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Gary Gordon  

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  • The Risk Of Owning Stock Assets And Holding Stock Assets Right Now [View article]
    Total,

    I think you may have missed the point of my commentary. The intent of this piece is not to assess stocks as an asset class; rather, the purpose is to talk about buying stock assets and holding stock assets right now. If you buy stocks when valuations are exceptionally high - whether you value them by trailing/forward/cyclical P/S P/E/ P/B/ P/CF, Tobin's Q, market cap/GDP (Buffett ratio), DCF - your 10-year outlook could not differ significantly from the current 10-year yield.

    To the extent that every long-standing method of stock valuation is not applicable because interest rates are so low, one can make a case for the sensibility of more stock exposure today. People made the same mistake in the late 90s when they dismissed valuations in favor of the "New Economy."

    If discussing the data for the last 15 years is cherry picking, so be it. The data are the data for the the last 15 years. Again, the intent of the article is not to say stocks are bad for your health or that bonds are better for your health over 15-year intervals. Clearly, that is not the case. Stocks are usually better than bonds over most rolling 15-year intervals.

    What is the case, however, is that when investors buy stock assets at sky-high valuations, the prospects over the next 15 years are poor. Extremely poor. That's where valuations were in June of 2000. (That is where they are at in June of 2015.) Buying stocks in June of 2002, however, when stock assets were more reasonably priced, led to better 3, 5, 7, 10 returns (and will lead to better 15 year results).

    Gary
    Jun 26, 2015. 11:48 AM | 2 Likes Like |Link to Comment
  • Revenue Growers In A Late-Stage Stock Bull [View article]
    W.E. Coyote,


    If components of the multi-asset stock hedge index (MASH Index) are out of favor, we do not use them in our active management. That's the benefit of tactical asset allocation. We can downshift from the success of last year's long bond allocation to 3-7 year treasuries (a la IEI) or 7-10 year treasuries (a la IEF). One cannot do that when they own the MASH index... you own it, you effectively own its components until and unless you sell the index investment.

    When cash is raised, we might seek out another opportunity at that particular moment. We might allocate to the MASH Index or some of the components.We might use the money market/cash for future opportunities and/or near-term safe harboring. Discretion.

    For those who wish to hedge against a violent and severe downturn, they may wish to own the MASH Index passively or they may wish to select some of its components. There is no leverage or margin or shorting or inverse daily tracking; there is not a single component approach. Instead, assets that typically demonstrate slightly negative correlations to stocks over the long-term, and strong negative correlations in stock bears, exist inside the singular index.

    If a strong bearish downturn comes, it is likely that carry trades will unwind (yen), safe haven currencies will be popular (Swiss franc, greenback), gold would probably get bid up, sovereign debt like German bunds would become sought after again, and long-term treasuries would reign supreme. Are they working today? With the prospect of rate hikes and short covering? With stocks near record peaks? Nope. But they would.

    Best,

    Gary
    Jun 24, 2015. 05:24 PM | Likes Like |Link to Comment
  • Sky High Valuations? Lusterless Economy? It Just Doesn't Matter! [View article]
    >>Are you suggesting therefore that the negative correlation of Bonds & Stocks
    >>will end as soon as the IEF takes out the previous low of 104?

    The non-correlation/slightly negative correlation ended a while ago, for the most part. In fact, I have advised people to hold a higher level of cash than normal, primarily because traditional diversification has given way to a positive correlation between these asset classes.

    Let's look at last year. Throughout 2014, bonds and stocks gained ground. They were positively correlated. Heck, intermediate and longer-term treasuries far outpaced stock returns.

    Let's look at 2013, then, for clues about what could happen in 2015. In 2013, both bonds and stocks were gaining ground in the 1st half of the year (positively correlated), up until late May. Then came the taper tantrum. It killed bonds, and it dragged on stocks, but only about 7% off the top. Bonds continued to unwind, while stocks resumed their uptrend. So the negative correlation was primarily seen in the 2nd half of 2014.

