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Let’s Meet the 2008 Bond Manager of the Year

Posted by Larry Doyle on April 8, 2009 3:09 PM |

One of our Economic All-Stars is Bob Rodriguez of First Pacific Advisors. In the spirit of being totally equitable, I should have also posted Tom Atteberry’s name next to Bob’s. Bob and Tom were jointly named 2008 Morningstar Fixed Income Managers of the Year.

Bob is currently taking a leave of absence from First Pacific but Tom is equally outstanding. I had the pleasure of making his acquaintance while I worked at JP Morgan. Tom Atteberry is a pro’s pro. He spoke to Bloomberg earlier today and made these comments, which I took in longhand, so I am not quoting but I listened very carefully. Tom opined:

1. The current environment is the worst time to get into bonds. Why?

2. The creditworthiness of individuals and companies across the economy will only get worse from here and that deteriorating credit is not currently priced into the market.

3. U. S. government debt (Treasuries) represent NO value at current levels. If a fair expected rate of return is between 2-3% and a longer term rate of inflation is also between 2-3%, the rate on a 10 yr. maturity Treasury note should be in the vicinity of 5%. That note is currently trading at 2.85%. Don’t overpay for an asset just because somebody else is, in this case the Federal Reserve.

4. What happens when the Fed tries to sell assets to shrink their balance sheet and drain liquidity from the economy? Those assets will quickly decline in value.

5. The agency mortgage-backed securities market (Ginnie Mae, Fannie Mae, Freddie Mac) also represent little to no value for the same reason as the Treasury market. The Federal Reserve is overpaying for this product in an attempt to keep the rates low and spur refinancing.

6. PRESERVATION of CAPITAL remains the “rule of the road.” Accomplish this by maintaining a higher percentage of cash and by owning short maturity, high quality bonds.

7. Atteberry’s fund owns a large percentage of “seasoned” mortgage product. The key term being “seasoned,” as the underlying mortgages were underwritten in 2003 or earlier when the market demanded strict underwriting guidelines for conforming and Jumbo mortgage product. The original LTV (loan to value) was in the 70-80% range. The current values on the home are close to the point of origination so the homeowners are not “under water.”

8. Atteberry does not see the economy turning around soon so he cautions investors not to be in a rush to enter the market.

9. He also believes the consumer is acting very rationally at this point by increasing the savings rate. That increased savings rate is in our country’s long term best interest so that we are not dependent on foreign capital to finance our deficit.

No pandering, no nonsense. I thoroughly enjoyed hearing from Mr. Atteberry, the consummate investment professional and hereby designated an Economic All-Star at Sense on Cents!


  • Bill

    Larry, I can’t imagine anybody sane lending money at under 5% for a 30 year mortgage, or buying a 30 year T bond at 3+%. Those rates are obviously artifically low via Fed intervention (interference?). I bought some 6 month FHLB paper yielding about 3% last year that recently matured. Now you have to go out five years to get 3% on that stuff. I’m wondering if at some point all this won’t turn on a dime sort of like what happened in the latter part of 08?

    • Larry Doyle


      Honestly, I think we are being lulled into a false sense of security primarily in the bond market at this point.

      I do not expect the rates in the credit sectors to improve dramatically if at all and thus the othe rsectors of the market (govt, agencies, mortgages, and even municipals) will decline as the following occurs: 1. Fed loses its buying power, 2. Fed loses its appetite, 3. hints of inflation (remember, we do not need actual inflation but only the expectation of inflation for rates to rise) 4. foreign appetite for our paper dissipates….and it will and to a certain extent already has only to be filled by the Fed.


  • TeakWoodKite

    Seems like you can leave the Bronx but The bronx never leaves you.

    Why can’t we have more in government like this cat?
    You spoke of the art of negotiations and I would want this guy on my team.

  • Larry Doyle

    Admittedly he can push th envelope but he is truly a tiger and has a longstanding proven track record to show for it.

    One could do a lot worse than having Atteberry managing bond exposures and Gabelli managing equity exposures.

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