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David I. Templeton, CFA

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  • Lower Gas Prices Alone Do Not Equate To Higher Retail Spending [View article]
    Following is a link to a chart showing the PCE for gasoline versus the price of a gallon of gas. PCE appears to decline along with the fall in prices but not at the same rate.

    Nov 25, 2014. 11:15 AM | Likes Like |Link to Comment
  • September Returns: Practically No Place To Hide [View article]

    I appreciate your reviewing our content and commenting. We have written numerous times about small caps overvaluation issue and the fact we eliminated our small cap exposure across client accounts in November 2013. There have been many articles written about the small cap performance issue. One today that you might find of interest:

    At Horan we believe large cap stocks can continue to move higher looking out over the next six months in spite of the divergence in small cap performance. Is this a canary in the coal mine? Yes. But we do not think the canary is dead yet.

    Oct 1, 2014. 10:36 AM | Likes Like |Link to Comment
  • No Alternative Other Than Stocks [View article]
    The shrinking number of listed companies is important from the standpoint of supply and demand. If demand for stocks remains the same and the supply of available stock declines, then prices will gravitate higher, all else being equal. In the video I think Jason Trennert gives a pretty good analysis behind the decline in company listings. Certainly some companies have gone out of business since the bust. However, Trennert notes more and more private companies lack the desire to go public due to the cost of increased regulation. What is occurring is companies will sell themselves to private equity firms.

    (see chart:

    Additionally, the current environment has seen a pick up in M&A activity and this was cited in a recent report by Jeremy Grantham of GMO as well. This reduces stock supply. Increased M&A historically is an early late business cycle activity. Grantham and others believe we are in the middle innings of M&A in this cycle. Companies can deploy excess cash earning zero with the net result the acquisition will be accretive to corporate earnings.

    Regarding interest rate movement and stock prices when rates rise from a low level. JP Morgan has an interesting chart showing when rates rise from a low level, below 5%, stocks have a positive correlation to the direction of the rate move. Intuitively, this might make sense in that the Fed is simply moving rates back to a neutral level in order to have fire power in the event it is needed. When rates are increased at levels above 5%, this is generally a sign the Fed is attempting to slow down the economy. Maybe inflation is beginning to become an issue, tight capacity, higher wage growth etc. In this situation, the rate rise, when above 5%, likely would result in a slowing economy and as such slowing earnings growth which then leads to lower stock prices.

    Interest Rates and equities chart:

    Lastly, regarding equity values and GDP, Scott Grannis has a nice article discussing this and it is well worth the read.

    In short valuations by this measure are at levels similar to the early 1960s. He notes this was an environment "when inflation was low and stable and U.S. interest rates were low and stable, much as they are today."

    I hope this follow up is helpful.

    Kindest regards,
    Aug 3, 2014. 04:38 PM | 4 Likes Like |Link to Comment
  • Is This The Much Awaited Market Pullback? [View article]
    I am not sure why this occurred. My best "guess" is indecision by investors in the face of the Fed getting closer to ending QE, i.e., rates beginning to normalize higher. I will note the 10-Year Treasury price actually opened below the close on Wednesday, i.e., the Wednesday's yield close was 2.554%. The open on Thursday was 2.569% and the closing yield was 2.556. So the bond's price actually closed higher than where it opened on Thursday showing some evidence of a move to safety. This can be seen with the black candle on the chart at the below link.

    Additionally, we saw bond strength on Friday with the 10-year treasury yield ending Friday at 2.505%
    Aug 2, 2014. 12:57 PM | Likes Like |Link to Comment
  • Equity Market May Simply Be Under Owned [View article]
    Maybe volume is not declining. Some believe the volume has simply moved to other investment vehicles, i.e., futures and options. See interesting article at below link.
    Jul 25, 2014. 09:50 AM | Likes Like |Link to Comment
  • Equity Market May Simply Be Under Owned [View article]

    Our firm does not take large sector bets in implementing our individual stock strategy for clients. Having said this we have had an overweight to energy (13+% versus S&P sector weighting of almost 11%). Several weeks ago we trimmed our SLB holding by 1% so had a 14% energy weighting until then. We have liked the drillers and have owned WLL (exploration and production) since early May. We like technology and have owned MU and added to it at the same time we reduced SLB. We do like MLPs (using MLPN) but have been reducing it on strength.