    Let me switch to the 10-year for the purpose of this line of thought. I am basically saying that if the 10-year yield breaks above 2.5% and stays above 2.5%, and heads for 3.0%... if it does so at a relatively quick pace... stocks would correct in the 10% range. You would see the positive correlation. In contrast, if it holds below 2.5% and heads towards 2%, stocks would likely enjoy the lower borrowing costs, regardless of what the Fed does with the overnight rate. So again, you might see a positive correlation at that time.

    Where it gets more complicated is a bearish stock market turn. That could happen with a variety of different scenarios and a variety of different reasons. If stocks turn decidedly bearish, treasuries would be the safe haven asset of choice. The 10-year yield would likely break below 2%. And then you'd be witnessing the negative correlation more attributable to risk-off environments.

    Best,

    G
    Jun 16, 2015. 04:58 PM | 3 Likes Like |Link to Comment
  • Sky High Valuations? Lusterless Economy? It Just Doesn't Matter! [View article]
    Exactly :)
    Jun 16, 2015. 04:28 PM | 3 Likes Like |Link to Comment
  • 'Taper Tantrum' Round 2? It's More Serious For Stocks This Time Around [View article]
    Come on now, U44.

    My "call" on interest rates was one of the most successful and entirely contrarian "calls" from December of 2013 when I first made it... straight through March of 2015 when I wrote "Selling Winners Is Never Easy." Clients and readers benefited from the barbell approach that I spoke about frequently, such that TLT/EDV/BLV owners locked in 40%-50%. I remained bullish on longer-term treasuries from 12/2013 all the way up until stop-limit loss orders hit and prices breached trendlines.

    Here, again, from March on selling winners:
    http://bit.ly/1by2mQh

    If the question is whether or not I believe interest rates will go back down, you know that I do. The unwinding from the compressed spring action will eventually settle (much like 2013's taper tantrum). Yet until the bottoming out process occurs, 3-7 Year Treasuries (IEI) have been the recipient of my tactical shift in the barbell approach to the late-stage bull market.

    I realize that you would like money managers and Registered Investment Advisers like myself to acknowledge where they were wrong. So let's do that:

    1. I anticipated a genuine correction of 10%-20% in 2014. I was wrong. The October-November pullback was close, but no cigar.

    2. I expected WTI crude to bottom out closer to $60. I was wrong. It appears to have bottomed closer to $45. I bought too soon, and respective ETFs have struggled to break even.

    3. I frequently expressed a preference for Germany over other euro-zone members. I was wrong. The regional HEDJs/VGK choice provided a better risk-reward opportunity than HEWG/EWG.

    Tactical asset allocation shifts are part of my process. There are no asset classes or asset types that I buy-n-hold indefinitely. Depending on the client, cash levels have been raised to 15%-25%. Both equities and income producers have been lowered as correlations have been elevated and it is becoming increasingly difficult to protect via traditional diversification. Ergo, more cash for future buying opportunities.
    Jun 10, 2015. 11:10 AM | 5 Likes Like |Link to Comment
  • Are You Betting On The Fed? Allocate According To The 'Fundamentals' And 'Technicals' Instead [View article]
    TK,

    Clients owned long-dated treasuries for roughly 15 months, but exited in March. See the article link below (Selling Winners Is Never Easy.)
    http://seekingalpha.co...

    We rotated into IEI and IEF. I still believe in the long-term trend for treasuries, the flight-to-quality hedge and the relative value against comparable sovereign debt overseas.

    GG
    May 22, 2015. 10:55 AM | 1 Like Like |Link to Comment
  • Weakness In Corporate Revenue Is A Bad Sign For 'Buy-N-Hold' Investors [View article]
    It Matters When You Start
    http://bit.ly/1FkDXtn
    May 16, 2015. 02:48 PM | 1 Like Like |Link to Comment
  • International Stock ETFs: One Way Or Another [View article]
    RC,

    For years, I advocated using the currency hedged international funds. Strong conviction on the dollar over the euro and yen made sense, with the Fed moving in one direction (e.g., tapering QE, absence of QE, discussion of raising overnight lending rates, etc.) and the world's central banks moving in another (e.g, currency devaluation, monetary easing, QE, etc.).

    If you have a strong conviction about dollar strength, then it makes sense to choose currency hedged international funds like HEDJ/HEWG/HEFA. In contrast, if you have a strong conviction that foreign currencies will strengthen, the traditional exposure is preferable a la VEU/EFA/EWG and so forth.

