Tim Ayles

Tim Ayles
Contributor since: 2009
Company: Napa Wealth Management, Incorporated
I don't think the typical metrics like P/E or any other fundamental metric will signal when the market has topped. When the CB's around the world collectively stop QE programs, then the payback period will begin. Until then, buy with both hands and hold on. As I stated in the article, I think we will go to levels no one is imagining at the moment.
I agree with what you are saying. IMO, buybacks are nothing more than a dividend reinvested but without the tax bite from the dividend. If buybacks are tax free, maybe dividend income should be as well, since it is already net of corporate taxes.
We probably are on the path of Rome, but so is the rest of the world at the moment. As the article implied, the economy is not getting better, and in fact will get worse because of QE. But the stock market and financial assets will continue to soar. If you aren't in, you will fall even further behind. This bubble will make 2000 look like a great time to invest, imo.
Government debt never needs to be repaid for a Sovereign Issuer of a currency. Think of it this way......
The US Government spends money into existence. It doesn't call China and ask for a loan. It doesn't tax you first to get their hands on the money. They always deficit spend the money into existence. If the government spends $1 trillion, that money goes into the bank accounts of you and me and other businesses as well. IF the government runs a surplus and taxes more than it spends, you and I will see the money we have disappear. For the government to pay off the "debt" completely, they will leave the economy with zero money left in it.
You make good points that have merit. For a portion of the portfolio, these types of strategies have their place. Have you seen the whale of this space, Good Harbor? They are down a TON this year. GHUAX is down almost 19% for the year. I just started buying that fund for clients. Why? Because I believe in the long term method and know that the current "unvolatile" market is a method crusher for these types of strategies. The long term results show that the process trumps performance in the short term: http://bit.ly/1qaDIW2
I took a quick look at the strategies of the guys you recommended. At first glance, they are good strategies, but I am not sure of the logic behind them. One looks to have stunk since writing the strategy (Cliff Smith, I replicated it in ETF Replay and it goes straight down) which makes me wonder if it is curve fit. The results from 10 day/5 month are drastically and statistically different from 10 day/4 month for example. A strategy that has such different results from one input change is not very robust at all. That said, I have not given it enough time or thought and that might be an unfair statement.
I would agree that the constant reminders of previous calls and the award winning paper can appear a bit over the top and bombastic. It is a hard balance between marketing, and self-promotion that is attractive vs distracting.
I would disagree still I guess. The S&P 500 is an asset class, not a portfolio or strategy. ATACX, in my due diligence acts more like PRPFX (and has ourperformed it) which is a multi asset, absolute return, buy and hold strategy. That fund has been terrible the past few years during the relentless up market. Does it make sense to say that the Permanent Portfolio is worthless, broken, and a joke? http://bit.ly/Rsgoan Those results would argue against that short term thinking.
The current environment has been making investors who care about diversification and risk look really stupid. When comments begin to be made that the S&P 500 is the bench mark for a diversified, risk adjusted portfolio, you know you are in a strange market. The permanent portfolio is now down this year, and down over the past two years. An investor would have been much better off owning just the S&P 500. Maybe that is all we ever need to do ever again?
Pull up a chart of PRPFX vs. SPY since 01/01/2000 and you will quickly see that a myopic view focused on short term performance alone misses the fact that process trumps performance in the long run. PRPFX has outperformed by almost 3X, even though SPY has outperformed by almost 40% in the past 2 years.
Long term perspective matters in the end.
It's the same reason why you wouldn't stop investing in the S&P 500 if it happened to "lag" his fund by 40% when we get to a period of market volatility where his method will be back in sync. When we get a never ending market with shallow pullbacks and constant V market recovery moves, EVERY strategy that is not just long S&P 500 will look like a turd. If you feel like the last year of never ending up moves and VERY shallow corrections is the way of the future, then you are right...... long S&P 500 only is the way to go.
