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O. Young Kwon
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O. Young Kwon, NYU Ph.D. in Economics had worked in securities industry for ten years as a Registered Investment Adviser. He taught Macroeconomics and Statistics. Prior to his academic career, he was an Economist/Bank Supervisor at the Bank of Korea (the Fed's counterpart). In 2009 he set up the... More
  • The Daily Market Information (DMI) (Nov. 7, 2014, Friday) (S)

    Seekingalpha

    How A Portfolio with Dual Controls Made Its Joyful Journey Over The 2014 Mid-October Market Rout, Halloween Surge, and The Election Rally. http://seekingalpha.com/instablog/791632-o-young-kwon/3441995-how-a-portfolio-with-dual-controls-made-its-joyful-journey-over-the-2014-mid-october-market-rout-halloween-surge-and-the-election-rally

    The main focus of this article is an investment strategy with a (passive)Vanguard-index Portfolio since October.

    The major clients of Seekingalpha - active mutual and hedge fund managers, the managed (or smart) index (exchange traded) fund managers and other fee-seeking managers - do not welcome this article because most of them cannot beat the traditional passive bench mark indexes.

    One of the fans of this article, however, must be John C. Bogle who is "founder of index-fund giant Vanguard Group and an outspoken advocate for index investing…Fight the urge, Mr. Bogle advises. 'ETFs are fine, so long as you don't trade them,' he says. "But you'll be tempted, usually at a bad time. They're dangerous to your wealth." (By Hnathan Burton of MarketWatch, Wall Street Journal, Nov. 4, 2014, Pp. R1-2)

    Mr.Bogle had interviews with MorningStar as follow.

    The Daily Market Information (DMI) (Oct. 31, 2014, Friday)

    Morningstar

    Bogle: Latest Investor Trends Are Just That - Trends. www.morningstar.com/cover/videocenter.as...

    The Daily Market Information (DMI) (Oct. 30, 2014, Thursday)

    Morningstar

    Bogle: Little Wiggle Room for Investment Returns. http://www.morningstar.com/Cover/videoCenter.aspx?id=670426

    To view related articles, link:

    How A Portfolio with Dual Controls Made Its Joyful Journey Over The 2014 Mid-October Market Rout, Halloween Surge, and The Election Rally. seekingalpha.com/instablog/791632-o-youn...

    A Satisfactory Portfolio Adjustment For The 2014 Market Tumult http://seekingalpha.com/article/2578705-a-satisfactory-portfolio-adjustment-for-the-2014-market-tumult

    I have no business relationship with either Vanguard or Mr. Bogle.

    Nov 09 5:57 AM | Link | 1 Comment
  • How A Portfolio With Dual Controls Made Its Joyful Journey Over The 2014 Mid-October Market Rout, Halloween Surge, And The Election Rally.

    On October15 Markets were at the bottom of October, and S&P 500 and Dow closed at their record highs on October 31 (Halloween0), so was our Portfolio.

    • The main force of the unusual swift market down- and up- swings was the miscalculations of investors about the impacts of global-growth and geopolitical risks.
    • The targets of the A-A Decision and the C/C Ratio are 75: 25 and 10%, respectively. Our Portfolio outperforms S&P 500 by .0.4 % for the month (4.8 % annually), even though the gap narrowed.
    • The markets soared after Republican win on the midterm elections. In the short run, we have to caution to anticipate the positive relationship between the continuing market gains and the Republican majority in Congress.

    October is one of the most dangerous months. This October was not an exception. Over the entire month, the markets wiggled, seesawed, and tricked. The markets plunged sharply and swiftly on October 15, making their troughs in the month. On October 31 (Halloween) the markets jumped, letting the S&P 500 Stock Index and the Dow Jones Industrial Average close at their all-time highs. It turned out to be a happy ending, but most investors went through a treacherous loop of the markets, making some unintended mistakes and losses.

