I thought old Skeet did a nice job summarizing Fuss's thinking.
I think we tend to overstate the extent to which Fed influences longer term rates. Generally their influence is at the shorter end of the curve. Longer rates react more to inflation expectations. So, it would not be inconsistent to fear rising rates longer-term while expecting Fed to keep short term rates low for longer.
I think Fuss is brilliant - and very approachable as well. I also think, like many of us here, he has been somewhat befuddled in recent years by how low rates have gotten and, more significantly, how long they have stayed low.
I'm not sure I agree with his thinking re global macro politics. But, reading the tea leaves (his) it's a dire prophesy. I've been thinking the logical outcome from the U.S. Russian conflict will be political drum-beating at home, an arms build-up, increased deficit spending and a weakened Dollar which would cause many foreign currencies to appreciate visa vie the Dollar.

expatsp I don't think Fuss contradicicted himself ... Below is my take.
In reading the article the message I received is that Fuss is trying to stay a step or two ahead of big money as he feels they will soon begin to exit certain foreign positions and wants to be out before the liquidity starts to dry up in these foreign securities. I believe, he is also saying the US and Canada will become the better place to be once these headwinds start to blow over many of these foreign markets while at the same time the US will not be without some headwinds itself. With this he has been selling the longer dated domestic maturities and also moving this money to cash. Typically he would be running with an average maturity of about twelve years but now has reduced this down to about six and one half years while staying with the short to intermediate term securities. Usually in a big storm, the winds can come form more than one direction and many times twister formations develop. And, these twisters formations can develop into some very nasty storms. With this, the safe haven place is cash and this is the asset class that he has now started to build.
With this, I am glad that Fuss is the senior money manger for one of the six fixed income funds that I own within the fixed income sleeve of my portfolio and that is NEFZX. And, another former Lommis Sayles standout is Kathleen Gaffney who worked with Fuss a good number of years who is now with Eaton Vance and manages another fixed income fund that I own and this fund is EVBAX. I believe she is in a cash build mode as well.
Perhaps a few of our better posters that are good at making calls and moving money can make a comment here about this and that is Junkster amd Catch22. I believe both of them are several cuts above me in reading the tea leaves within the fixed income area. It would be interested in knowing their takes on this. Perhaps, they will stop by and comment. Also, BobC positions a lot of client based money and it would be interested in hearing his take as well. All of these would be my big three plus no doubt Scott stands tall in this area too.
Heck, we have a good number of posters on the board and I am sure there are a good number beyond those that I mentioned that might have thoughts worth reading as well.
Old_Skeet

Thank you. Cash position at over 20% is the highest in recent years. Dan Fuss is preparing for the worst scenario since geopolitical riisk can spread into other markets.

Seems to me rates in Japan went negative in some loan sectors for awhile. Some car loans in particular carried negative interest rates. Total cost to buyer was actually higher if he paid for the car up front instead of over time.
Explains why the BOJ has been fixated on rekindling inflation in recent years. I don't know where we're headed, but deflation would bring on much hardship and a popping of all asset bubbles (except U.S. government backed bonds).
Good discussion by all.

I should clarify that the Twentieth Century comment was a bit off topic. Yes, they are a no load fund company. I was reminiscing a bit from my early investing years.
In our 403b through an insurance company we had a list of funds to pick from. These were all load funds varying from about 2.5 to over 5%. We could look them up as they were common names like Lord Abbett and Franklin for example.
It was hard for me to believe that a fund with a 5% load would be "free" via the insurance company that managed the 403b. So like you, I didn't believe what the reps stated. Also their scheme was to get one into as many funds as possible. I'm sure there was a commission involved. A lot of these funds were duplicative but per the rep this was to diversify your holdings which sounded good. Most employees had no idea what was going on. That was the hand we were dealt so we had to make the best of it. I know this is a common story in the 401k/403b universe.

Hate Motley Fool, although I gotta say, FOOLX has done better than I'd thought it would.

When they came out with FOOLX, Motley Fool had a lot of persons angry with them, because the expense ratio was sky high. They recently lowered the expense ratio, I'm sure due to pressure from shareholders and perspective shareholders.
It was very hypocritical of them to have launched the fund with a sky high expense ratio, having criticized high expense ratio funds for years.

with high fee funds but the reps from the insurance company said there were no fees attached. I believed that somehow those funds still got their money in the end. Nothing is free.

When you say "high fee funds", is that high expense ratio fund, or they came with loads?
What type of fees? Some load funds have the load waived in a 403b plan, depending on the specific 403b plan.
I don't see any way for a high expense ratio fund to not deduct the full expense ratio for all investors in that same share class, whether the investors are in a 403b fund or taxable accounts. The specific share class invested in would be the key. Not sure I would believe the reps from the insurance company.
But I thought Twentieth Century was just a no load family.