    At present, I anticipate the Fed will move so slowly on any rate hike - both in magnitude and in frequency - the dollar will not strengthen exponentially. It might even unwind if data points to the Fed pushing off changes to the overnight lending rate. It follows that I am combining both the unhedged and the hedged for foreign exposure.

    One thing that unhedged-only investors fail to recognize is what happens when stocks get whacked in a severe correction. Money will flow into the greenback, as it always does. The unhedged assets will lose much more than the hedged assets. Recognizing just how long it has been since we've seen a correction of any magnitude, having some currency hedged exposure means one will lose less in the downturn. (See the math on the downside for unhedged international assets in 2000-2002, 2008-2009, 2011.)

    Best,

    GG
    May 14, 2015. 05:53 PM | Likes Like |Link to Comment
  • Is Waning Enthusiasm For U.S. Dollar-Denominated Assets Temporary? [View article]
    U44,

    For clients who had been fully invested, the extended duration assets hit their stop limit in early March. I described the round-trip in "Selling Winners In Your Portfolio Is Never Easy."
    http://bit.ly/1by2mQh

    In the latest round of selling pressure, yes... TLT stopped out for clients who had been fully invested. Depending on the client risk tolerance, and depending on the existing cash level to put to work, however, there are those who may be in a position to buy the proverbial dip.

    In most cases, however, the "risk-free" left side of the barbell shifted to IEF. Less upside in a "flight to quality," but the 10-year is less volatile than longer durations.

    Keep in mind, the essence of the barbell in a late stage bull market remains the same. Conceptually, one pairs risk-free treasuries with "risk-on" stock assets, and you forgo middle-of-the-road assets (e.g., high yield bonds, convertibles, preferreds, etc.). That's not to say that an allocation to the middle cannot work; rather, one heavily favors the left and the right.

    Gary
    May 6, 2015. 11:35 AM | Likes Like |Link to Comment
  • The Debt-Driven Expansion Requires Tweaks To Your Portfolio [View article]
    Lladnar,

    Some of your words express wit, intelligence as well as competence. Other ideas come across as ill-considered. In particular, you lose a bit of credibility when you pigeon-hole an author into a punditry box.

    Granted, I am not afraid to give my perspectives. It certainly opens the door to valid criticism and disagreement. Yet, are you any less of a pundit for expressing your idea that the Fed could write off all of the debt of the U.S. government and the bigger world would barely notice?

    (Note: I would refer you to "When Genius Failed" by Roger Lowenstein. Therein, you should discover why a country's credit, the liquidity of its sovereign debt and leverage in a financial system matter, as defaults like the one you have conjured up result in severe recessions. The bigger world as well as the smaller world suffer greatly during economic hardship. Meanwhile, the dog you envision barking at your neighbor's home? He might be missing his best friend who may have been called up for a national guard or Army assignment.)

    The main difference between my expressing my views and you expressing your views is that tens of thousands of readers care what I think. That doesn't make me better or smarter or wiser. It means that I have developed a readership over time, and that many of those readers appreciate the ways in which I successfully protected them from the bulk of the 2008-2009 portfolio declines.

    It is true, when you write 1700 articles over the course of a decade, you are bound to make some really poor word choices. Yet when it comes to the world of investment? Well, by applying insurance principles to the investing process, I've minimized the mathematical dollar devastation associated with bear markets. I will pay the premium of a small loss, if that's what is necessary to avoid a hurricane hitting the portfolio.

    As the CFP on a national talk radio program in the 90s, my 1998 and 2000 guidance to tens of thousands of listeners was to ratchet down risk via long-term treasuries. Those moves helped so many folks avoid the bulk of the 2000-2002 bear. As the owner and president of a Registered Investment Adviser with the SEC, I effectively lessened the downside associated with the 10/2007-3/2009 financial collapse.

    Personally, I love the hard work and dedication required to effectively manage downside risk. In fact, I live for it. And I am not sure why you yourself feel that you should simply take equity/property risk and hope for the best. After all, there are easy methods for protecting against a severe downside slide.

