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Gary Gordon

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  • 5 Days Of Fearful Trading Provide ETF Insights [View article]

    Is Europe growing? Not really. Valuations are higher for Europe than Asia ex Japan. Is U.S. growing? Check your premises if you think the answer is "Yes." Annualized growth for 2014 is nearly guaranteed to be less than 2013 which was less than 2012. That's called deceleration. And yet, by scores of different measures, U.S. stocks are nearly as expensive as at any bull market top in history.

    The point is that stocks do not necessarily require economic growth for success, particularly when easy money policies (QE, ZIRP) distort what the perception of risk is... particularly for future cash flow. Meanwhile, three years for Chinese equities with no capital appreciation? Heck yes, valuations and money flow rotation and technical uptrends and "qualitative easing" make Asia more attractive than alternatives.

    Does that mean you should not diversfiy? No. Does that mean a bear market would not clobber equities of all stripes. No. It means that -- all thnigs being what they are -- the best place for new dollars (other than waiting out a stock correction or bear in ex-stock hedges or cash), is Asia.

    Not that China's economic output will correlate to stock performance, but why have so many hard landing fanatics decided that 7.5% is worse than 2% Fed-fueled, sub-par growth stateside? Logically, it is a bit laughable. Then again, fear and greed can manifest themselves in a variety of different ways.

    Aug 12 04:16 PM | Likes Like |Link to Comment
  • Mauboussin's 5 Principles Of Capital Allocation [View article]
    I am not fond of the worship of certain value "rock stars," including Bill Miller and Michael J. Mauboussin. Offered the opportunity by Forbes to pick one single stock for an upcoming year in the early 2000s, he chose Enron at a price point of 11.99. The irrecoverable losses for Enron shareholders is well-documented. Clearly, MM failed to identify what the market was already pricing in -- that something was rotten at the energy giant.

    Bill Miller made the same falling-knife mistakes with the banks and insurers in the 2008-2009 crisis. Is it not obvious that one really bad error can destroy entire portfolios? Even if one has a value orientation a la Benjamin Graham and Warren Buffett, does it not make sense to incorporate a form of insurance against being reallllllllllllllllly wrong? From my vantage point, no matter what your investing orientation, you can ensure greater success by applying insurance principles to that orientation. Otherwise, a single mistake can destroy a 15-year track record. Just ask Mr. Miller.
    Aug 11 01:11 PM | 1 Like Like |Link to Comment
  • 5 Days Of Fearful Trading Provide ETF Insights [View article]

    Same screening tool... you are using end-of-day Friday... the 5-day returns in the article are last Friday through the Thursday close.

    I write commentary well in advance at my web log. That said, even SA's republishing time came before the close of Friday's market.

    Keep in mind, the intent of the article is to discuss/assess how investors have responded to various data/events, as well provide potential insight into how investors MAY respond in the future.


    Aug 8 04:14 PM | Likes Like |Link to Comment
  • Tactical Asset Allocation And The Understanding Of Longer-Term ETF Trends [View article]

    Regardless of the asset, you have to have an approach for minimizing the bulk of bearish outcomes. There are a number of ways to do that -- from trailing stop/stop-limit orders, trendline breaches, hedges and inversely correlated assets, non-correlated assets, put options and so forth.

    The question on whether to sell VBR also entails how much exposure in your portfolio you have in small caps. Do you also own other small-cap funds/mutual funds/individual equities? Does your portfolio have a 5% allocation to small-cap, or does it have a 15% allocation? Obviously, the less weight, the more you can hold your ground.

    In a general sense, though, you might want to employ a stop that you are comfortable with... and/or the 200-day. For most clients, I have limited exposure to small- and mid- at this time (5% is the high end, 0% in more conservative accounts.)

    Hope that helps.

    Jul 31 11:51 AM | Likes Like |Link to Comment
  • Home Sales Data Incinerate Confidence In Economically Sensitive Stock ETFs [View article]

    The sarcasm is making me smile. In the big picture, you are hitting the nail squarely on the head.

    Regarding my article, though, economically sensitive stock ETFs like the homebuilders and the banks did not recover. The "green" continues to belong to "late-stagers" like Utilities (NYSEARCA:XLU) and Materials (NYSEARCA:XLB).


    Jul 28 04:10 PM | Likes Like |Link to Comment
  • Sector ETFs In 2014 And 2007: The Inconvenient Comparison Feels Like A Bone In The Throat [View article]

    If they did hold the exact same stocks in the exact same amounts, then I would choose the investment with the lower expense ratio. However, there are a wide variety of differences between TDIV and XLK. Depending on the investing environment, I might prefer one over another.

    TDIV is weighted by a dividend value methodology. XLK is weighted by market cap. TDIV has a 2.7% SEC yield (expense ratio included), XLK has a div yield of roughly 1.7%. TDIV's trailing 12-month P/E is 15.8 whereas XLK is 12.5% more expensive with its P/E at 17.8. TDIV can be thought of as cash flow producing "old tech" whereas XLK is "all-tech." In just under two years, TDIV has garnered approx 45%. In the same time period, XLK has offered 37%... 800 basis points (8 percentage points) in two years is quite nice.

