He takes your mind on a journey and you end up feeling you have done a lot
of analysis within a short space of time. Don't expect an easy conversation with Stephen. He
will probe your views and make sure to raise all those uncomfortable questions you should
be asking yourself.”
While I’d like to think I have all the answers, I don’t. None of us do. Truth is, I think there’s real
value in asking the right questions. Don’t you?
In publishing research, Bija Advisors LLC is not soliciting any action based upon it. Bija Advisors LLC’s publications contain material based
upon publicly available information, obtained from sources that we consider reliable. However, Bija Advisors LLC does not represent that it is
accurate and it should not be relied on as such. Opinions expressed are current opinions as of the date appearing on Bija Advisors LLC’s
publications only. All forecasts and statements about the future, even if presented as fact, should be treated as judgments, and neither Bija
Advisors LLC nor its partners can be held responsible for any failure of those judgments to prove accurate. It should be assumed that, from time
to time, Bija Advisors LLC and its partners will hold investments in securities and other positions, in equity, bond, currency and commodities
markets, from which they will benefit if the forecasts and judgments about the future presented in this document do prove to be accurate. Bija
Advisors LLC is not liable for any loss or damage resulting from the use of its product.

Issue No. 15-4

February 3, 2015