PRF: Fundamental Indexing Seems to Be Working [View article]
Regarding fundamental indexing, my study of varying core equity ETFs last December suggests the advantage may not come from the fundamentals, but from the underperformance over the period of the largest cap stocks (though this could be the same, i.e. the largest stocks had the weakest fundamentals).
The best evidence for this is that PRF and the equal weight S&P 500 as represented by RSP tracked nearly identically since PRF's inception, both outperformed SPY by nearly the same amount, and they carried similar yields.
If/when mega caps return to favor, for example as they did during the late 90s bull market, I wonder whether this trend will continue?
I noticed this as well in some of my work. Check out the correlation between PRF and RSP. I haven't proven this conclusively, but given the laggard performance of several mega caps - not only the big banks - since the financial crisis, it could be that anything other than a cap weighted index won't look like the SPX during this period. Bill Miller and some of the other large cap value guys might have better insight on this, but my guess it that the biggest caps have been a drag on the SPX: BAC, PFE, GE, XOM (until recently), maybe MSFT and INTC. What do you think?
Walgreen and CVS Caremark - Same Business, Different Results [View article]
"This is why I don't spend much time looking at book value, it's just a game of smoke & mirrors accountants play."
That is a fair point, which is why we have the concept of tangible book value, a better (IMO) measure of valuation. Can't imagine anyone would invest on that or any other single measure alone. There are more ingredients in the recipe. Economic value added is one that I find very useful: en.wikipedia.org/wiki/...
Shorting Long-Term Treasuries: Four Different ETF Plays [View article]
Well, if you are short a bond, you aren’t receiving any coupons so duration = time to maturity. Let’s say the long bond, currently yielding 3.875%, falls to parity with the 30 year German bund at 3.25%. Your capital loss could be nearly 20%.
Now, it's anyone's guess whether that will happen, and the risk/reward if you plan to hold the short as a long term position may be reasonably attractive; we probably all agree that at some point the long bond will be a screaming short.
My argument is, from a technical perspective, that time is not yet, so shorting here would be premature and exposes the investor to losses. When the downtrend in yields is decisively broken, then it’s game on. For now, I don't like longer term treasuries from the long or the short side.
Shorting Long-Term Treasuries: Four Different ETF Plays [View article]
Do you really want to fight the Fed just after they put QE2 in the on deck circle? 10 and 30 year treasury yields are finding resistance at the 50 day moving average, though the 30 yr briefly broke above it in last week's risk rally. As to whether they can fall further, check the yields on the German 30 year bund; we won't even mention Japanese gov't bonds.
Certainly the US in most respects is different from both Germany and Japan but I would not risk shorting the long bond here.
The pop in the SPX and drop in Treasuries was predictable based on last week's price and volume action - especially in the bonds, and I called it over the weekend on my blog. However, I saw it only as a swing trade, and still do. It doesn't look like the kickoff for a bull run (sorry Larry), though I'm not super bearish on stocks at this point either.
Qualcomm: Intelligent Investment in Today's Market? [View article]
Whatever the fundamental case, the market doesn't appear to be buying it. Huge drop on blowout volume in January, falling relative strength, and declining money flow since June 2009. It takes more than good fundamentals to make a stock attractive. If institutional buying comes into QCOM, then I would consider it.
I believe you are looking at the wrong foreign markets. At the beginning of the week I went through the same exercise, only with the BRICs instead of EFA and IEV. My conclusion: these leading markets were finding support, which led me to put on some long equity positions for a tactical trade. Any ETF with a heavy exposure to Europe will be distorted by the special situation there, and in any event, Europe has not been a leader in quite a long time
Thoughts on the Markets, Sovereign Debt, The EU and the Right Time to Invest [View article]
At times like this, tuning out the commentary and looking soberly at the technical indicators is a good way to protect oneself from emotionally driven portfolio moves. At some point it will be time to go long stocks and commodities, and the market will pretty much tell us when.
To take issue with the statement "instead of last year’s Treasury issuance, minus Fed purchases, you would have this year’s issuance (higher anyway, since the deficit is larger and more debt is maturing) plus Fed sales"
CNBC is wrong as usual. It seems analysts who actually follow the Treasury market for a living forecast LOWER issuance for the current year. A healthy skepticism is warranted in any event, but it appears that this despised asset class has failed to break down (see charts), and if your scenario of chaos in Euroland - with which I tend to agree - comes to pass, Treasuries may catch a safe haven bid. I don't like them as a longer term holding, but I wouldn't fade them here either.
