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Gary Gordon  

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  • Are The Tailwinds For Stocks Turning Into Tornadoes? [View article]

    It isn't always possible to cover every aspect of market internals in each article. That said, I would encourage you to review my commentary on August 11 at the link below... also available at SA on that day... There's Still Time To Lower Your Allocation to Riskier ETFs. Prior to the August-September sell-off, I discussed the criticality of the A/D Line in numerous pieces between June-mid-August.

    Happy Thanksgiving to you and yours.

    Nov 26, 2015. 01:13 PM | Likes Like |Link to Comment
  • Are The Tailwinds For Stocks Turning Into Tornadoes? [View article]

    Inverse ETFs like SH are trading tools. And yes, you could use them as a hedge for a very short period of time. Daily compounding means they are unlikely to work well for you over a long period of time. Personally, I only use them when I am looking to get a taxable position over the year-end line without selling for a large capital gain.

    As an alternative to cash, consider emulating the FTSE Multi-Asset Stock Hedge (MASH) Index. You can learn more about the index that I helped to create here:
    Nov 24, 2015. 06:09 PM | Likes Like |Link to Comment
  • Are The Tailwinds For Stocks Turning Into Tornadoes? [View article]

    The average interest expense is what matters... is it not? You can acquire more credit cards over time, each with a lower rate than the year before. But if your total interest expense is climbing, you are paying more and more money to service your debts.


    Nov 24, 2015. 05:27 PM | 2 Likes Like |Link to Comment
  • Are The Tailwinds For Stocks Turning Into Tornadoes? [View article]

    Earlier this year, the MEDIAN stock P/E was higher than 2000 and 2007. Yes, highest median stock TTM P/Es in history. By all means, please... investigate.

    The TTMs and P/E10s quoted in the article at various points in time were for the S&P 500... not the median stock on U.S. exchanges... as follows:

    Today: 22.7 TTM P/E, 26.0 P/E10 (CAPE) 27.6 P/E10 at 2015 height
    Mid-2007: 20.0 TTM P/E, 27.3 P/E10 (CAPE)
    Start 2000: 34.0 TTM/P/E, and 44.2 P/E10 (CAPE)

    Forgive the confusion with respect to median stock price used in the article. I should have clarified when I discussed median stock price versus when I discussed the S&P 500 data.

    Regardless of valuation preference - P/S 1.84 or Market-Cap-to-GDP at 120.8% or Forward P/E or Trailing 12 Month P/E or P/E10 or Tobin's Q - stocks are at the upper echelon of pricey. Knowing that, it is sensible to monitor credit spreads, risk preferences and a range of market internals.


    Nov 24, 2015. 05:11 PM | 2 Likes Like |Link to Comment
  • Are The Tailwinds For Stocks Turning Into Tornadoes? [View article]

    Enjoyed that!

    What's the compounded annual growth rate for the NASDAQ, do you know? :)

    Nov 24, 2015. 04:36 PM | 1 Like Like |Link to Comment
  • Why Stocks Are Getting Riskier By The Day [View article]

    Let's assume that you are correct... and the bottom-line earnings are all that matter. Top-line revenue (sales) is not important. Earnings quality is irrelevant. And debt ratios are silly.

    In fact, let's assume you are correct about entire balance sheets being a waste of time when it comes to valuations. Debt. Revenue. Not important at all. According to 101, corporate earnings as reported are what count. "That's It. Period," you say.

    Fair enough. We can agree to disagree. You have determined that a P/S ratio of 1.84 - near the highest in history - is not worthy of discussion. Nor Tobin's Q. Nor Market-Cap-To-GDP. Nor Absolute Valuation Metrics such as Dividend Yield + Growth. None of the data are worth bean buckets... only corporate earnings as reported, quality irrelevant.

    Okay, then. Corporate earnings have now fallen from a height of $106 in 2014 to current levels of $95.4 on the S&P 500 for a 10% decline. On a quarterly basis, we have entered and earnings recession. The TTM P/E Ratio is 22.7 when the average since 1870 is 16.6.