    Although the October market turmoil was a sharp drop within a short period, it differs from the 2007-08 financial turmoil in three distinguishable factors: First, the global short-term credit system was frozen in 2007-08 while it is sound in October. Second, a severe recession started at that time, while a recession is expected to be at least a couple of years away now. Third, equity and bond prices largely coupled then, meaning both were down together toward cash, while they were almost completely uncoupled, meaning stocks up and bonds down in October. Therefore, the October market tumult was a healthy market correction, opposed to what most investors believe that it was a market crash.

    November Started with much more volatile oil prices which affected the markets unevenly. Wednesday and Thursday the S&P 500 and the Dow were closed at their records in two days in a row. They are the 37th in the S&P at 2,031.21, and the 21st in the Dow at 17,554.41. It's a really vehement market advance, fueled by the Republican victory, and bolstered by the U.S. upbeat economic data and the ECB's comment to increase its balance sheet by almost 1 trillion euros ($1.25 Trillion). The White House and the leaders of the Congress already started to lay out the legislation agenda for two years. A smooth progress is not likely because the government is still divided and there are few common grounds for both parties.

    To weather a looming storm or a significant correction, a dual Portfolio that contains one long-term major mutual-fund Portfolio (70% of the capital) and two shot-term brokerage accounts (30%). The components of the Portfolio are 15 Vanguard index mutual funds that are low-cost, tax efficient, and well-tracked. On the last day of October (Halloween) the bank of Japan shook the markets by its unexpected additional stimulus. The Japan Pension Fund also followed suit,. All global markets were simultaneously lifted. The S&P 500 and the Dow were closed at their records, and so was our Portfolio.

    Our portfolio with Vanguard funds has a few important advantages. First, since our Portfolio is well-diversified in terms of asset and fund allocations, we have opportunities to exchange between funds in case of a swift upswing or down unless stocks and bonds move down synchronously as the markets in 2007-08. Second, exchange of funds in the same company is free. Third, an exchange is a rebalancing so that a huge adjustment can be accomplished by a few exchanges efficiently and promptly within a couple of days. Forth, fund trading is cleared at closing so that we can avoid any costly mistakes in trading during session. Fifth, monitoring price moves of ETFs as proxies of their associated mutual funds, we can make a mutual-fund exchange list before closing.

    The Table 1 depicts the Vanguard mutual-fund exchanges in October: Main exchanges were made on Oct. 14 and Oct. 15. The Intermediate-Bond Fund, the Short-Term Bond Fund and the Treasury Inflation Protection Securities fund (NYSEARCA:TIP) were sold at a high. All other exchanges were minor rebalancing. Vanguard imposes a restriction on exchange: If we sell any fund through exchange Vanguard doesn't allow to buy the fund back on phone or internet for two months, but still we can buy it by mail.

     

    Table 1: Exchange of Vanguard Mutual Funds

         
     

    DATE

    FROM

    TO

    NOTE

     

    10/14/2014

    VBILX ($BIV) (13.6)

    VTSAX ($VTI) (3.07%)

    Oil Dropped

     

    VEXAX ($VXF) (3.07%

     

    VBTLX ($BND) (7.46%)

      
     

    VBIRX ($BSV) (20.1)

    VIGAX ($VUG) (1.0)

     

    VSMAX ($VB) (1.0)

     

    VGELX ($VDE) (2.1)

       
     

    10/15/2014

    VVIAX ($VTV) (3.1%)

    VTIAX ($VXUS) (3.1%)

    Stocks Plunged

     

    VFIAX ($VOO) (7.3%)

    VTIAX ($VXUS) (0.8%)

     

    VIGAX ($VUG) (3.3%)

     

    VSMAX ($VB) (3.2)

     

    VAIPX (TIP) (13.2%)

    VTSAX ($VTI) (1.0%)

     

    PMM (cash) (12.2%)

     

    10/16/2014

    PMM (cash)(1.0%)

    VEXAX ($VXF) (1.0%)

     
     

    10/17/2014

    PMM (cash)(2.0%

    VTSAX ($VTI) (1.0%)

     
     

