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Michael A. Gayed, CFA

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  • The Problem With ETFs: Indexing's Central Paradox [View article]
    The "Central Paradox of Indexing" is an important concept for investors to consider, and is something of an off-shoot of what's known as the Grossman-Stiglitz paradox about the implications of markets being efficient and incentives to perform research to make it as such. ETFs are simply a vehicle - at the end of the day, its the average investor's job to make sure they can be used correctly.
    Sep 21, 2010. 12:46 PM | Likes Like |Link to Comment
  • Are We Really on the Verge of the Biggest Bear Market in 300 Years? [View article]
    Davewmart - your point is well taken about Argentina, except that at extremes everything is correlated (especially when talking about developed markets). In assuming the Dow plummets, one is also assuming all world markets plummet as well so there becomes no where to hide (the '87 crash was not just a U.S. phenomenon as world equities collapsed with the Dow). I go back to the prior point - there's no way to win if it happens that I can think of.
    Sep 21, 2010. 12:28 PM | 1 Like Like |Link to Comment
  • 3 'ETF' Signs That the Stock Market Bull Wants to Run [View article]
    Its been a stunning move higher. I think it really is likely to be a function of treasury yields going forward. If bonds continue to sell off, funds could flow into stocks and be a source of demand for equities. Its worth noting that this has been a wild year for market swings, but on the year most indices are flat.
    Sep 21, 2010. 11:42 AM | Likes Like |Link to Comment
  • REIT Investments Should Be Reevaluated After Strong Performance in 2010 [View article]
    Mr. Morris - how much is REIT performance correlated to general sentiment towards income investing? I suspect REITs have done well this year because of broad investor demand for any kind of investment with an income component. Is there some element of drift in the performance of REITs during such periods?
    Sep 21, 2010. 11:39 AM | 1 Like Like |Link to Comment
  • ETFs That Nouriel Roubini Should Consider [View article]
    Excellent piece Mr. Gordon! I'm always amazed at how "gurus" who get one major thing right stick out in people's minds without questioning the accuracy of predication made afterwards. Seems like the availability heuristic at work - the mind goes to the extreme event that a few called correctly, making us believe that all other predictions going forward are likely to be just as true.
    Sep 21, 2010. 11:34 AM | Likes Like |Link to Comment
  • Vanguard’s Spyder-Sense Is Tingling [View article]
    It will be interesting to see if this can steal some market share away from the SPY ETF. It seems to me that because of the misunderstanding by most investors of equating daily ETF volume to liquidity that traders of the SPY would not easily switch to VOO because of the false perception that it is illiquid compared to SPY.
    Sep 21, 2010. 11:29 AM | Likes Like |Link to Comment
  • Inflation More of a Threat Than Deflation: More Investors Increasing Bond Allocation [View article]
    There are two ways to look at this. The first way implies deflation - that investors are betting deflation is here and likely to stay with us into the long term.

    The second way is to see this as an extreme of sentiment. The record inflows into bond funds, particularly by retail investors, may be indicative of performance chasing rather than a signal about future inflation. The thing about extremes is that they have a funny way of mean-reverting...
    Sep 21, 2010. 11:25 AM | 1 Like Like |Link to Comment
  • Are We Really on the Verge of the Biggest Bear Market in 300 Years? [View article]
    Even if you assume Prechter is right, there's no way to benefit from it. Those betting on an enormous decline in markets may not understand the social implications of such a drop in asset prices. If the markets did drop that low, you have much more to worry about than the value of your investments because you'll have people rioting in the street. The entire capitalist system would be under attack. My point is that you can't win in such a scenario since it goes beyond the trade to an actual societal problem.
    Sep 21, 2010. 11:20 AM | 2 Likes Like |Link to Comment
  • The Equity / Inflation Connection [View article]
    Time frame is indeed important, but I think in the short-term markets seem to only really care about whether inflation or deflation will occur in the next few years. Numerous studies have shown that correlations remain above historical averages among stocks and sectors, as assets move in tandem on economic inflation/deflation risks.
    Sep 21, 2010. 11:13 AM | Likes Like |Link to Comment
  • Inflation or Not, That Is the Question [View article]
    While it appears that inflation is perhaps the only real way to resolve the huge debt loads developed economies have, it still remains unclear if policy makers can cause it to happen. The global labor "arbitrage" trade is still alive and well. Cheap labor overseas (with populations getting more and more educated) is ultimately a deflationary force and a large one at that.
    Sep 21, 2010. 10:24 AM | Likes Like |Link to Comment
  • Gold, Treasuries and Dollar ETFs: Connecting the Dots [View article]
    Excellent article and comment. I think there could be another reason for Gold to break to new highs. With the Fed's intervention in the Treasury markets, and currency debasement abound by what appears to be every single country, Gold becomes the "intervention-less" defensive trade. In other words, investors who want to hedge their portfolios don't know if policy action could mess up their thesis, and Gold appears for now to be void of that.
    Sep 21, 2010. 10:15 AM | Likes Like |Link to Comment
  • Trouble Brewing for the Colombia ETF? [View article]
    Quick note on ETF liquidity - because these are funds, daily volume is not the only thing to be considered. So long as the bid/ask spread is not too wide, daily volume in an ETF should not mean much in terms of liquidity.
    Sep 21, 2010. 10:05 AM | 1 Like Like |Link to Comment
  • Treasuries Are Getting Buried [View article]
    With the tremendous fund flows that have gone into fixed income since the March lows, I tend to think of the expression "the crowd is right on average, but wrong at the extremes."
    Sep 17, 2010. 11:23 AM | Likes Like |Link to Comment
  • Are Black Swans Not So Black Anymore? [View article]
    To the issue of rising tail risk - is the tail risk rising in equities or bonds? Even Mr. Taleb has stated that the real black swan for him would be a failed government auction. So while there may be bets of an equity crash extreme event, perhaps the real event occurs in Treasuries.
    Sep 17, 2010. 11:16 AM | 1 Like Like |Link to Comment
  • Is the Risk-Off Trade...Off? [View article]
    You bring up a good point. The argument I would make here is that from a flow of funds perspective, as money gets reallocated away from risk-off assets, it could very well be a source of demand for risky assets going forward. In addition, given the magnitude of outperformance in these assets in the absence of an actual shock/event, I would argue that extremes have occurred in Treasuries and the Yen specifically, and not in the stock market.
    Sep 17, 2010. 09:38 AM | Likes Like |Link to Comment