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  • Reaching For Yield [View article]
    Mr. Williams, there are too many false indicators. Historical patterns are no guarantee that a particular set of indicators will accurately signal an inflection point. If you have figured this out than you are the first in history to do so. I respect your efforts to attempt to crack the code of the markets, but history dictates that such attempts end up to be futile in the end. However, I wish you luck!
    Jul 29 12:27 PM | Likes Like |Link to Comment
  • Reaching For Yield [View article]
    This is an interesting comment board regarding this article and Mr. Williams. As I wrote earlier, I don't try to do what Mr. Williams and his firm attempt and I am more of a fundamental valuation oriented individual equity investor. However, I am able to glean some useful information from an article such as this. I however do not believe that I or anyone else can read the "tea leaves" made up of economic indicators, investor sentiment and technical indicators well enough to consistently pick market bottoms, tops or interim corrections. Jon Hussman famously unsuccessfully tried to do this with his fund, Dennis Gartman tried calling for a correction several times earlier this year only to finally throw in the towel and then he publicly called himself foolish for trying.
    Jul 29 11:20 AM | Likes Like |Link to Comment
  • Reaching For Yield [View article]
    Great advice!
    Jul 29 08:34 AM | Likes Like |Link to Comment
  • Reaching For Yield [View article]
    Although I put zero confidence in "technical" indicators, I did find this article interesting in its own right based upon all of the data that was compiled. I completely agree with one of the article's conclusions that imbalances are being created by investors reaching for yield. I disagree that there is a heightened level of general investor complacency surrounding the equity asset class overall. If that were the case we would not see such a high level of cash balances. I think in some regard the cash balances are a function risk averse money not willing to enter the fixed income asset class at this point and investors unable to find other conservative alternatives. I believe that the complacency that appears to exist in the markets is a mile wide and a millimeter thick, covering residual fear left over from the financial crisis and bear market.
    Jul 28 07:02 PM | 3 Likes Like |Link to Comment
  • The Outlook For Yields [View article]

    Your sharp correction scenario is exactly why I believe that the Fed will end QE this fall, while being very ambiguous about when the first rate hike may happen. The I would not characterize the game plan as you do in regard to getting behind the curve. However, I think that there is a subtle game of chicken going on between the communications coming out of the Fed and the market in regard to pricing in rate increases. i believe that the Fed would like to slowly lead the market through communications to begin to price in a certain higher level of Fed Funds and Discount Rate by the middle of next year, while the market is hesitant to do so because there is such a high level of investor complacency when it comes to the inevitability of higher rates. Investors simply do not want to let go of the yields that they are "reaching for" too prematurely.
    Jul 6 09:48 PM | Likes Like |Link to Comment
  • The Outlook For Yields [View article]
    Economic Analyst,

    In May of 2013 the Core PCE was 1.16% and that level was very steady throughout 2013. By March of this year the Core PCE was up to 1.20% and the last reading in for May had the Core PCE at 1.49%. The Core PCE excludes food and energy and the average Core PCE for the last 10 years was 1.73%.

    The uptick in the Core PCE combined with the steady improvement in job creation and likely 3.0% + annualized GDP readings for the balance of the year indicate to me that the economy and inflation are no longer teetering at stall speed levels.
    Jul 4 11:29 AM | Likes Like |Link to Comment
  • The Outlook For Yields [View article]
    7of9, yields are a direct function of credit risk, time value of money and inflation expectations. Credit risk is generally pretty straight forward, generally the longer the maturity, the higher the interest rate will be, it is inflation expectations which is the most dynamic variable in bond yields. There is no question that inflation expectations are higher today than last year and it is a good bet that those expectations will continue to rise absent a recession scenario.
    Jul 4 10:19 AM | 1 Like Like |Link to Comment
  • The Outlook For Yields [View article]
    Scott, I think that you are dead right. The bond market will certainly normalize with inflation normalizing. The Fed will first end QE, at which time inflation will likely be running slightly north of their 2% target and the unemployment rate will have a 5 handle. When these things are in place the market will price in a series of rate hikes and the Fed will confirm those expectations. This is when being Fed Chair will become tricky. Keeping the market from getting ahead of the Fed in terms of expectations is a matter of carefully weighed semantics.