    VEXAX ($VXF) (1.0%)

     
     

    10/29/2014

    VDADX ($VIG) (1.0%)

    PMM (cash)(1.0%)

    Rebalancin

     

    10/30/2014

    VDADX ($ViG) (1.0%)

    PMM (cash)(1.0%)

     
     

    10/31/2014

    PMM (cash)(2.0%)

    VBTLX ($BND) (1.0%)

    Stocks Surged

     

    VTABX ($BNDX) (1.0%)

     
     

    1165/2014

    VDADX ($ViG) (1.0%)

    PMM (cash)(1.0%)

     
         

    Note1 : The Vanguard Mutual Fund

     

    SYMBOL

    ETF

    NAME

     
     

    VBILX

    BIV

    Vanguard Intermediate-Term Bond Fund

     

    VBIRX

    BSV

    Vanguard Short-Term Bond Fund

     
     

    VTSAX

    VTI

    Vanguard Total Stock Market Fund

     

    VEXAX

    VXF

    Vanguard Extended Stock Market Fund

     

    VBTLX

    BND

    Vanguard Total Bond Fund

     
     

    VIGAX

    VUG

    Vanguard Groeth Fund

     
     

    VSMAX

    VB

    Vanguard Small-Cap Fund

     
     

    VGELX

    VDE

    Vanguard Energy Fund

     
     

    VVIAX

    VTV

    Vanguard Value Fund

     
     

    VTIAX

    VXUS

    Vanguard International Stock Fund

     

    VFIAX

    VOO

    Vanguard S&P 500 Fund

     
     

    VAIPX

    (TIP)

    Vanguard Treasury Inflation Protection Securities Fund

     

    VDADX

    VIG

    Vanguard Dividend Appreciation Fund

     

    VTABX

    BNDX

    Vanguard World Except U.S. Stock Fund

         

    Note 2: TIP is not Vanguard ETF. It is iShares TIPS Bond ETF

    The current targets of the Asset-Allocation (A-A) Decision is 75:25. The target of the Cash-To-Capital (C/C) Ratio is 10%. Table 2 shows the changes in both Controls - the A-A Decision and the C/C Ratio -, with change in the market (S&P 500). It reflects the portfolio adjustments,

    Table 2: The A-A Decision, The C/C Ratio, & The S&P 5oo

          
     

    A-A DECISION

    C/C

    S&P 500 Stock

    DATE

    STOCKS

    BONDS

    RATIO

    INDEX

    %CH

    9/30/2014

    58%

    42%

    0.0

    1,972.29

     