    But, of course, you're aware that the correlation between TTM price-to-corporate-ear... and stock returns is suspect at best. So this overvaluation is of little concern to you. Perhaps PE10 is of importance to you? If corporate earnings are going to be better valuation tools? At 25.5, we are sitting in the highest quintile, meaning severe overvaluation.

    Well, no... perhaps PE10 and TTM PE are not what you meant by corporate earnings being the only thing that matter. Besides, one can revise all of these earnings to fit the theme that the markets are fairly valued, right? We have the low interest rate environment. Let's go "Ex energy". And Ex multinationals with 50% or more of revenue coming from overseas. Yes, I have heard it all before.

    And seen it over the last quarter century. If only we remove tech from the picture in 2000. If only we remove financials from the picture in 2008.

    But back to the "That's it. Period" on corporate earnings. I suppose if one chooses to ignore TTM P/E and PE 10, excludes energy and excludes companies with a lot of international exposure, extreme overvaluation may begin to look "perfectly rational."

    Since TTM PE and PE 10 do not work, maybe hang one's hat on the guestimate that is forward 12 month P/E? It did little for folks in 2000 or 2007 because recessionary pressure, margin debt and credit expansion all tend to destroy guestimates on earnings. But okay. At 17.2, the forward P/E is well above the 35-year average (according to Goldman Sachs) of 13.0.

    So while I believe that market internals, credit spreads, economics, technicals, fundamentals, margin debt, geopolitics, interest rates, Fed policy all impact stock prices, I can accept that others, like yourself, do not. That said, with earnings struggling to grow, and overvaluation evident on every EPS measure, I am not able to see your forest for the trees.

    Nov 20, 2015. 12:55 PM | 11 Likes Like |Link to Comment
  • Why Stocks Are Getting Riskier By The Day [View article]
    Look at the chart again... you are misinterpreting. It is a fact that corporate debt has doubled... that's on the left side from 100 to 200. On the right side is the interest expense increase from 3.5% to 4.5%.

    Yes, the average rate on NEW debt has been dropping... from 6% to 5% to 4%. The average interest expense being paid to service the TOTAL corporate debt has moved HIGHER. from just under 3.5% to just higher than 4.5%.

    More and more of what corporations now make from sales or from what they borrow... more revenue goes to service more and more debt. It would be bad enough of debt doubled and interest expense remained the same. Fact is, it's moves higher.
    Nov 19, 2015. 08:54 PM | 2 Likes Like |Link to Comment
  • Why Stocks Are Getting Riskier By The Day [View article]

    It is not about a quarter point... it is about the directional shift across yield curves, the pace of tightening, the total debt outstanding and the overall increase for corporations to service the total debt outstanding.

    Total corporate debt has more than DOUBLED since pre-crisis levels of 2007. No problem, you say? Borrowing rates are low, you conclude? The average interest paid on debt for corporations in 2007 was 3.5%. Today in 2015? It is north of 4.5%.

    That's right. Corporations are paying more and more of the money they make/borrow to service TWICE as much debt at HIGHER interest rates than they were paying in 2007.

    See the data at the link here:

    The Fed is stuck. If it moves any faster than a three-toed sloth or any further than a turtle in a tank, you can expect stocks to eventually revisit historical P/S ratios and historical market-cap-to-GDP ratios.

    Nov 19, 2015. 06:50 PM | 11 Likes Like |Link to Comment
  • Why Stocks Are Getting Riskier By The Day [View article]

    Well, that depends. If you are talking about an overall market that meanders for a year or longer, sure... military defense contractors and water management companies could outperform. Water... I have a profitable position in TTEK... Defense... I have a profitable position in UTX.

    On the flip side, when risk-off panic occurs, there is zero discrimination. All correlations go to 1, as they say. We witnessed this in the 2008-2009 collapse. We witnessed it in 2011. Heck, you pretty much got a glimpse of what it could look like vis-a-vis the swiftness of the August-September beat-down.

    Based on debt-fueled excesses, I am more inclined to believe that the speculative risk-on, margin-debt enhanced gains in the current cycle are likely to see little discrimination in a sell-off/bear down the road. I hope I am wrong on that.