Thank you again Mr. Shaw for another concise and helpful post. From PIMCO's analysis, we can see a positive market risk/reward profile in the 10 yr Treasuries, and a reasonably attractive coupon as well.
Inside Inflation: Services vs. Durable Goods [View article]
Many will no doubt note that foreign production and low tariffs have held down durable goods costs in the US. It may also be significant that so many areas of services are regulated (financial services), or subsidized (education), or transacted via third party payers (health care), relative to durable goods. I would like to see an analysis along those lines.
PRF: Fundamental Indexing Seems to Be Working [View article]
The best evidence for this is that PRF and the equal weight S&P 500 as represented by RSP tracked nearly identically since PRF's inception, both outperformed SPY by nearly the same amount, and they carried similar yields.
If/when mega caps return to favor, for example as they did during the late 90s bull market, I wonder whether this trend will continue?
My original article is here:
seekingalpha.com/artic...
The PRF Mystery [View article]
I noticed this as well in some of my work. Check out the correlation between PRF and RSP. I haven't proven this conclusively, but given the laggard performance of several mega caps - not only the big banks - since the financial crisis, it could be that anything other than a cap weighted index won't look like the SPX during this period. Bill Miller and some of the other large cap value guys might have better insight on this, but my guess it that the biggest caps have been a drag on the SPX: BAC, PFE, GE, XOM (until recently), maybe MSFT and INTC. What do you think?
A Multi-Asset Investment Strategy for Individual Investors [View article]
Walgreen and CVS Caremark - Same Business, Different Results [View article]
it's just a game of smoke & mirrors accountants play."
That is a fair point, which is why we have the concept of tangible book value, a better (IMO) measure of valuation. Can't imagine anyone would invest on that or any other single measure alone. There are more ingredients in the recipe. Economic value added is one that I find very useful: en.wikipedia.org/wiki/...
Shorting Long-Term Treasuries: Four Different ETF Plays [View article]
Now, it's anyone's guess whether that will happen, and the risk/reward if you plan to hold the short as a long term position may be reasonably attractive; we probably all agree that at some point the long bond will be a screaming short.
My argument is, from a technical perspective, that time is not yet, so shorting here would be premature and exposes the investor to losses. When the downtrend in yields is decisively broken, then it’s game on. For now, I don't like longer term treasuries from the long or the short side.
Shorting Long-Term Treasuries: Four Different ETF Plays [View article]
Certainly the US in most respects is different from both Germany and Japan but I would not risk shorting the long bond here.
So How'd You Like That ISM Number? [View article]
marketnavigator.wordpr.../
Qualcomm: Intelligent Investment in Today's Market? [View article]
The Long Awaited Interim Bounce [View article]
I believe you are looking at the wrong foreign markets. At the beginning of the week I went through the same exercise, only with the BRICs instead of EFA and IEV. My conclusion: these leading markets were finding support, which led me to put on some long equity positions for a tactical trade. Any ETF with a heavy exposure to Europe will be distorted by the special situation there, and in any event, Europe has not been a leader in quite a long time
Thoughts on the Markets, Sovereign Debt, The EU and the Right Time to Invest [View article]
The Drama Isn't Over [View article]
You may wish to review the following Financial Times article:
www.ft.com/cms/s/0/915...
CNBC is wrong as usual. It seems analysts who actually follow the Treasury market for a living forecast LOWER issuance for the current year. A healthy skepticism is warranted in any event, but it appears that this despised asset class has failed to break down (see charts), and if your scenario of chaos in Euroland - with which I tend to agree - comes to pass, Treasuries may catch a safe haven bid. I don't like them as a longer term holding, but I wouldn't fade them here either.
10-Year Treasury Trading Range [View article]
The Yuan, The Dollar: Repeating the Policy Mistakes of the Great Depression [View article]
Inside Inflation: Services vs. Durable Goods [View article]
Contrarian Trade of the Decade: The U.S. Dollar [View article]