    In a late stage bull market, I prefer TDIV. In an early stage bull market, I would likely be inclined to go with VGT or XLK.


    Jul 22 06:29 PM | 2 Likes Like |Link to Comment
  • Is A Little 'Bubble Paranoia' Good For Your ETF Portfolio? [View article]

    Please reread the commentary. The analysis by Smithers & Company that I have discussed (a la Tobin's Q) expressed a sentiment that stocks are the third most overvalued in their history, other than 1929 and 1999. That is why I talked about Mr. Market possibly winning a bronze medal... 3rd place.

    Regarding long-term rates falling, which you begrudgingly acknowledge I anticipated, I have been quite content to benefit from ownership of funds like Vanguard Extended Duration (NYSEARCA:EDV), Pimco 15+ Year TIPS (NYSEARCA:LTPZ) as well as a number of MLPs that have benefited as well. Not only are my clients and readers appreciative, they don't seem to mind that I chose to avoid the risks associated with REITs. There's enough overvaluation to go around, particularly in REITs, that hedging against stocks with long-term Treasuries is/was a better risk-reward play.

    In sum, the barbell approach that I have discussed in dozens of articles throughout the year has accomplished my client goals with less risk. No need to add middle-of-the-barbell assets -- handle of the barbell assets -- to portfolios. Hence, I am not recommending REITs. What you call missing the boat is what I call sensible risk-adjusted reward.

    Jul 18 08:41 PM | Likes Like |Link to Comment
  • Value Versus Momentum: What Should You Buy For Your ETF Portfolio? [View article]

    "Risk-free" is in quotation marks for a reason. Of course there is risk with sovereign debt... all we have to do is recollect what happened with Spain, Italy, Greece and Portugal in 2011.

    On the other hand, there's a reason that each and every textbook talks about the "risk free rate of return" as a function of U.S. Treasury obligations. For one thing, we can print dollars to pay our debt (until the day when we can't). And when the world gets spooked, it still runs to U.S. Treasuries.

    If long-term rates rise dramatically, then longer term U.S. Treasuries would be crucified. I don't believe this will be the case. The demand for "perceived safety" in U.S. debt is greater than what exists out there in the market... the Fed has all but permanently changed the landscape. They will not be able to reduce the size of their balance sheet, and the remaining supply of longer-term treasuries will be required by pension funds, retirees, institutional investors, foreign governments and so forth. Add to that, when stocks get hammered, the demand for long-term treasuries is enormous.

    In sum, the way that I am investing in the current environment is via the proverbial barbell. Right-side is chock-full of stock ETFs, but lower volatility U.S. stock ETFs and fundamentally attractive foreign stock ETFs. The left-side includes long-dated investment grade, mostly Treasuries, but munis and corps too.

    Jul 15 04:41 PM | Likes Like |Link to Comment
  • Value Versus Momentum: What Should You Buy For Your ETF Portfolio? [View article]

    USMV is by no means a safe haven... of course it will fall when U.S. stocks correct. USMV should be less volatile and experience less drawdown. That provides a bit of sleep-better-at-night value.

    The only "safer havens" at this moment in time, are long-dated U.S. Treasuries... which should make up the left-hand side of the barbell... the "risk-free" side. One should lessen the exposure to the middle of the risk spectrum (i.e. "the handle"). On the "risk" side over at the right of the barbell, lower volatility U.S. stocks as well as emergers via AAXJ and deep value a la GVAL.


    Jul 15 10:39 AM | Likes Like |Link to Comment
  • Are Stock ETF Investors Placing Too Much Faith In The Fed? [View article]

    Shorter-term... the inevitable and long overdue correction of a full 10% or more. Yet I readily admit, there's no way to predict the timing of this with any degree of certainty.

    Simply, 4-5 complacency measures as well as a variety of probability models dictate what is likely to occur at some point this year. Forget about the reason -- it could be oil, geopolitical, technical, seasonal, election cycle.

    Longer-term, a central bank will make a significant-enough policy mistake to bring about a bearish outcome in stocks. Yet that does not imply that the occurrence is imminent, nor does it imply that the misstep will result in market Armageddon. It is equally possible that globally coordinated action of some sort would restore enough confidence to avoid a total collapse of the global financial system.

    That may not be a satisfying answer. However, it represents a recognition that one must invest for the best while planning for the worst. As long as you apply insurance principles -- hedges, stops-limits, non-correlated assets, put options, trend analysis -- to your investing endeavors, you can avoid suffering a big loss. And that's all that really matters. Take a big gain, small gain or small loss to avoid a tsunami and you will be just fine.

    Jun 27 06:35 PM | 1 Like Like |Link to Comment
  • Are Stock ETF Investors Placing Too Much Faith In The Fed? [View article]

    "...we all have to admit we are very poor at predicting when these things will occur, including the Federal Reserve."

    The operative word is 'when.'

    Japan has been stuck in the same muck with an inability to raise short-term rates above 0.5% for 15 years. Its debt-to-GDP is so alarming and so unsustainable, one might have expected the country's financial system as well as its economy to implode years ago. Instead, it muddles through, and the yen remains a safe haven.