    I hope there are pockets of trend-busting sectors in the next downturn. Maybe it will be emergers. Maybe they can go up for 4-plus years in the same way that the U.S. has rocketed since 2011 without the undeveloped world. I suppose we'll see.


    Nov 19, 2015. 06:06 PM | 6 Likes Like |Link to Comment
  • Why The U.S. Stock Market Never Completely Recovered [View article]

    We achieve our client goals through tactical asset allocation (TAA). That means we lower exposure to risk when the economic, fundamental and technical warnings signs suggest that it would be prudent to do so. We raise exposure to risk when one or more of those areas show definitive improvement.

    A faltering global economy (macro-econ), equity overvaluation (fundamentals) and weakening marker internals (technicals) led me to reduce risk - before the August sell-off - back in June/July/August. You can read about it in a wide variety of articles during that time, though below are a few links to review:

    5 Reasons To Lower...

    There's Still Time To Lower...

    Here is an example of how we lowered risk for moderate growth and income clients. Many had 65%-70 stock (e.g., large, small, foreign, etc.) and 30%-35% income (e.g., short, long, investment grade, cross-over, higher-yielding, etc.). The shift to 50% equity, 25% bond, and 25% cash lowered the exposure to risk assets of any kind. Equally important, the lower risk profile for 50% equity (mostly large-cap domestic) and 25% bond (mostly investment grade) reduced the type of assets being held such that less volatile assets were in the mix.

    The technical retest of the September lows coupled with key moves about trendline resistance led us to bump the large-cap equity component up to 60%, while leaving the 25% investment grade and 15% cash intact. That said, the current profile is still less exposed to risk than 70% growth (large, small, foreign, domestic), 30% income (short, long, high yield, crossover, investment grade)... and that's what we might have if all asset classes were firing on all cylinders in a strong economy with reasonable valuations and desirable credit spreads.

    We are not a market neutral fund or a hedge fund. We do not short, other than the occasional protective put or a move to protect taxable gains. As a Registered Investment Adviser, we're not geared toward some of the moves you highlighted.

    What we do engage in, we lower risks when circumstances suggest that it would be sensible to lower it (not eliminate it). We raise risks back to optimal target allocations in early stage bullish cycles.

    Hope that helps. Feel free to explore more about what I do at the link below:


    Nov 13, 2015. 06:13 PM | 1 Like Like |Link to Comment
  • Tepid Appetite For Risk Implies That Investors Are Still Haunted By Potential Loss [View article]

    My gut tends to agree with your sentiment. Indeed, I spent considerable time highlighting the warning signs in June/July/August before the fall.

    June 16 Sky High Valuations? Lusterless Economy? It Just Doesn't Matter!

    July 23 Why Investors Should Not Party Like It's 1999

    July 30 5 Reasons To Lower Your Allocation To Riskier Assets

    August 12 There's Still Time To Lower Your Exposure To Riskier ETFs

    August 18 Market Top? 15 Warning Signs

    That said, investors need to focus on market internals, breadth, credit spreads and other indicators of risk-taking versus risk-aversion. While I am not seeing definitive improvement in risk-taking, I would be hard-pressed to say that the risk-off crowd has the upper hand either.

    Well shall see!

    Oct 20, 2015. 06:21 PM | 1 Like Like |Link to Comment
  • All About Nothing: Stock ETFs Celebrate Zero Percent Rate Policy [View article]
    >>Anyway, ZIRP can't save the market
    >>anymore. We're already at zero.
    >> You can't lower it further :)

    Even intelligent people are not paying attention.

    Stephen, NIRP already exists in
    Europe. Are you not aware that negative interest rates have already been floated here by a Fed colleague?

    Stateside, $3.75 trillion in QE lowered yields across the middle of the curve, since ZIRP could only affect the beginning of the curve. QE4 is our future.

    Stephen, you were in the majority months ago on claiming lots of strength in the economy. Sorry, and I respect your right to hold firm to a dying "take," but the majority are well aware that the domestic economy has been decelerating and the global economy has been teetering. Well-documented. IMF downgrades both world economy and US economy.