@msf, I was a investor with Twentieth Century back then. TWCGX is one of their original funds along with Select, Ultra and International. Some of those funds either consolidated or went away. Vista is no longer around. $25 a month would get one into their funds. Now they are much bigger of course.
This is an interesting discussion and one I used to have during my working years with fellow coworkers. Our 403b was filled with high fee funds but the reps from the insurance company said there were no fees attached. I believed that somehow those funds still got their money in the end. Nothing is free.

Reply to MJG - Thanks. What really prompted my post was the initial question and I don't see or understand how you answered it. Does your argument (if carried to its logical conclusion) exclude target date funds as viable investment vehicles?
Target date funds normally use a fairly "static" allocation to various assets (which might please you) but also change that allocation with age and perhaps to some degree depending whether one is currently in retirement.
I don't think your argument precludes changes in allocations as one progresses through his/her investment years and circumstances inevitably change - or does it?
Admittedly, my tendency to wander off in different directions may have obscured the initial question:)
Thanks for any clarification.

bee,
I've discussed several moving average strategies in the past.
The simplest strategy for the long term investor was researched
and posted by Charles.
http://www.mutualfundobserver.com/2013/06/timing-method-performance-over-ten-decades/
I've used this strategy for my long-term-don't-think-about-it portfolio
for maybe 20 years. It's worked just fine.
And yes, I add a wrinkle of my own - shorting the market.
But I don't recommend this for LT investors because they tend to think
it's evil - but then, I've often been s craps Don't better.
Thanks for asking.

A simple three-fund portfolio. What a concept!
Why didn’t I think of that?
Oh, that’s right, I did.
I’ve been suggesting that for maybe the past 15 years
to my investment classes.
Mr. Bernstein suggests Rebalancing, while I suggest using
a simple moving average to avoid market crashes.

Short of signing up for your next class or waiting for you to finally write that book you've been promising us, would you share your moving average strategy? Thanks.
By the way, here's is Mr. Bernstein's piece:
If You Can:
etf.com/docs/IfYouCan.pdf

A simple three-fund portfolio. What a concept!
Why didn’t I think of that?
Oh, that’s right, I did.
I’ve been suggesting that for maybe the past 15 years
to my investment classes.
And I posted such a plan on this venue a couple of years ago.
I guess that I should have written a book.
Suggesting this portfolio is one thing. Getting people to accept
such a simple concept is another. You’ve got to show this
to investors before the Gotcha Experts snare them with the
complex asset allocation methodology.
In this respect, Mr. Bernstein has succeeded by directing
his booklet at the right demographic – the millennials.
Mr. Bernstein suggests Rebalancing, while I suggest using
a simple moving average to avoid market crashes.
Otherwise, we’re pretty much on the same page – own a very
limited number (three will suffice) of broadly diversified funds
or ETFs and go on with your life.

Dex, if the 10 year goes to 1% before 3% send my your address and I will send you a check for $500. In no way, shape or form do I see that occurring but would be thrilled and the $500 would be a small pittance to what I would make on such a move.

@Junkster
I'm bookmarking this thread and will be sending you an email when it happens.
Look at European rates - Germany below 1%, Spain 2.06%!!!!!! and others heading that way.
Just as stocks have been surprising to the upside the US 10 year will do the same.
Many are looking for an uptick in inflation. I just don't see it. And I don't see an environment for inflation - for about 5 years. The financial challenges for individuals is too great.
Young - just out of school - college debt, and no jobs
Workers - losing benefits, wages stagnant
There are things like food costs going up but workers don't have any power so they have to cut spending to survive. Look at cable TV companies - losing viewers.

Several years ago I explored the seven-twelve method by constructing a big spreadsheet comparing an investment of $1M in a balanced fund (VBINX) vs. the same $1M invested in various mutual funds (mostly index funds when I could find them) according to the 8 percent slices recommended for each (US midcap, global real estate, natural resources, and so on), over the 1988-2009 timeframe. It was a fun exercise. My conclusion was that for the majority of investors (not investing enthusiasts like us) its best to use a good low-cost balanced fund and be patient. The returns and volatility were essentially the same, and it was vastly simpler. If you'd like to see the spreadsheet, send me an email. I'm randynevin AT comcast DOT net.

>> suggested that most good funds suffer back to back trailing years without noticeable problem, but that funds with three consecutive weak finishes rarely rebound.
Extremely interesting, and it sounds quite as though you have data --- can you elaborate a little?