To compare his fund to the S&P 500 shows you are comparing apples and oranges. There are times when his fund has been 100% in long term Treasuries. Should a fund that is allocated that way be compared to SPY? I don't think so. ATACX is a fund that is designed for and owned for a reason.... and that reason is not comparing it to the S&P 500.
4 years later...... and we are still waiting.....
4 years later..... and it looks like I am still right. Yet, you can never be wrong..... because it is always just around the corner. "Just wait!" Right???
The reason VTI beats the Dow and the S&P 500 is due to it having small and mid cap stocks as well. Pretty much any exposure to small/mid caps over time will outperform a large cap weighting index. RSP holds all 500 S&P 500 stocks, but the equal weighting makes it a mid-cap type ETF. Compare RSP to MDY, and you will see that correlation.
MR is like the police investigator who sits back and is able to tell the difference between real money and counterfeit money. He just observes and defines what is real and what is not from the facts in front of him.
Austrians are like the police investigator who goes a step too far, who doesn't really see the difference in counterfeit money, but wants to make the counterfeit money valid. Rather than just observe the facts, they try to force the impossible. They describe a system that is not actually in play (not real) and want to force it upon everyone and claim that it is valid (the way things should be). MR 1/ Austrian 0
NM.... this article refers to Darren as the source.
NM.... I figured it out. Seems the other article is referring to Darren as the source.
So the chart in this article is the same chart as here:
Would be interesting to know what the true source of the buy/sell recommendations is.
So this is the same chart as this article:
Be interesting to know what the real source of the buy/sell recommendations is.
From a fixed income standpoint, we are showing PFF, HYG, and MBB as the places to park cash for a fixed income allocation. We would concur that for the moment, high yield is in risk on mode still.
I wish I could divulge, but we plan to start a mutual fund around the specifics of the strategy. We will continue to report in the form of generalities in these articles and disclose which sectors one should consider based on this model.
Russell - Indeed the long term results make one want to pay attention to what the model is saying. While I would never advocate investing in only 6 ETF's, what you will notice is risk on and risk off characteristics coming through the changes. As stated in the article, with the model removing 4 defensive ETF's in favor of what is usually considered high beta sectors, the model is giving us a message that now is the time to put your pedal to the metal in the short term.
Not only that Robert...... the QE can actually be deflationary. That should blow Ryan's mind. Assuming you have $1 million in US Treasuries earning $30,000 per year..... the Fed gives you $1 million in cash earning $0 and takes the bond from you. That means there is $30,000 less in income circulating around the country. In order for the investor to replace that income, they have to buy a bond that pays less income..... or take more risk. Most people do not change their risk profiles. The 90 year old retiree isn't going to go and buy Netflix stock now that their bond is gone. You do see stocks and other assets rise while the economy struggles with disinflation though. The question is, are assets over priced on a relative and discounted cash flow basis? The answer is no. As income continues to become scarce through QE programs and a slowing economy, the premium people are willing to pay for the income remaining in the system is high. This is why we are seeing high yield at all time extremes, in the face of gold prices crashing. One pays income, the other does not. IF and when QE ends, you will see bonds ramp and yields fall, just as they have the past two times. Gold? We will see it under $1000.
Oh my. The bond bubble redux. Aye Yi Yi.
I wrote about that silly idea over three years ago. I know.... just wait! Right?
That article will just about refute all of the flaming arrows you think you have in this debate. They are tired.
And I LOVE this scary quote:
"A major depression is inevitable for America because decades of growing debt-financing by consumers, businesses, and state and (especially) federal governments have undermined the health of the economy, giving the appearance of wealth when in fact there is poverty. The enormous private and public debts bring the law of compound interest into play, and it takes no great mathematician or economist to figure out that those who live beyond their means for too long must finally reach the point at which they not only cannot pay off their debts, they can't even pay the interest on them—or find anyone willing to lend enough to cover the interest."
Larry Burkett...... from 1990!
This was from my top read article ever:
Ryan, you really should stop...... you are truly embarrassing yourself at this point. Have a nice evening.