    Every day, there's yet another "miss." World trade deficit? ISM and Markit trend? Labor force 25-54? Wages? Household median income? Please come back from the land of Oz.


    Oct 6, 2015. 11:36 PM | Likes Like |Link to Comment
  • Strength In Employment And Housing? Both Are Weaker Than You Think [View article]
    I believe that the members of the committee have very different opinions on the matter, not unlike members of different political parties in the federal government. You have a few that would have raised rates years ago... you have a few that would have taken them negative... and everything in between. Most had simply hoped that the wealth effect would have done more; most did not anticipate the extent of dubious consequences, including how corporations reengineered balance sheets rather than hire in earnest. Bottom line? At this point, many simply want to leave the zero level to have some fire power when it's time to ease in the future. There will never be "normalization," something that Bernanke has already acknowledged.
    Sep 29, 2015. 09:31 AM | 2 Likes Like |Link to Comment
  • Strength In Employment And Housing? Both Are Weaker Than You Think [View article]
    Should have done the 25-54 in previous commentary... should have nipped the erroneous baby boomer replies in the backside.
    Sep 28, 2015. 06:41 PM | 2 Likes Like |Link to Comment
  • Resilient Consumer? Not During The Manufacturing Retreat And Corporate Revenue Recession [View article]
    User 44,

    Old data on Q2, with modifications to the old calculation of GDP, do not alter the 2.2% annual path of the U.S. in the ZIRP/QE recovery. I certainly do not anticipate the growth to accelerate, and I'm pretty sure the Fed doesn't expect the growth to accelerate. It is more likely to decelerate in Q3 and Q4. (We simply have the same pattern of big Q2 number and super low Q1 number... year after year.)

    Keep in mind, you cannot get yield curve inversion with ZIRP. Without any serious normalization of rates - something Bernanke has candidly acknowledged will not happen in his lifetime - you'd want to look for partial inversions at points along the curve. Perhaps 10s are lower than 7s or 5s. Perhaps 25s/30s are lower than 20s... things of that nature.

    You may also want to consider some of the items on my 2007 model that helped me accurately forecast the 12/07-6/09 recession in 12/07... 6-9 months before most economists/analysts/fi... professionals even considered what was happening. That's because they pointed to GDP and said, "Things are fine... stock market just needs to work through a corrective phase."

    Here is the 2008 data, the third revision, which had already been revised lower several times yet still did not accurately portray what was taking place.

    Third/Final Report 2008 U.S. Economy

    Q1 1.0%
    Q2 2.8%
    Q3 -0.5%
    Q4 -6.3%

    If you are genuinely intrigued by efforts to look forward, may I suggest that you look at a variety of things. For example, things like PMI trend and PMI number. (Trend is down, number is still expansion.) Also the Conference Board's Consumer Data. (Future expectations are falling faster than present situation... a recessionary indicator.) Widening of the Composite 10-year corporate bond (CCBR) with the 10-year Treasury? Yes, that's happening, and that's a big negative. However, the risk aversion in the spread is not off the charts either.

    In sum, the risk of recession has increased. Can it be averted in the near-term? Probably. Yet the skittishness of the Fed vis-a-vis the economic indicators that I presented in the link below tells you what they think of the global economy's well-being.

    We are talking about years and years of waning productivity, super-slow wage growth as well as a monstrous reduction of Americans in the workforce that is NOT attributable to boomers retiring vis-a-vis the rising inactivity rate of the 25-54 demographic. We're also talking about consumer spending that has dropped on a year-over-year basis for 4 consecutive months, and six of the last eight. The manufacturing slowdown is remarkably well-documented. Half of developed Europe is in recession... Asia quite similar... Australia, Canada, not sure we can simply pretend as though China and Brazil do not matter (official recession or not).

    I will say this... I was relatively bullish on China, believing they would bounce back with the aid of stimulus. The economic deceleration there has been far worse than I ever projected.

    Thanks for your feedback.

    Sep 25, 2015. 01:13 PM | 3 Likes Like |Link to Comment