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Roman Chuyan

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  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    James, it appears that your pre-concieved conclusion to start selling equities contradicts your analysis. From mid-cycle (assuming you know that we are, in fact, in it), we will continue to late-cycle, likely with higher P/Es (which you exclude from analysis for some reason). Then we may form a "bubble" (which you say you fully expect) during which equities will rally (markets rally when a bubble forms, and drop when it bursts later). So, we have late-cycle and a bubble formation ahead.
    Apr 12 10:59 AM | 1 Like Like |Link to Comment
  • The King Is Dead, Long Live The King [View article]
    If this idea had any validity, then interest rates would have jumped, based on Bullard's and Yellen's messages of rising rates ahead, and the fact that 'we all know that everyone heard the message' or whatever. But wait, 2y Treasury is exactly the same now as it was on Mar 31, and 8 bps higher from Feb 28th - that's all.
    Apr 8 12:58 PM | Likes Like |Link to Comment
  • 17.8%-Yielding CEFL - Diversification On Top Of Diversification, Or Fees On Top Of Fees? [View article]
    @ nytex:

    I do like MORL, it's just 2x mREITs (REM). mREITs have been around forever, and I know why REM's price dropped in 2008 (MORL wasn't around back then) - because of mortgage defaults during the crisis, magnified by leverage (see my article on REM).

    I admit that I don't know why exactly the dividends and prices dropped for CEFL component funds, most in 2009-11 (in good times, not in bad!). There are a variety of assets types (debt, commodity, global) in CEFL, it would take a while to research. And a variety of ways to boost yield: covered call selling, futures price term structure, in addition to leverage (seems to be multiple levels of it). I'm afraid that higher dividends/prices will not return.

    But perhaps the fact that there is such wide variety of risks in CEFL is good as diversification. Just be sure not to concentrate too much of your assets in it.
    Mar 31 04:49 PM | 1 Like Like |Link to Comment
  • 17.8%-Yielding CEFL - Diversification On Top Of Diversification, Or Fees On Top Of Fees? [View article]
    Dear Prof. Brofman -

    You ought to look further than just the current payout. For most of the component funds, dividends and prices dropped significantly in the last 2-3 years. E.g. for AOD, dividend dropped from $.24 in 2010 to $.057 now, and price from $18 to $8.3 now (perhaps AOD is extreme, others show smaller, but still 40%-50% drops).

    Seems that CEFL is more complicated than exposures to US equities and interest rate/credit, and requires more careful analysis of underlying risks. Some of the funds may be cases of front-loading the payout..

    Mar 28 05:14 PM | 2 Likes Like |Link to Comment
  • Mortgage REITs Are Buys [View article]
    Folks pointed out the risk of rising rates (or duration risk) in REM. My point is not that REM is low risk - it is, in fact, risky (as all investments are, if you aspire to earn higher return than, say, 1% p/a). The main contribution I was trying to make was measuring what those risks actually are - about 14 duration, and about 0.5 Beta. Knowing risks & expected returns, we can now compare REM/ mREITs to some alternative asset classes, such as long-term Treasuries and corporate bonds. For example, Vanguard LT Corp Bond (VCLT) has about the same duration, 13.5, and a yield of 4.8%. With 12%, REM clearly provides superior return on duration risk, and I'd say that its credit risk is comparable to LT bonds.

    So for someone who's considering, or already holding LT bonds, REM is a better alternative (assuming they also accounted for, and are comfortable with, the equity-type Beta of 0.5). In fact, one can replace all their LT bonds with 1/2 of REM (slashing duration risk in half), and still increase expected yield from 4.8% to ~6%.
    Mar 25 11:06 AM | 2 Likes Like |Link to Comment
  • Mortgage REITs Are Buys [View article]
    @tstreet, you raise a legitimate concern. mREITs dropped so much in the bear market of 2007-08 in part because foreclosures during the real estate/mortgage crisis damaged their mortgage portfolios significantly. mREITs are a levered position in mortgages, so the effect of defaults on their equity is multiplied by leverage. The damage was permanent, so their book value (and price) did not recover.

    REM's Beta to the S&P 500 is about 0.5 (in our two-factor model that includes interest rates), so I would expect mREITs to drop in a "normal" bear market that doesn't involve a real estate crisis by 1/2 of the S&P 500.

    All of this (and the article) looks at REM as a stand-alone investment; REM/ mREITs also have a low correlation with equities which reduces risk of the overall balanced portfolio - an additional benefit not to be ignored.
    Mar 23 04:04 PM | 3 Likes Like |Link to Comment
  • Emerging Market Banking Crises Are Next [View article]
    Asia C - great work, and your conclusion of EM weakness, especially China (FXI), was spot-on.

    I'd like to clarify Foreign Reserves at the Fed. You show just ~2y chart. The series that I found starts in mid-2007 - here's the longer-term chart: http://bit.ly/O8yrms

    You can see that the series was flattish/declined in 2007, but so it also did in 2011, and that didn't precede any crises. So it's probably not as reliable as it sounds (just as any one stand-alone indicator), but more so as one piece of the puzzle.

    Anyway, I have no doubt that the credit bubble in China is very large and is about to unravel.
    Mar 13 06:09 PM | Likes Like |Link to Comment
  • Emerging Market Banking Crises Are Next [View article]
    Asia C - great work, and your conclusion of EM weakness, especially China (FXI), was spot-on.