Oh my Ryan..... you have a lot to learn.
QE in fact does nothing.... it is purely an asset swap, not money printing.
As far as the US going bankrupt...... correct, they will not. You are making the grave mistake of assuming the US government is equivalent to a household. Let me give you a quick lesson in reality. There is a massive difference between a currency issuer and a currency user.
Let me give you a quick (very rough) example of the way the system works, although I believe it will fall on deaf ears. Let's pretend I am the government, and as of today, I declare that the new US currency will be vials of sand from a beach that I determine, and I will guard it with force. If you try to make your own vials of sand, I will throw you in jail. The currency you had before is now worthless. Now I come along and tax the property that you own. I tell you that you owe me 100 vials of this sand by X date, and if you don't pay, I will take your property. You now have an incentive to exchange your labor and talents for sand vials. Only problem is, there are no sand vials in the economy. The only way for you to get your hands on sand vials is for me to deficit spend those dollars into existence (and yes, I do realize banks create the money through loans and deposits.... I am just trying to keep this simple for Ryan). The moment I spend 100 sand vials for your goods and services, I am in debt as a government.
Question: Did I call up China to borrow sand vials and now have to worry about them calling my loan? OF course not, silly.
Am I in danger of becoming bankrupt? Who do I owe that money to? Maybe I should run a surplus and pay off this debt that I am in? So now I tax you 100 sand vials and don't spend any into the economy...... once again, there is no currency in the economy.
You see Ryan.... The government deficit = private sector assets and savings/income, wait for it, TO THE PENNY!
I highly suggest you take the time to read that link I graciously provided to help you stop sounding like, well, the way you keep making yourself sound.
Along with that second income came 2X the size home, 3 times the television, 2.5 cars, etc. I have heard this defense often....... and I would much rather live in 2013 than 1950.
Real wages in that chart show that they have been stable. If inflation goes up and wages keep up..... real wages in that chart should be stable. Not sure it is showing a "very different picture" as that implies the opposite. I would trust the FRED charts first though.
John Williams has been calling for hyperinflation for, oh, decades. Not sure he is a trusted source.
Agreed, thanks for the dialogue. It is refreshing to debate viewpoints and not have to worry about the ad hominem attacks.
I think the answer to your question is productivity. This demographic tidal wave we are about to experience is all the more reason for minds to work and figure out ways to be more productive and lower input costs. So far, America has proven capable of that task. If we slow in productivity, then I would think your observation is reason for alarm. Technology that lead to fracking of natural gas is such a transforming technology. This is unlocking cheap resources, which is making Ethylene (the building block of most products) much cheaper. It is the reason many foreign corporations are now, for the first time in decades, starting to set up manufacturing hubs here in America.
"First, if the dollar is worthless, why would the foreigners take the dollars in exchange for their goods/labor" - exactly, they won't. The dollar is worthless in this example because people who own them would not be able to exchange them for goods and services produced by Americans. If America on the other hand was extremely productive and created goods that the world could not get enough of.....we would need a strong reason to want to ship our production to them in exchange for their currency. Unless a Toyota is there and the quality and price are attractive to me...... owning a Yen is not enticing.
In regards to hard assets just sitting there neutral, I would argue that gold and silver dropping 35% is not a nueutral and safe currency. In fact.... since 2008, an ounce of silver buys MUCH less shares of stocks, or even onions per unit of silver. I realize I am cherry picking, but this just shows that PM's are NOT the answer.
"Our kids will have to pay about 12%"
12% rates, like a 2.75% rate is the outlier, not the norm. Keep in mind, history is clear that your kids will pay more for onions, but they will be able to afford many more onions per hour of labor. They will have it better than you.
And I historically vote Republican.....
Also. you state "When the interest rates go back up after the QE slows down we no longer have these savings"
So far, we have seen that when QE stops, interest rates plummet, not go up. When you understand the way the monetary system works, you will understand why. QE is an asset swap only.