    We have increased investment allocations within the alternative investment category by increasing exposure to an absolute return fund (GTEYX) and a long/short fund (BPIRX). Our firm's approach in the alternative space has been to focus more on alternative strategies that have more equity like characteristics versus fixed income characteristics. This has worked well for our clients over the last 3-4 years.

    Late last year we added to a couple REITs as they sold off hard (probably tax loss harvesting) as the 10-year Treasury hit 3%.

    I hope this provides some insight into our current thinking.

    Jul 25, 2014. 09:41 AM | Likes Like |Link to Comment
  • Equity Market May Simply Be Under Owned [View article]
    Below is a link to commentary regarding market value as a percentage of GDP. Maybe not so overvalued after all?
    Jul 25, 2014. 09:25 AM | Likes Like |Link to Comment
  • 10-Year Annualized Equity Returns Remain Below Average [View article]

    I was able to quickly pull together a chart of real and nominal returns for the S&P 500 Index going starting with 1935. Following is the chart link.
    Jun 29, 2014. 01:39 PM | Likes Like |Link to Comment
  • High-Yield Stocks Underperform In Rising Interest Rate Environment [View article]
    Breakdown of Dividend, Buyback, and Shareholder Yield for the S&P 500
    Jun 4, 2014. 09:34 PM | Likes Like |Link to Comment
  • High-Yield Stocks Underperform In Rising Interest Rate Environment [View article]

    Thanks for your comment and observation. I do agree that a stock yielding 2.5% does not seem to be high yield. I am not certain how S&P determined the stratification of the S&P 500 index holdings.

    * I will say that the S&P (501 holdings with the Google split) has 425 stocks that pay a dividend and 76 non payers.
    * 147 stocks yield greater than 2.5%
    * 126 stocks yield less than 1.5%
    * 8 stocks yield greater than 5%
    * 22 between 4% and 5% dividend yield

    I think S&P was not trying to say that 2.5% and above yields are "high" yields, but rather "higher" yielding than the other holdings in the index.

    With respect to market downturns, S&P's A- quality ranked stocks and better actually hold up better than the overall market in a market downturn. Some detail is provided in S&P's Quality Ranking white paper found at the bottom of the page at the following link.
    Jun 4, 2014. 03:30 PM | 1 Like Like |Link to Comment
  • U.S. Equity Market Entering Euphoric Phase? [View article]
    Our firm's best guesstimate is we continue to see higher equity prices. A market pullback in the 10% range would not surprise us though. This pullback may come from a higher level though.

    Jan 6, 2014. 01:23 PM | Likes Like |Link to Comment
  • The Stock Market After The Rally Year [View article]
    Hasschultz. Just FYI. Capital gain tax is based on trade date and not the settlement date. To push a gain tax into 2015, the trade would need to occur on the first trading day of 2014.

    Dec 29, 2013. 09:00 AM | 2 Likes Like |Link to Comment
  • Job Openings Continue To Increase [View article]
    I agree with most of what you wrote in your comment. The infrastructure thought would certainly go a long way. My concern is the implementation of these programs. In 2009 Congress passed an $840 billion stimulus package which many now conclude was wasted on green energy jobs that did not last. Effective oversight of these stimulus programs would be a must, but not sure how that is accomplished in a dysfunctional political environment in Washington, DC.

    Dec 28, 2013. 07:22 PM | Likes Like |Link to Comment
  • Funding Entitlements With An Ever Increasing Government Debt Burden [View article]
    "First, we take out the debt to the Fed, which isn't debt at all but a record of debt that has been repaid by printing money."

    Debt to the Fed isn't debt?
    Oct 13, 2013. 07:04 PM | Likes Like |Link to Comment
  • Funding Entitlements With An Ever Increasing Government Debt Burden [View article]

    If I understand your comment, then the government can issue debt to the Fed to infinity and we can simply print more currency with no consequences? Greece comes to mind here.

    Just curious how long this can continue from your perspective.

    Oct 13, 2013. 06:24 PM | Likes Like |Link to Comment