FYI: It’s been a long time since the S&P 500 has experienced a double digit loss. The last one ended in October of 2011, so we’re coming up on three years of relative calm in the markets.
Markets always seem easier with the benefit of hindsight, but there’s always an economic, market or geopolitical headline at the time that adds to the uncertainty. There have actually been a couple of double digit losses since the market bottomed out in early 2009:
Regards,
Ted
http://awealthofcommonsense.com/even-bull-markets-arent-easy/

FYI: There are 40 exchange traded products in the asset allocation category—most of which are young with short track records.
Years ago, when financial advisors had a monopoly on asset allocation decisions, fees ran rather rich. Lately, though, with a surge in the number of index-based products promising to deliver asset allocation on the cheap, costs are shrinking. That’s a boon for investors but, as always, leads us to wonder if they’re getting value for the money.
Regards,
Ted
http://wealthmanagement.com/print/investment/what-s-asset-allocation-etf-really-worth

Years ago, the Vanguard International Index Fund started out as a fund-of-funds, holding shares of the European Index and Pacific Index Funds.
At some point, it, too, converted to a structure in which the fund held foreign shares directly.
Does anyone recall whether or not investors in Vanguard's International Index fund incurred capital gains distributions? If not, how did Vanguard do it? Clever timing (i.e., conversions incurred at a time when there was a loss), or something else? Thanks.

First, a clarification on funds. The fund you're referring to was (and is) Vanguard Developed Markets Fund. As you wrote, it used to hold two index funds. In late 2008/early 2009 it switched to investing directly in stocks. Earlier this year, Vanguard merged it into its Tax-Managed International fund, and called the resulting fund Developed Markets Index Fund.
AFAIK, there isn't/wasn't a fund called Vanguard International Index Fund. There was (and is) however, a Vanguard Total International Index Fund. That fund used to be comprised of three index funds - European Index (VEURX), Pacific Index(VPACX), and Emerging Markets Index(VEIEX) funds. (Tickers are correct - Vanguard invested in Investor class shares, not Admiral class shares.)
About half a year or so before Developed Markets was allowed to invest in individual stocks, Vanguard started the same transition for its Total International Index Fund. Vanguard announced the completion of that transition Feb 27, 2009.
Here's a Bogleheads thread on the Total Int'l Index fund transition. In it, the second poster quotes from the Vanguard announcement:

The change ... is not expected to result in capital gains distributions to shareholders.

So that's part of the answer to your question.
As to how, your guess may be correct. Note that these conversions took place late 2008 early to mid 2009, when most funds were sitting on large losses due to the market collapse. Clever timing indeed.

Then there is the 8.3% in cash. Is this for planned withdrawals? If not, perhaps a ultra-short bond fund would be a more prudent option. Perhaps it would be better just to invest in a mix of 5-6 'dynamic allocation funds' like FPACX, TIBIX, MALOX, PRWCX, OAKBX, etc. In the end, there is no perfect allocation. The ideal allocation is one that an investor can live with when times are bad. I am not sure about this one.

I personally have no problem substituting "cash" with short term bonds or similar vehicles.
In another article by Israelsen as weighting in the other eleven pieces of the pie ebb and flow the cash position is available to help rebalance those positions.
There also is an age based adjustment to cash with his allocation strategies. From 50-60 years of age his startegy raises cash (from 8.3% to 20% cash), 60-70 (40% cash), and 70+ (60% cash). I start to worry about "growing" a portfolio when holding this much cash. Cash can buoy a portfolio during market down drafts, but act too much like an anchor when markets rise.
Finally, judging by the performance of the the three cash/equity allocations compared to the two "non-cash indexes" he used as benchmarks (Vanguard's Balanced Index and Vanguard's S&P 500 Index), cash does seems to have a dampening effect of portfolio DD% as shown here (check out the yellow highlighted results for 2008):

It is unrealistic to expect shareholders to "elect" trustees for their mutual funds. First, investors do not own ALL funds at a shop, so they shouldn't be allowed to select trustees that oversee all funds at shops with multiple funds. It is an idea that can be explored at boutique shops with ONE fund.
Even at boutique shops with one fund, how does one elect trustee at inception?. Even otherwise after a few years, it would need a sufficient number of investors in the fund to make this meaningful. Then again why would someone who has $1M invested in a fund care about what someone with $1000 invested thinks about who is the trustee. And do we want our trustees to be politicians and campaign for election.
The problem is so many articles are written to sensationalize a concern but do little to offer real solutions. I know the world sucks, but what can I do about it? I do my research and FWIW land upon a fund I want to invest in. One fund sucks and trustees don't get paid anything. Another does well and pays trustees $100K each. Which fund do you think I'm investing in?
Berkowitz owns $150M (I believe this is correct) of FAIRX shares. The largest shareholder. He is the chairman of the board of trustees at Fairholme. Anyone else deserves to be? Shareholders should elect someone else? Why?
If someone is genuinely concerned about the problem then offer a solution. Telling me my fund company is doling out earnings made on collective assets of mine and other investors only gives me an ulcer. It does not give me any options. If WSJ really cares about investors, then be bold and suggest a regulation - a good one for a change - such as "A trustee receiving compensation to be on the board of a Mutual Fund needs to receive 50% of that compensation in fund shares in an IRA". OR "Trustee needs to have $100K invested in the fund". Maybe that will attract the right kind of "trustees".
This is about helping the investor. Otherwise an article like this is not even news. Yesterday I learnt my plumber overcharged me and that ticked me off. This article just ticked me off again.