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  • Remember July 2011? The Stock Market's Advance-Decline (A/D) Line Remembers [View article]
    Yes
    Jul 29, 2015. 05:45 PM | Likes Like |Link to Comment
  • Remember July 2011? The Stock Market's Advance-Decline (A/D) Line Remembers [View article]
    RV,

    The equity exposure went down over time from 65% to 50% to 35% beginning in July of 2011. Equity exposure was increased as the perceived risks of the crisis lessened and circumstances improved per our analysis (e.g., trendlines, broad market participation in rally, etc.).

    At the worst of the 2011 drawdown, the majority of our clients were down between 6%-7.5%. Large-caps were down approx 19%. Small-caps were down 25% or more. Most foreign stocks were down quite a bit more, approx 35%-40%.

    Even though most client portfolios experienced a 2011 calendar year that was relatively flat, much like the U.S. large-cap market itself (though many foreign stocks were down 20% in 2011, and most small caps lost on the year, etc.), our client goals were entirely achieved. Specifically, they favor capital preservation in times when the risks of loss are high; they favor modest growth and income when the risks of loss are lower. There are no goals of "beating the market," even if that should occur by losing significantly less in bearish environs (e.g., 2000-2002, 2008-2009).

    Best,

    GG
    Jul 29, 2015. 02:04 PM | Likes Like |Link to Comment
  • Remember July 2011? The Stock Market's Advance-Decline (A/D) Line Remembers [View article]
    RV,


    I manage assets for hundreds of families. We lower exposure to risk assets when we believe valuations are extreme and internals are weakening; we raise exposure to risk assets when valuations are low/fair and internals are improving.

    As part of Pacific Park Financial's tactical asset allocation, the majority of our client base is currently at 50%-55% equity as opposed to 65%-70% equity. Our cash levels which might normally be at 0%-5% are at 15%-20%. Our exposure to income assets has largely shifted from a wider range of investment grade and higher yielding to predominantly investment grade.

    We do not short. We do not use margin for leverage. We did create the FTSE Multi-Asset Stock Hedge Index for those who may want to protect against bearish stock declines without shorting or leverage, and we do invest in components of the index as we deem necessary.

    Hope that helps!

    GG
    Jul 29, 2015. 11:03 AM | 1 Like Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    RV

    >>I know Warren Buffet, and you Mr. Gordon are NO Buffett.

    I'm pretty sure that I did not compare myself to the Oracle of Omaha. I simply mentioned that the renowned buy-n-holder understands how and when to sell. Each investor should have a strategy for doing so, regardless of who he is and who he is not.


    >>Have you backtested any TAA model, which is based on allocating less to equities as you say based on valuations plus market internals?

    Naturally. And, we practice it. The TAA that we do has been quite successful at achieving the risk-adjusted results that our asset management clients have set for their respective portfolios.

    In an earlier comment, you placed me on your Top Ten Letterman List of venerable thinkers/writers in the financial space. I hope that you continue to read, and I hope that I didn't slip off the list!

    >>6. Seeking Alpha realistic data based analysis like Chris Puplava, Gary Gordon, Chris Ciovacco, Cullen Roche, Calafia Pundit, there are others too.


    Cheers,

    GG
    Jul 24, 2015. 06:58 PM | Likes Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    Here are a few possibilities (generalized, not specific for anyone):

    Munis (though look to see how much is in Puerto Rico)
    CEFs... you have to pay attention to leverage and premium/discount average... look at assets like EVN and PFN
    Nothing wrong wit BND/AGG
    GS-PRI, some PFF
    I am fine with IEI and IEF in the Treasury world
    I am avoiding high yield and convertibles for the most part... but there's nothing wrong with held-to-maturity short-term high yield in the Guggenheim series.

    GG
    Jul 24, 2015. 01:11 PM | Likes Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    RV

    >>We should raise cash now (in July, 2015) because in 2016
    >>or 2017 S&P will drop from 2520 to 1765?

    Clarify... I provided a mathematical example based on probabilities. And raising cash does not mean 100% out. It means reducing risk of loss when market internals are weakening and valuations are pushing their extremes.

    The example was to show the math of how chasing performance is not particularly wise; rather, avoiding the bulk of a bear through tactical asset allocation (a la reducing exposure to risk) is more sensible.

    Even an optimistic projection that the S&P 500 would go up 20% from all-time highs today is more than wiped out by a highly probable and extremely normal bear... whether it occurs in 2015, 2016, 2017, 2018, 2019... or is in the process of occurring today.

    What does this mean for my clients at Pacific Park Financial? It means that what might have typically been 65%-70% of all types of equity (large, mid small, foreign, domestic, etc,) is currently 50%-60% large cap only equity (mostly domestic).

    Based on the market internals and sky-high valuations, the risks are very high that a sharp correction will happen soon. Will it be a bear? I don't think so... not based on other facts like the Fed still at the zero bound. We may simply see a genuine 10%-19% correction very soon, where the market internals will improve, as would the valuation picture. We will monitor and we will see.

