Thursday, December 18, 2008

Barron's interview with Stephanie Pomboy

Stephanie Pomboy of MacroMavens was the feature interview in this week's issue of Barron's. For those who didn't catch the print edition, here's the online version of Pomboy's recent profile (Hat tip to Richard Russell).

Excerpt from the Barron's profile, "Forecast: A Long, Cold Winter":

"Barron's: How bad has the macro economy gotten?

Pomboy: It is certainly the toughest one any of us has lived through. My fear is that it's actually just in the early stages and that it is going to get substantially worse on the economic side, although all the government measures that have taken place so far might help to insulate some of the damage on the financial side.

What about the short-term outlook?

Having been bearish, for me the real challenge is to identify the turn. One thing at work right now is what I call the cattle prod -- essentially the Fed poking people to take risk. They are taxing cash by having negative real returns on cash.

At the same time, yields on investment-grade and junk bonds are incredibly alluring. You can pick up 15 percentage points over cash buying junk bonds. Or you can pick up 8.5 percentage points on investment-grade paper. At some point, the cattle prod will get people moving, as it did in March of '03 when the market turned."

As far as investment & trading opportunities go, Stephanie has pointed to the possibilities for higher returns in the junk and investment-grade corporate bond market.

You may recall that James Grant and Marc Faber have recently made similar observations on the opportunities available within the credit markets. Still, Pomboy views these areas as more of a short term trade, with risky assets benefitting for a time from the Fed's risk inducing "cattle prod".

Enjoy the interview, and be sure to stop in on Friday for another great set of investor profiles. We'll be posting interviews with two of this year's most successful (and high profile) hedge fund managers. See you then.