    10/8/2014

    58%

    42%

    0.0

    1,968.88

    -0.2%

    10/9/2014

    58%

    42%

    0.0

    1,928.21

    -2.1%

    10/10/2014

    57%

    43%

    0.0

    1,906.13

    -1.2%

    10/13/2014

    57%

    44%

    0.0

    1,877.40

    -1.5%

    10/14/2014

    71%

    29%

    0.0

    1,877.70

    0.0%

    10/15/2014

    73%

    27%

    12.1

    1,860.49

    -0.9%

    10/16/2014

    73%

    27%

    11.1

    1,862.76

    0.1%

    10/17/2014

    75%

    25%

    9.0

    1,896.76

    1.8%

    10/20/2014

    75%

    25%

    8.9

    1,904.01

    0.4%

    10/21/2014

    76%

    24%

    8.8

    1,941.28

    1.9%

    10/22/2014

    76%

    24%

    8.9

    1,927.11

    -0.7%

    10/23/2014

    76%

    24%

    8.8

    1,900.42

    -1.4%

    10/24/2014

    76%

    24%

    8.8

    1,964.58

    3.3%

    10/27/2014

    76%

    24%

    8.8

    1,961.63

    -0.2%

    10/28/2014

    76%

    24%

    8.7

    1,985.05

    1.2%

    10/29/2014

    75%

    25%

    9.7

    1,982.30

    -0.1%

    10/30/2014

    74%

    26%

    10.6

    1,994.65

    0.6%

    10/31/2014

    74%

    26%

    8.6

    2,018.05

    1.2%

    11/3/2014

    75%

    45%

    8.6

    2,017.81

    0.0%

    11/4/2014

    74%

    26%

    8.6

    2,012.10

    -0.3%

    11/5/2014

    74%

    26%

    8.6

    2,023.57

    0.6%

    11/6/2014

    73%

    27%

    9.6

    2,031.21

    0.4%

    The performance comparison between our Portfolio and the S&P 500 is summarized in Table 3. Our Portfolio (which is dividend-reinvested) outperformed S&P 500 by 2.88% on Oct. 13, but the gap gradually narrowed to be just 0.55 on Oct. 31. If we add the monthly yield (0.15%) to the S&P 500 performance (2.29), the total performance was 2.44%, resulting that our Portfolio still outperformed by 0.40% (=2.84%-2.44%). That is, not bad because 25% of bonds (including cash) dampened somewhat on the market upswings in a near ter.

    Table 3: Performance Comparison: Portfolio vs. S&P 500 Stock Index

            
     

    Portfolio

    S&P 500

    Perf

    DATE

    9/30 = 100

    % ch

    Cum % Ch

    INDEX

    % ch

    Cum % Ch

    Diff

    9/30/2014

    100.00

      

    1,972.29

       

    10/8/2014

    99.96

    -0.04%

    -0.04%

    1,968.88

    -0.17%

    -0.17%

    0.13%

    10/9/2014

    99.37

    -0.59%

    -0.63%

    1,928.21

    -2.09%

    -2.26%

    1.63%

    10/10/2014

    97.91

    -1.48%

    -2.11%

    1,906.13

    -1.15%

    -3.41%

    1.30%

    10/13/2014

    97.16

    -0.77%

    -2.88%

    1,877.40

    -1.52%

    -4.93%

    2.05%

    10/14/2014

    97.32

    0.16%

    -2.72%

    1,877.70

    0.02%

    -4.91%

    2.20%

    10/15/2014

    97.23

    -0.09%

    -2.81%

    1,860.49

    -0.92%

    -5.84%

    3.03%

    10/16/2014

    97.54

    0.32%

    -2.49%

    1,862.76

    0.12%

    -5.71%

    3.22%

    10/17/2014

    98.21

    0.68%

    -1.81%

    1,896.76

    1.81%

    -3.90%

    2.10%

    10/20/2014

    98.84

    0.64%

    -1.17%

    1,904.01

    0.38%

    -3.52%

    2.36%

    10/21/2014

    100.26

    1.43%

    0.26%

    1,941.28

    1.94%

    -1.58%

    1.84%

    10/22/2014

    99.46

    -0.80%

    -0.54%

    1,927.11

    -0.73%

    -2.32%

    1.78%

    10/23/2014

    100.46

    1.00%

    0.46%

    1,960.42

    1.71%

    -0.60%

    1.06%

    10/24/2014

    100.74

    0.28%

    0.74%

    1,964.58

    0.21%

    -0.39%

    1.13%

    10/27/2014

    100.38

    -0.36%

    0.38%

    1,961.63

    -0.15%

    -0.54%

    0.92%

    10/28/2014

    101.66

    1.27%

    1.65%

    1,985.05

    1.19%

    0.64%

    1.00%

    10/29/2014

    101.47

    -0.19%

    1.46%

    1,982.30

    -0.14%

    0.51%

    0.95%

    10/30/2014

    101.84

    0.36%

    1.82%

    1,994.65

    0.62%

    1.13%

    0.70%

    10/31/2014

    102.88

    1.02%

    2.84%

    2,018.05

    1.17%

    2.29%

    0.55%

            

    Note: The percent change formula: 200*(B-A)/(B+A)

    The A-A Decision is a macro-allocation and The Fund Allocation is a micro-allocation. The former works reliably when all sectors in each asset - equity and bond-are more synchronized, meaning that the correlations among sectors are higher. When the correlations are lower, the latter (or security allocation) becomes more important. Currently the correlations have been getting higher since a couple of years ago so we have to pay more attention on the fund (or security) allocation.

