Seeking Alpha
, Blockdesk (1,458 clicks)
ETF investing, CFA, portfolio strategy, long/short equity
Profile| Send Message|
( followers)  

Now that the Elected Emirates of the Entitled Enclave (AKA "the Beltway" or "DC") have demonstrated their remoteness from the rest of the nation, and their inability to sense any national purpose in their presence, perhaps it is time to review their probable game plan.

Objective: Self-preservation of privilege.

Procedure: Obfuscation of any intelligent scorekeeping activities (i.e. no published Budget), aided by media propaganda promotion.

Strategy: Encourage consumer spending beyond means as an effort to rejuvenate economy, employment

Tactics: Replace destroyed personal consumer home-equity capital with endless Federal Reserve mortgage buys.

Reasoning: The Fed will never foreclose, always forgive, and convert home mortgages into no-limit loans by guaranteeing the debts to lenders. If consumers have credit they will abuse it. Their spending actions will "grow" the economy back to health.

Result: Larger tax revenues will restore apparent balance of Federal Budget, which will then re-appear as a success.

Ptomekin Village theme-song: "Another day older, and deeper in debt."

Chorus: "what? Me worry?"

Recommended Investment Strategy: Bet on economic recovery - at least for a few years, until the rest of the world feels compelled to make its reserve currency something other than the US $. By then, be sure to be completely hedged.

Why it (the above path, or some variant) might work, perhaps even for a decade or more: Major shifts in international sourcing of energy, coupled by general reduction in energy costs, thanks to extraction technology advances (including "fracking"), will strengthen US balance of payments and competitive capabilities. If other technology advances can be leveraged by reduced energy cost advantages, then national benefit time horizons may be extended.

Why it (the above path, or some variant) will be tried: It is the easiest political path, and is supported by economically-uneducated human nature, promoted by highly-skilled marketing practices, and appealed to by entertaining mobile communication tools and technology.

Think we're kidding?

We may be disrespectful, but the above, in general, is a most-likely next few-years environment, given present government administration postures, like it or not.

The investment place to be in such an environment is long in several diversified trackers of business progress, particularly those having some (non-financial) leverage. The long leverage magnifies the return potential of the directional market bet. The use of trackers of all four of the major market indexes ensures participation in various market cap sizes, and competitive orientations.

We daily evaluate the market-makers prospects for future price changes (both up and down in each case) for some 250 of the most actively traded and widely held ETFs. So we can also look for the leveraged ETFs that may have both a specialized focus, and expected good future returns with minimal prospects of serious interim drawdowns, based on their prior experiences of several recent years in periods subsequent to forecasts like today's.

In such a presumptive bullish setting, it is rare to find unleveraged ETFs that can compete with leveraged ones, particularly those with a [3x] magnification. The avoidance of financial margin use on unleveraged ETFs avoids the risks of a 2008-type of financial crisis upsetting the strategic plan.

Here are the prospects for several Long Leveraged Exchange Traded Funds (ETFs) in that set:

Leveraged Long ETFs:

>(click to enlarge)

Pictured among others are 9 ETFs that meet our minimum performance hurdle. That hurdle is historical achievement of odds-weighted net payoffs (from prior forecasts of upside vs. downside price change prospects at least as attractive as present day), during the following 3 month's days, of at least +5%, an annual rate of +22%.

The payoffs are calculated by changes in closing prices from day-after-forecast to each day of the next 3 months, with gains net of losses, on an average percent change basis.

As a further qualifying measure, buys in these ETFs are then also subjected to a time-limited investment discipline, requiring closeouts at 6 months after forecast, unless previously reaching a top-of-forecast-range price as a sell target.

That produced the achieved return annualized rates in the following table. Also noted there are winning percentages of like-now forecasts, and average maximum drawdown exposures on all such forecasts.

The general market trackers here are Direxion [3x] S&P500 index (NYSEARCA:SPXL), ProShares [3x] NASDAQ 100 index (NASDAQ:TQQQ), Dow Jones [3x] 30 Industrials Index (NYSEARCA:UDOW), and Direxion [3x] Russell 2000 Small-Cap index (NYSEARCA:TNA). Special-focus ETFs are Proshares [2x] Silver Price (NYSEARCA:AGQ), Direxion [3x] Real Estate (NYSEARCA:DRN), Direxion [3x] Technology (NYSEARCA:TECL), ProShares [2x] Technology (NYSEARCA:ROM) and ProShares [2x] Industrials (NYSEARCA:UXI).

Use of all 9 ETFs provides both a broad-market participation and some emphasis on market sectors likely to have advantaged recovery potentials. Odds of profitable outcomes are better than 7 out of 8 for all but two ETFs, and worst drawdown trauma is less than average gain for the majority of candidates.

Annual rates of return previously experienced on several hundred examples (in all but one case) across a multi-year time span, are several times generally-accepted norms for equity investment.

These are current opportunities that should be pursued within defined appreciation targets and holding time limits. Fresh evaluations need to be performed to select reinvestment candidates at each closeout event of an existing holding.

Source: Profitable Pursuit Of Political Procrastination