    Captain Pike above represents a very common form of complacency that I encounter frequently these days.
    Jul 3 05:47 PM | Likes Like |Link to Comment
  • Do Lower Investment-Grade Municipal Bonds Add Value? [View article]
    Larry, you and I have very different practices and come at the business from different perspectives. You compile some very compelling statistics and come to conclusions based upon the study of "the markets" based upon very large asset class groups. You bring up Markowitz, the father of Modern Portfolio Theory and the Efficient Frontier. From my real world experience the markets are anything but efficient in the short-term. Over the long-term, if were to measure efficiency using market averages I would see the efficiency that Markowitz based this theories on. Since I do not operate using averages or broad asset classes, I see and seek out daily, weekly and monthly inefficiencies in order to seek out value when purchasing securities or take advantage of market driven excesses when selling.
    Jul 2 08:44 AM | 1 Like Like |Link to Comment
  • Do Lower Investment-Grade Municipal Bonds Add Value? [View article]
    I will only add that in my almost 20 years as a portfolio manager, I have never been burned by a low investment grade municipal bond or well researched non-rated bond. Given that muni bond defaults occur in only around 0.10% of issued bonds and the vast majority of those defaults occur in bonds that are known to be distressed before the default actually occurs, I have been well compensated for and continue to be able to find acceptable bonds taking into consideration duration, yield and credit considerations.
    Jul 1 10:31 PM | 2 Likes Like |Link to Comment
  • Do Lower Investment-Grade Municipal Bonds Add Value? [View article]

    Rated muni's are generally very efficiently priced with the exception of small lots. However, I could give you many examples over the last five years where non-rated bonds have either a bank letter of credit standing behind them, are issued by a municipality that has a high underlying rating, but chose not to have a particular bond issue rated, or revenues are guaranteed by a high rated corporate guarantor.
    Jun 30 08:01 PM | 1 Like Like |Link to Comment
  • Do Lower Investment-Grade Municipal Bonds Add Value? [View article]

    I will agree with you about stretching for credit risk. However, sometimes it is possible to get lower rated municipal bonds or non-rated municipal bonds that do not truly have materially higher credit risk when the structure of the bond is analyzed. As you know municipal issuers of bonds must pay for a credit rating on the bond or pay for bond insurance in order to achieve a higher rating than the issuer can be given on its own. Some very strong municipalities or municipal projects choose to forego a credit rating or had the bond insured only to have the insurance company go under during the last recession. On the surface these bonds will look like they carry an undesirable level of credit risk and because of that they can be purchased with a higher yield. However, when one looks below the surface, many of these bonds (typically unrated ones) have a much stronger credit profile than meets the eye. The one sacrifice that an investor makes with these types of bonds is liquidity because these bonds are typically not able to be purchased by institutional investors, however that is exactly why there is inefficiency in that part of the market. If an investor buys these types of bonds to hold them to maturity the reward is that the yields are high enough to avoid buyers remorse when interest rates rise. Therefore, the investor will be less likely to be tempted to sell these bonds when rates rise as is typically the case with lower yielding AAA/AA bonds.
    Jun 30 01:41 PM | Likes Like |Link to Comment
  • Thoughts On The Bond Market Conundrum [View article]

    How much influence do you believe that hedge fund and other institutional trading that is driven by algorithmic trading, which tend to rely heavily upon macro economic variables, could have had on money flows into bonds and defensive equities, which both have performed strongly since the mid-January stock correction? There seems to be a reasonably strong correlation between the advent of weather induced weakness in various headline economic statistic beginning in the second half of January and then continuing for the next couple months, culminating with the -1% Q1 GDP revision this week. The 10 year bond yield dropped .08% the day before that GDP revision was made public on the 29th.
    May 30 11:46 AM | Likes Like |Link to Comment
  • The Selective Correction And Extreme Of Inaction [View article]

    Wow! Great insight that you shared which confirms what I am hearing when I speak to non-clients. Most of my existing clients are total return oriented and appreciate a relative valuation contrarian approach so they will benefit from buying into the current weakness, but with non-clients I find they generally seem to be very much in line with what you were hearing from those advisers who you spoke to. That is, yield at any cost and any risk coupled with the mentality that they will just rotate out if the market goes against them. I agree with you that the last two months have been unprecedented in terms of the internals of the market. I truly believe that a large percentage of what we are seeing is a result of 10 year bond yields not moving above 3% and instead moving back down to 2.65% or so. I think that if we see continued strong employment reports and a bounce back in GDP this quarter coupled with the 10 year moving back toward 3%, this odd confluence of market action that has been happening over the last two months will reverse abruptly.
    May 12 12:59 PM | 2 Likes Like |Link to Comment
  • Constructing And Designing The Stock Portfolio That's Just Right For You: Part 1 [View article]

    My concern with a reversal of trend from declining interest rates to rising interest rates is not necessarily a concern about high costs for the utility companies as they finance capital expenditures. My concern is with the stocks. If a company is not growing earnings and cash flow, but its stock keeps going up in value due to people chasing higher dividends in a lower interest rate environment, the stock's P/E rises to unsustainable levels. When market interest rates reverse and go back up and many of these utility stock/yield investors can get 3% to 5% in bank CD's or high quality bonds, the utility stock dividend yields will no longer look attractive on a risk/return basis because a high percentage of the investor base is not made up of investors, but instead savers.
    Apr 21 03:51 PM | Likes Like |Link to Comment