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Alex Trias
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  • Concession

    Contrary to previous expectations, the equities markets worldwide have staged remarkable comebacks. Many broadly traded ETFs have seen their 50 day moving averages vault above the 200 day moving averages - often a bullish signal.Other factors support the bullish picture:
    1) Ten year US Treasuries are at almost historic highs, and now offer negative real returns. After a 14 year bull run, bonds are, quite simply, over-valued. Other assets, including equities, should benefit as capital rotates out of fixed income.
    2) The Fed will launch into QE2. QE1 forced equities into an explosive bull market. It seems unwise to assume it will be different this time.  
    3) corporate earnings continue to surpass expectations. Higher earnings combined with dour expectations is the stuff of bull markets.
    4) Political strife is rampant, suggesting a very sour and pessimistic national (indeed, international) mood. Many widely read news stories deal with the un-sustainable path the world has come upon, and many new celebrities are perma bears. Sentiment is probably at a low point, which characterizes market bottoms and not market tops.

    It seems likelier that a bull market will continue to push equities prices higher. The approach I have implemented to capitalize on that thesis is to invest in high yielding equities and equity-like assets - master limited partnerships, junk bond funds, high dividend growth stock ETFs, and preferred stock ETFs. My notion is that many of the investors leaving low yielding, high tax paying bonds will rotate into other income producers such as those I have already added to the portfolio model.

    Going forward, the cash flow will be used to acquire relatively high beta ETFs with strong growth potential. These might include, for instance, ETFs focused on high growth regions - India, Latin America, China.

    Should my overall thesis on a bull market prove wrong, the portfolio will churn out enough cash to help cushion the losses if the equities markets tank, and to capitalize on the fall by continuing to invest into market weakness. I can take losses in high risk equity ETFs, such as HAO, EPI, ILF somewhat in stride because I will be using income, rather than principal, to fund those purchases. Free money.

    By the same token, if we do see a huge bull market in equities, my portfolio should lag somewhat. Preferred stocks are somewhat bond like, and will not offer the returns of common stock in a bull market context. Similarly, they are not poised to fall as far should the equities market tank.  Junk bond performance is only somewhat correlated to equities, and would likely lag unless the credit markets stage a jarring recovery. MLP performance has little to do with anything, although a recovering economy may follow should equities perform well. Stronger economic growth often gives rise to more oil and gas getting pumped through pipelines, more shipping activity, and more energy infrastructure usage in general, which would benefit MLP performance.

    Oct 20 2:06 PM | Link | Comment!
  • 200 day resistance
    The S&P 500, having risen to test the 200 day simple moving average, is observing the area as technical trading resistance. It typically wakes some days to establish an area as resistance, but if the 200 day continues to hold, it is likely that the markets will fall lower from here from a simple trading perspective. With September and October as historically weak months, that scenario seems particularly plausible. On  the bright side, though, it seems markets are almost universally viewed as being likely to fall in the near term. Assessing the overall market tone, and investor sentiment, is practically impossible, but there are sufficient annecdotes out there to confirm that most people appear bearish. That may be the best news for equities markets, given that from a macroeconomic and technical perspective, and also as a matter of valuation, equities are not particularly attractive at this moment.
    Sep 07 10:18 AM | Link | Comment!
  • Dow 10,000 Under Attack. Again
    It seems silly, doesn't it? But whatever the reason, the market has decided to stake the 10,000 level on the Dow Jones as a place to pit it's next great battle. Will the area hold as resistance, now having failed as support? And what difference does it make anyway. The market has been bouncing around this key level for over a decade, so I doubt that whatever happens will be anything special this time. 
    All that said, retail investors are abandoning stocks, the economy appears to be in trouble, investor sentiment has taken a dive into the potty and best of all, a confluence of technical indicators point lower - maybe far lower - for equities pricing. It seems to be shaping up to be a very unpleasant September and October this year. Or it sure feels that way.
    The hope, of course, it that the market shakes out whatever is left of the weakened bullish hand, and does so quickly. If so, the last quarter of the year could present a potentially compelling entry point to equities.
    At the moment, I am still maintaining yield assets predominantly in my model portfolio - preferred, bonds, MLP funds, BDC interests, and a very, very scant allocation to equities. Overall, 40% of the portfolio will remain in low risk bonds and cash, with 50% into riskier yield assets. Only 10% is deployed into equity, although that allocation should be increased dramatically pending a possible September meltdown. Already, I am staking out solid companies with strong dividends, and ETFs that are based on companies with ten to twenty year histories of consistent dividend increases. Should we see the Dow fall towards 5,000 or lower, it could mark the once-in-a-generation entry point that has been long overdue these past thirty years. Similarly, if equities can hold above water in the face of these strong headwinds, it could also mark a reasonable entry point to up the equity allocation and reduce the bond and cash portion of the portfolio. Indeed, after a decades long feast, the party in the bond market is surely nearing its end, which could leave equities as the best play in town. The main question vis-a-vis equities is, in my mind, tactical rather than strategic. That is, while sharp declines appear probable in the near term, the ten year outlook for equities, relative to bonds at least, appears highly favorable. But as with most things in life, there is no difference between what an idiot and a genius does - the only difference is WHEN they do it.
    Aug 26 4:18 PM | Link | Comment!
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  • There was a 10% flash crash today at 4:15 in the widest traded ETF in existence- SPY. Nobody noticed. If that isn't complacency, what is?
    Oct 18, 2010
  • Yep, the 50 day simple and exponential moving averages are, indeed, resistance. No good for the bulls!
    Jul 21, 2010
  • VTI - key day reversal w/ bad inflation news? NYMO and NYSI show oversold conditions. S&P stubbornly over 1200. Seems technically bullish
    Apr 22, 2010
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