    Table 4 Vanguard Mutual Fund Allocation.

           

    Vanguard Mutual Fund

    DATE

    SYMBOL

    ETF

    10/13/2014

    10/14/2014

    10/15/2014

    10/31/2014

    11/17/2014

    VMMXX

    PMM

    0.0%

    0.0%

    12.0%

    8.6%

    9.5%

    VTSAX

    VTI

    8.1%

    11.2%

    12.2%

    13.5%

    13.6%

    VEXAX

    VXF

    3.9%

    11.3%

    11.2%

    13.6%

    13.6%

    AFIAX

    VOO

    7.2%

    7.2%

    0.0%

    0.0%

    9.0%

    VIGAX

    VUG

    5.2%

    6.2%

    9.5%

    9.5%

    9.8%

    VSMAX

    VB

    4.7%

    5.7%

    9.1%

    9.4%

    9.4%

    VVIAX

    VTV

    3.3%

    3.1%

    0.0%

    0.0%

    0.0%

    VGELX

    VDE

    8.5%

    10.5%

    10.4%

    10.4%

    10.4%

    VDADX

    VIG

    10.0%

    10.1%

    10.0%

    8.2%

    7.3%

    VTIAX

    VXUS

    6.3%

    5.7%

    9.5%

    9.5%

    9.3%

    VTLX

    BND

    6.3%

    9.6%

    9.7%

    10.0%

    10.1%

    VTABX

    BNDX

    6.3%

    6.3%

    0.0%

    7.0%

    7.0%

    VAIPX

    (TIP)

    13.1%

    13.1%

    0.0%

    0.0%

    0.0%

    VBILX

    BIV

    13.0%

    0.0%

    0.0%

    0.0%

    0.0%

    VBIRX

    BSV

    4.1%

    0.0%

    6.4%

    0.0%

    0.0%

    TOTAL

    100.0%

    100.0%

    100.0%

    100.0%

    100.0%

           

    Note 1: The Vanguard Mutual Fund

    SYMBOL

    ETF

    NAME

    VMMXX

    (NYSE:PMM)

    Vanguard Prime Money Market Fund

    VTSAX

    VTI

    Vanguard Total Stock Market Fund

    VEXAX

    VXF

    Vanguard Extended Stock Market Fund

    AFIAX

    VOO

    Vanguard S&P 500 Fund

    VIGAX

    VUG

    Vanguard Growth Fund

    VSMAX

    VB

    Vanguard Small-Cap Fund

    VVIAX

    VTV

    Vanguard Value Fund

    VGELX

    VDE

    Vanguard Energy Fund

    VDADX

    VIG

    Vanguard Dividend Appreciation Fund

    VTIAX

    VXUS

    Vanguard International Stock Fund

    VTLX

    BND

    Vanguard Total Bond Fund

    VTABX

    BNDX

    Vanguard World Except U.S. Stock Fund

    VAIPX

    (TIP)

    Vanguard Treasury Inflation Protection Securities Fund

    VBILX

    BIV

    Vanguard Intermediate-Term Bond Fund

    VBIRX

    BSV

    Vanguard Short-Term Bond Fund

           

    Note 2: PMM is Prime Money Market Fund which is cash

    Note 3: TIP is not Vanguard ETF. It is iShares TIPS Bond ETF

    Will the Halloween Surge and the Election Rally sustainable? Will the November-to-January strength prevail this time too? The key to answer these questions is primarily the way of German's response to Japan's Halloween surprise, and the way of the U.S divided government work out. Both Japan and Germany are heavily export-depended, and also the three top exports --- machinery, cars and other transportation equipment, and chemicals - of two countries are identical.

    Germany may be pressured to compromise with the European Central Bank's bond-purchasing programs (QEs) to fight deflation threat and recession menace: If Germany let the ECB's programs expand from the current covered bonds to asset-backed securities, and to corporate bonds, and then finally to government bonds. the markets must jump further, if other things being equal. If Germany continues to withstand the programs, the market will sag.