    Circumstances (valuations plus market internals) will dictate whether I will raise more cash or, conversely, put cash back to work. Those that call a tactical asset allocation strategy something along the lines of market timing might as well call every investor a "market timer." Rebalancing is buying and selling based on certain rules, as is TAA. Even Warren Buffett sold all of his stake in Exxon Mobil (XOM) last year. I think we can say that some folks have a plan for when and what to buy, as well as when and what to sell.

    GG
    Jul 24, 2015. 12:59 PM | 1 Like Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    >>Am I supposed to hold bonds with negative yield to maturity
    >>to avoid some risk or volatility? I think I'd rather just hold cash for now.

    Cash is just fine and no, you do not need to hold something that does not provide an opportunity for total return in the income space. That said, I think you may be ignoring the positives that income-oriented assets can bring to the table beyond diversification and volatility. Longer-term investment grade bonds beat stocks in 2014. Those opportunities will continue to present themselves in the central bank manipulated world.

    Indeed, if and when a 10-year hits 3% like it did at the end of 2013, you might very well want to be a buyer. It could easily go down to 1.5% or 1% from there, providing price gains and your yield and safety. Others may feel the point of entry is 2.5%. Either way, keep your mind open to possibilities that work for you.
    Jul 24, 2015. 12:33 PM | Likes Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    10318561,

    >>3. Yield Curve (Watch out when it flattens or inverts. Still steep so smooth sailing ahead)

    Along the lines that we will never see rate normalization ever again - Bernanke said it himself - the question is how far one thinks they will get. Japan couldn't get its overnight equivalent above 0.5% after 15 years. I personally do not believe the Fed will make it above 1%, if that.

    It follows that we may not see true inversion. And certainly not with short-term rates at the zero bound. You may have to look for flattening and inversion in points along the yield curve, perhaps 20s versus 30s... 5s versus 10s... negative spreads in places.

    >>6. Seeking Alpha realistic data based analysis like Chris Puplava,
    >>Gary Gordon, Chris Ciovacco, Cullen Roche, Calafia Pundit, there are others too.

    I am happy to be on your Letterman List. :)

    GG
    Jul 24, 2015. 12:24 PM | Likes Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    TimmiesRegular,

    It's not the same as 1999. It's not the same as 2007 either. Every market is its own unique market.

    For the most part, here... we are talking about indexing. There are always "bargains." There are always ridiculously priced assets.

    What I addressed here is the history of valuation coupled with a potential breakdown in market internals. When it happens, people typically stop buying the dips. When the dip buyers don't show up, the short-sellers pounce. When central banks try to stimulate, faith may or may not be restored. If it's not restored, you have panic.

    Even without panic, the average bear market is roughly 30%. Whether you feel things are similar to 1999 or you're not feeling it, you should do whatever feels right for you when the fit hits the shan. Most investors will not have had cash at the ready to confidently buy the bearish environment... most will feel the S&P 500 at 1765 may go to 1100... and they won't have had a strategy to deal with it.

    We could look at this another way. Let's pretend that the S&P 500 goes up 10% in the rest of 2015 and another 10% in 2016, making it the longest bull market (or second longest) ever. So the S&P 500 reaches 2520 18 months from now. And then we get an average bear market. That would put us back to 1765 on the S&P 500. Is raising cash, even if it is for several years, sensible? Wouldn't it provide opportunity?

    Again, if holding through thick and thin works for you... I wouldn't change a thing. I prefer tactical asset allocation to reduce the loss during the inevitable "bad times," making it easier to raise risk when the "good times" return. And the way that I make the tactical decision involves over/under valued and deteriorating/improving market breadth.

    Best,

    GG
    Jul 23, 2015. 05:29 PM | 5 Likes Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    Smartestone,

    Yes, exchange-traded indexing is the ticket. Yes, investors, and money managers like myself rotate.

    However, the history of extreme market valuations coupled with weakening market breadth, it's relatively cut-n-dry. A huge negative/bad/bearish... someone else can choose the terminology.

    We are talking about downtrends in 5 out of 10 industry sectors. We are talking about 0% returns since July for the entire NYSE Composite. We are talking about the Bullish Percentage Index for the S&P 500 (BPI) hitting new highs with only 56% of the components in uptrends. New highs in 2013 and 2014 and early 2015 typically had 75%-85% participation.

    This is the stuff of Atlas (Apple, Amazon) holding the world upon his/its shoulders. It is not the stuff of simple sector rotation. When fewer and fewer leaders are forced to carry the dead weight, historically speaking, the dead weight tends to pull down the extremely overvalued superstars.

    In 1999, for instance, money managers (except for Warren Buffett) had abandoned virtually all asset classes other than large-cap growth, and abandoned all sectors other than technology. Fund weightings in tech's "New Economy" swelled from 20% to 40%. The rest as they say, a la 2000-2002, is history.

    Even the example of the "strong" in retail, tech and health care is demonstrating quite a bit of weakness internally. Fewer and fewer stars in the new tech space are carrying the laggards (e.g., HPQ, INTC, QCOM, etc.) such that QQQ is smashing Equal-weighted NASDAQ Index ONEQ, and XLK is beating up Equal Weight Tech Index ETF (RYT).