    Then again, when a person does not consider the unprecedented monetization of the public debt as reckless, let alone potentially dangerous to one's financial well-being in the future, then perhaps one is left holding-n-hoping. Me? I have a fiduciary obligation to protect client portfolios.

    Gary
    Apr 28, 2015. 07:15 PM | 2 Likes Like |Link to Comment
  • An Energy ETF Resurgence Defies The Naysayers [View article]
    Precisely!
    Apr 23, 2015. 05:02 PM | 1 Like Like |Link to Comment
  • An Energy ETF Resurgence Defies The Naysayers [View article]
    >>Comparative performance also supports this.

    Performance does not support concerns about liquidity and expenses. On the contrary... RYE significantly outperforms XLE/VDE in bullish energy sector uptrends (e.g., early 2012 through July 2014), while RYE loses more ground in energy sector smackdowns (e.g., 2008-09).

    In fact, virtually ALL of the Guggenheim Equal Weight sector funds outperform the State Street and Vanguard equivalents in uptrends, in spite of higher expenses. And the reason is relatively straightforward. Equal weighting has the effect of turning those S&P 500 large caps into performing more like a market-cap weighted mid-cap fund. (Small-caps and mid-caps tend to outperform large-caps in bull markets, and they tend to lose more in bear markets.)

    On the flip side, liquidity is a valid concern for investors; in particular, anyone who actively manages money must be cognizant of the issue. Limited liquidity during bearish sell-offs make it difficult to exit a position at a reasonable price point. Indeed, that may be reason enough for some folks to stick with highly liquid market-cap weighted SPDR Select Sector or Vanguard sector funds.
    Apr 23, 2015. 11:02 AM | Likes Like |Link to Comment
  • Understanding Why Rates Must Go Lower Leads To Better Risk-Adjusted Results [View article]
    Honestly, you may be right. I still think it will be closer to 1.5% on December 31. That said, it would not surprise me if we get below 1.25%, and then a bit of snap-back.
    Apr 13, 2015. 06:01 PM | Likes Like |Link to Comment
  • Understanding Why Rates Must Go Lower Leads To Better Risk-Adjusted Results [View article]
    >>"you are a speculator"

    Okay, if you say so. I guess I've been speculating successfully for 25 years, 12-plus years as the president of a Registered Investment Adviser with the SEC. My clients seem to appreciate the fact that I raised the allocation to treasuries in 2000-2002, 2008-2009, 2011, while lowering my allocation to stocks. In 2009, for example, the action reduced the bear's bite substantially, allowing most folks to recover principal in one or one-and-a-half years, as opposed to four-and-a-half riskier years. (And we can all thank the Fed for shortening the recent recovery span at that!)

    They also appreciate that I lowered my allocation to treasuries in 2013, when the "taper tantrum" played itself out. I simply choose to control investment outcomes -- securing a big gain, small gain or small loss. I apply insurance principles to the investment process so that a big loss does not decimate what my clients have worked so hard for.

    I am far from perfect. I make bad decisions - we all do. The difference is, I understand how to mitigate those bad decisions by applying insurance principles to the investing process. I will sell for a small loss or pay to hedge in a riskier environment rather than "hold-n-hope." And treasuries at this time in a bull cycle... among their virtues you can add stock hedge to the list.

    >>""Stocks currently trade at the highest valuations in history across >>virtually every respectable measure ""
    >>Do they?

    Yes. Unquestionably, yes. A person can always find a measure that magically justifies the silliness of the "now," yet the "now" is similar to 2000 and 2007, no matter how much longer the bull market decides to run. And I will participate for as long as that run remains intact, but I will sell and hedge to avoid the one outcome that my clients worry about the most... the big loss.
    Apr 13, 2015. 05:31 PM | 2 Likes Like |Link to Comment
  • Understanding Why Rates Must Go Lower Leads To Better Risk-Adjusted Results [View article]
    Strong point on the Japanese culture... and the ownership of those bonds. I lived and worked in Asia for roughly 4 1/2 years, and the cultural aspect of personal finance is one that I find fascinating!
    Apr 13, 2015. 04:39 PM | Likes Like |Link to Comment
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