    Still, I would say that it is not particularly challenging to identify stupidity. People used terms like "New Economy" and created new models to explain why ridiculous dot-com valuations somehow made sense in the late 90s. They did not. Paying 40% more for the privilege of owning a home than to rent it in 2006 was stupid as well. You did not need to be an economist to understand that the real estate boom that fueled the economy circa 1998-2006 would severely bust the economy down the road.

    "When" is always a challenge to identify. I do not claim to be prescient; rather, I use investment tools (e.g., stops, trends, hedges, non-correlated assets, put options) to insure against natural and unnatural disasters.

    >>that you believe a jolt is coming (eventually) due to investors'
    >>overconfidence in central banks, when one of them makes the
    >>inevitable significant mistake? Your investment changes appear
    >>consistent with that.

    Client portfolio changes are modest. I simply adjusted holdings along the risk spectrum, preferring a barbell approach when U.S. stocks appear likely to pull back. Yet I have no idea about a more significant jolt... like the eurozone crisis in 2011. Thankfully, I have a plan for dealing with severe risk-off environments -- and the tools for executing the plan.

    Jun 27 06:11 PM | Likes Like |Link to Comment
  • When The S&P 500 Breaks A Record, Reduce Your ETF Portfolio Risk [View article]
    BB wrote:

    "You have, at your disposal many tools to protect you from that eventual market drop. USE THEM. Stops, Trailing stops averages and so on."

    This is precisely how I have managed money for clients for 25 years. I apply insurance principles to the investment arena, employing stop-limit loss orders, put options, hedges and trendlines. All of the risk management tools have merit; all of them have flaws.

    I talked weekly about applying insurance principles to investment on national talk radio in the 90s. I also discussed it at length on the printed page, as well as in thousands of online articles. Last week, I mentioned the many tools in "Uber and Tech ETFs: Stupid Is As Stupid Does."

    For those who may be interested in learning more about how I manage risk and protect client principal, here is the link to Pacific Park Financial, Inc. Simply take a tour through the links on "How I Protect Money."


    Jun 20 12:32 PM | Likes Like |Link to Comment
  • Sidestepping The S&P 500 ETF Trap [View article]
    I have been discussing exchange traded INDEX funds (ETFs) for nearly 20 years -- as the CFP on a national talk radio show in the 90s, on the printed page and in thousands of online articles. I often forget that are those who will be reading my thoughts for the first time. So let me clarify a few points here.

    First, I am active indexer. Roughly 85%-90% of the investments in my personal accounts as well as my client accounts are ETFs. Investing in the S&P 500 via SPY, IVV or VOO is a terrific way to get exposure to U.S. large caps.

    That said, I do not support the idea that the S&P 500 is the only equity exposure one should have. Small-caps, foreign stocks and emerging market stocks via exchange-traded INDEX funds provide diversification in the 21st century.

    Similarly, I do not subscribe to the notion that one should buy-n-hold-n-hope. Whether one elects to hedge, employ stop-limit orders, use trendlines, buy put options -- whatever the approach -- one needs to apply insurance principles to one's investment endeavors.

    Finally, one does not not need a financial advisor. I believe strongly that you can do this investing thing yourself. (You may or may not have the time, desire, or emotional make-up... but that's another matter altogether). What one does need is a plan to protect his/her assets. Having faith that a market always recovers is neither a plan, nor does it reflect an understanding of history or math.

    Do it yourself? Absolutely. Just pay attention to where the emergency exits are.
    Jun 17 11:45 AM | 1 Like Like |Link to Comment
  • Eventual 'QE' For The Eurozone? Consider European Index ETFs [View article]
    Clodrick, Tunaman,

    Clodrick said it perfectly. Read any of my articles over the last six years, and you will see... I do not view QE favorably, nor do I regard it as an investment hypothesis.

    On the flip side, when you have fundamental value (e.g., Trailing P/E 13), technical strength (Price above 50-day/200-day), relative strength and relative value when compared with U.S. securities, extraordinary central bank stimulus, participation is sensible. As Clodrick suggested, simply have a plan for stepping aside. Stop-limit loss orders, put options, hedges, trendlines -- pick your insurance policy.


    Jun 6 04:21 PM | Likes Like |Link to Comment
  • Are Record Levels Of Consumer Credit Dangerous To Your ETF Portfolio? [View article]
    Yes, the consumer may be over-leveraged. I suppose it depends upon one's perspective.

    Household debt may be 9% below the all-time peak of $12.68 trillion from Q3 2008. Does that imply that debt levels that are 9% below insane levels of household indebtedness do not represent undesirably high levels of indebtedness/leverage now?

    Not unlike stocks themselves, we are likely looking at U.S. equity overvaluation. Yet P/Es today are less than P/E ratios in 2000. This hardly implies that 2014 stocks are fairly valued.

    Other links on leverage concerns:

    St. Louis Fed

    Time Magazine
    Jun 4 11:17 AM | 1 Like Like |Link to Comment