    Perhaps history will not rhyme here, though I suspect it will. History has been clear-cut on the combination of weak market internals and overvalued stock.

    GG
    Jul 23, 2015. 05:12 PM | 4 Likes Like |Link to Comment
  • Why Investors Should Not Party Like It's 1999 [View article]
    AC

    >>also look at the QQEW/QQQ and RSP/SPY ratios.

    Yep... that's another way to tell the story. I wrote about RSP versus SPY in previous commentary. Thanks for the reminder on QQEW!!!

    GG
    Jul 23, 2015. 04:11 PM | 2 Likes Like |Link to Comment
  • Allocation Advice For The Do-It-Yourself Investor [View article]
    ND,


    This article does not discuss sectors. I believe that you may have been referring to market cap size (a la the way one might describe U.S. large caps and U.S. small caps as asset classes.)

    You discussed that you have 50 years of success as an investor. Surely, then, you understand that selling the small-cap asset class at the highest median stock valuations in the history of the market is not selling low; surely, you understand that reducing small-cap exposure at the highest median stock valuations in the history of the market to raise cash for future opportunity and/or to add to less volatile larger-caps (though extremely overvalued) is not selling small caps low.

    Since the article seems to have confused some folks, I will clarify what I believe investors should do at this moment. Reduce or eliminate small cap exposure. Raise cash levels to 15%-20%. Shift some of the small-cap money that you do not want in cash equivalents to larger caps... should you desire equity exposure and you are choosing between small/large.

    Once again, cash/cash equivalents and large-caps provide relative safety when the median P/E and median P/S for U.S. stock assets are the highest that they have ever been in the history of U.S. markets... and when, stock market breadth is eroding by the day. History -- over your 50 years or over the market's 100-plus years of data -- is very clear about the benefits of reducing portfolio risk when valuations are exorbitant and market internals are weak.

    GG
    Jul 22, 2015. 07:02 PM | 1 Like Like |Link to Comment
  • Allocation Advice For The Do-It-Yourself Investor [View article]
    Paul,


    I am sorry that you found the article confusing. Perhaps your confusion rests in my description of "upside performance" and "downside risk."

    For clarification, I distinguish between upside performance (e.g., 15% annual gain versus 10% annual gain) and downside performance (e.g., -9% annual loss versus -29% annual loss), where performance is relative. At this point in the cycle, I believe it is extremely sensible to reduce the risk of loss on the downside more than chase the gains on the upside.

    Separately, for the hundreds of families that I represent, very few of them care about "outperforming." Yet they care a great deal about the risk of losing the bulk of their life savings. They do not want to hold-n-hope that everything works out down the road. They'd like to lose less when the fit hits the shan (a la 2000-2002, 2008-2009), and still maintain their lifestyles.

    It follows that many folks do not care about outperforming. And yet, they care a great deal about downside risk.

    GG
    Jul 22, 2015. 12:06 PM | 2 Likes Like |Link to Comment
  • Allocation Advice For The Do-It-Yourself Investor [View article]
    M3442,


    We are not making shifts between IWF, OEF and SPY. They are slightly different versions of the large-cap space. We are, and have been, making tactical asset allocation shifts.

    For instance, if one has 15% of his/her portfolio in higher-yielding income and 20% of his portfolio in investment grade, he/she might shift to 5% higher-yielding and 25% investment grade and 5% cash equivalents. Similarly, if one has 35% in larger-caps and 30% in smaller-caps, he/she might shift to 50% larger caps, 5% smaller caps, and 10% cash equivalents.

    Here's where many of my clients are currently at:

    50%-55% equity (large cap, almost entirely)
    25%-30% income (domestic, intermediate, investment grade, almost entirely)
    15%-20% cash/cash equivalents

    Equity would be shaved in conjunction with trendlines/stops... raising the cash component. We do no t buy-n-hold and we would not buy-n-hold a 50% large-cap stock weighting through a bear.


    Hope that helps.

    GG
    Jul 22, 2015. 11:44 AM | 1 Like Like |Link to Comment
  • Allocation Advice For The Do-It-Yourself Investor [View article]
    MedTech,

    Pulling a quote out of the context of the article does not reflect the intent of the article. It is possible that I did not express myself well in the article... so I will try to clarify.

    Get out of small caps. Raise your cash levels. Shift to larger caps if you desire equity exposure and you are choosing between small/large.

    Cash/cash equivalents and large-caps provide relative safety when the median P/E and median P/S for small caps are the highest that they have ever been in the history of U.S. stock markets... and when, stock market breadth (internals) are eroding by the day.

    As for your comment "sell low, buy high" -- selling small caps now is selling them near their all-time highs. It is not selling them low. Adding to large caps may be buying high, but I am not recommending 100% cash. Here is what I am recommending:

    50%-55% equity (large cap, almost entirely)
    25%-30% income (domestic, intermediate, investment grade, almost entirely)
    15%-20% cash/cash equivalents

    Equity would be shaved in conjunction with trendlines/stops... raising the cash component.

    GG
    Jul 22, 2015. 11:20 AM | 2 Likes Like |Link to Comment
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