    There are many risks - economically geopolitically --. If any major risk will improve slightly, the markets will respond vigorously. It's so because in my view, the markets have been suppressed since August. Therefore, the prices of financial assets are not overpriced at the record closing of the S&P 500 last yesterday (Nov. 5). The positive legislative output of the election results is essential whether they will come out by collaboration or through gridlock. because investors will respond to the fruits not to the process. The hot-button issues are national security, banking regulations, and immigration.

    Nov 07 10:19 AM | Link | 3 Comments
  • The Daily Market Information (DMI) (Nov. 6, 2014, Thursday)

    ABOUT The DMI (Daily Market Information)

    Investing is a zero-sum game, meaning when one guy gains, the other guy must lose. In order to win, what must we do? The DMI might help you to have an edge over the other guys. There is too much market information on SA, TV, Newspapers, magazines, etc. The problem is there is too much info to absorb. That's why DMI is brief and well-selected.

    My focus is primarily on news about two areas: The Fed policy and Business Cycles. These are macro topics. DMI is a summary of what I listen to BBR, and read WSJ, Reuters, Bloomberg, AP, and Barons (weekend) from 5:a.m. to 7:00 a.m. everyday.

    With this information and the RED Spread (introduced in my article. Link: www.seekingalpha.com/article/817551) you can grasp the current market situation.

    The Daily Market Information (DMI) (Nov. 6, 2014, Thursday)

    Morningstar

    Is Your Shot-Term Bond Fund More Risky Than You Thought. news.morningstar.com/articlenet/article....

    Bloomberg

    U.K. Industrial Output Rises More Than Forecast on Oil. Cars. tp://bloomberg.com/news/2014-11-06/u-k-indust...

    Five Questions for Mario Draghi From Asset Purchases to Banks. www.bloomberg.com/news/2014-11-06/five-q...

    Market Watch

    President draws lines for Congress on Obamacare. www.marketwatch.com/story/president-draw...

    The Daily Market Information (DMI) (Nov. 5, 2014, Wednesday)

    Bloomberg

    Euro Area Limping Toward Deflation Fuels QE Calls as ECB Meets. www.bloomberg.com/news/2014-11-05/euro-a...

    Reuters

    Euro zone retail sales much weaker than expected. http://www.reuters.com/article/2014/11/05/uk-eurozone-retail-idUSKBN0IP14J20141105

    Market Watch

    Did Wll Street buy this election? http://www.marketwatch.com/story/did-wall-street-buy-this-election-2014-11-05?dist=afterbell

    Obma open to striking deals with GOP congress. http://www.marketwatch.com/story/obama-open-to-striking-deals-with-gop-congress-2014-11-05?dist=afterbell

    What the Republican victory means for your money. www.marketwatch.com/story/what-the-repub...

    Republicans retake Senate in wave election. www.marketwatch.com/story/republicans-re...

    The Daily Market Information (DMI) (Nov. 4, 2014, Tuesday)

    Market Watch

    Oil at 3-year low at Saudi is for U.S. www.marketwatch.com/story/oil-slides-on-...

    Bloomberg

    U.S. Exports Drop From Record in Sign of Global Slowing: Economy. www.bloomberg.com/news/2014-11-04/trade-...

    Reuters

    U.S. factory orders fall, but unfilled orders still rising. www.reuters.com/article/2014/11/04/us-fa...

    The Daily Market Information (DMI) (Nov. 2, 2014, Sunday)

    Morningstar

    Why Interest Rates Could Stay Low for a While. www.morningstar.com/Cover/videoCenter.as...

    The "R" Word and the Eurozone. www.morningstar.com/Cover/videoCenter.as...

    Market Watch

    The bull market in stocks is about to get the "all-clear" signal. www.marketwatch.com/story/the-bull-marke...

    Nov 06 5:33 AM | Link | Comment!
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