    I'd like to clarify Foreign Reserves at the Fed. You show just ~2y chart. The series that I found starts in mid-2007 - here's the longer-term chart: http://bit.ly/O8yrms

    You can see that the series was flattish/declined in 2007, but so it also did in 2011, and that didn't precede any crises. So it's probably not as reliable as it sounds (just as any one stand-alone indicator), but more so as one piece of the puzzle.

    Anyway, I have no doubt that the credit bubble in China is very large and is about to unravel.
    Mar 13 06:09 PM | Likes Like |Link to Comment
  • Faber's Ivy Portfolio: As Simple As Possible, But No Simpler [View article]
    We didn't expect moving averages to give us superior returns/risk, did we? Let us look at the track record. Faber's Cambria Global Tacticl ETF (GTAA) 3-year performance is just awful, at -0.4% p/a. That tells us something about a simplistic "trading system" which is based just on a technical indicator. It can not work. Market may not be fully efficient, but give it some credit.

    If one undertakes an active strategy (TAA or other), one should look at manager/method that has skill/edge that's resistant to crowding out - a consistent proprietary model, based on multiple factors (I'd recommend fundamental factors, not technical), etc.

    Otherwise, there's nothing wrong with passive investing - just buy-and-hold a mix of broad index ETFs. a 60/40 stock-bond portfolio earned 13.7% p/a in 5y, 6.7% p/a in 10y, with a 10y Sharpe of 0.45.
    Feb 20 12:51 PM | Likes Like |Link to Comment
  • Bonds: Low Return, High Risk Asset For 2014 And Beyond [View article]
    Matthew - thanks. I agree that expected mid-term (1-3 years) bond return depends on one's view on rates. Interestingly, most observers actually expect rates to rise my more than 0.5% p/a that I provided in my article.

    Note that my objective here is to look at asset allocation over the next 1-3 years, with emphasis on 2014. It is intended for investors/ managers who actively manage their asset allocation. Yes, investors who can/want to hold 7-10y bonds to maturity would earn the yield. A not-so-obvious problem is - this is true ONLY if you hold individual bonds, not a bond fund/ETFs. In a fund/ETF (which is how almost everyone invests in bonds), investors never hold anything to maturity - the manager re-invests.

    Most investors manage their asset allocation somewhat actively - in fact, I see very few who during review leave it mostly unchanged. In this environment in particular, they don't want to lock-in so low return 3-3.5% (before expenses) - and I can't see why they would. Most investors aspire for a higher return than that.

    Diversification benefits are well-known - but that's the means to an end - risk-adjusted total return. My point of the article is - reduce (and try to eliminate) duration exposure from the bond portion, even if you leave the allocation unchanged.
    Dec 23 02:14 PM | Likes Like |Link to Comment
  • What Do You Mean I Can't Beat The Market? [View article]
    @Paul W - I wouldn't say that it's doomed - most active managers do underperform, but some consistently deliver above-index returns. A manager must have an edge/skill that allows him/her to outperform. That edge must be identifyable, and must withstand copying/ crowding-out - after all, markets are somewhat efficient. In addition, it's more expensive to run an active strategy, so active management has to cope with that expense drag.
    Dec 10 06:09 PM | 2 Likes Like |Link to Comment
  • What Do You Mean I Can't Beat The Market? [View article]
    Larry, great article. Agree that performance should be compared to a benchmark with higher mid/small-cap component - because it better matches the risk of OFALX (though an unmanaged index/ETF may be better as BM). Then, using the proper BM, the manager is basically misleading (in addition to being arrogant) in the statement you cite, because he doesn't beat index after fees.
    Which is the case for most active managers; and passive index investing certainly has its place.
    Dec 10 11:52 AM | Likes Like |Link to Comment
  • Why The Fed Won't Taper In December [View article]
    At this point tapering has become old news, folks are in "taper already" mindset (which btw shows that the Fed did a superb job communicating it). So when it actually happens it will be a relief for the markets - and better in December than in March, no reason to keep this uncertainty around for much longer.

    Our latest forecast for the SP 500 6m return is significantly positive. Find out more here http://bit.ly/1e1MJAL
    Dec 10 10:56 AM | 1 Like Like |Link to Comment
  • Why The Fed Will Keep Markets Guessing On Taper [View article]
    Yes, tapering has become old news, folks are in "taper already" mindset, so when it actually happens it will likely be a relief for US equities (and better in Dec, unnecessary to keep this uncertainty until Mar). Which shows that the Fed has done a superb job on communicating tapering (minor inconsistencies are not that important).

    Our latest forecast for the SP 500 6m return is significantly positive, based on our fundamental factors. Find out more here http://bit.ly/1e1MJAL
    Dec 9 06:15 PM | Likes Like |Link to Comment
  • Is A Fed Taper Bullish Or Bearish For Stocks? [View article]
    Cam, good material, if somewhat inconclusive. If "equities will continue to grind higher into 2014" is your conclusion (there are always risks) - I agree. With respect to tapering - agree with @Jack H - at this point tapering has become old news, folks are in "taper already" mindset, so when it actually happens it will be a relief, and better in December than in March.

    Our latest forecast for the S&P 500 6m return is significantly positive. Find out more here http://bit.ly/1e1MJAL
    Dec 9 06:03 PM | Likes Like |Link to Comment
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