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AuCoaster

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  • Economy Vs. Fed Rate Hikes [View article]
    Everything about the markets and economy is beyond most investors.
    They don't understand even the most basic economic foundations, so they will never understand the complexity. So, they look to simplistic metrics like PE ratios, moving averages, etc. to help guess at what is likely.

    Using these items is helpful in that over time there is some correlation with subsequent outcomes. But, not so much in the short run of a few years or less.

    And they are based on averages.
    One should understand the potential problems of such data.
    On average, Americans have on testicle and one breast...
    Aug 29 01:07 AM | 2 Likes Like |Link to Comment
  • Economy Vs. Fed Rate Hikes [View article]
    I don't rely on hope or luck for anything.
    I just play the game as the conditions warrant, and study the patterns and conditions to anticipate changes.

    The economy is progressing steadily, but in slow motion.
    We are still working our way out of the hangover from the excesses of the prior cycle peak.

    The economy has a long way to go before we again have the excesses of loose credit, overspending, and overinvestment seen at the top of a business cycle. It is those excesses that precede a recession.
    We are not even close to the economic excesses yet.

    Interest rates and other production costs will rise significantly, and profit margins will compress before the business cycle top. Not likely soon.

    Recessions typically do not start until after the yield curve inverts.
    If the Fed starts tightening early next year, it will probably take until late 2016 to achieve a restrictive monetary condition.
    A recession would likely start about a year after that occurs.
    However, I doubt that the Fed will tighten that fast.
    So, 2017 is an early date in the likely range.
    Aug 29 12:43 AM | 2 Likes Like |Link to Comment
  • Economy Vs. Fed Rate Hikes [View article]
    Everyone has their own idea of what is expensive.

    But, "are stocks expensive?" is the wrong question.

    What matters is where the prices will go during your relevant holding period. For me that period is until the economic cycle tops out.
    And, stocks will rise until then, to whatever PE...

    But, when will the economy top out?
    Not anytime soon.

    Perhaps in 2017...
    Aug 28 10:04 PM | 3 Likes Like |Link to Comment
  • Why I Will Start Social Security At Age 62 [View article]
    The standard deduction gives you credit for stuff even if you did not do it. It is basically a probable value allowed without any documentation.
    Aug 28 01:15 PM | 6 Likes Like |Link to Comment
  • Correcting A Common Misconception About Alternative Investments [View article]
    Some of your money or potential gain is spent to buy the protection.
    Structured products are really great for the sponsors.
    And guess who pays for that!
    I would rather just hold cash or TLT.
    Aug 28 01:07 PM | Likes Like |Link to Comment
  • Why I Will Start Social Security At Age 62 [View article]
    I believe that when you move money from a 401k to a Roth IRA the amount moved is taxed as ordinary income. That is the disadvantage of doing it. But, in the Roth all future investment income will be tax-free.
    Aug 28 06:34 AM | Likes Like |Link to Comment
  • Why I Will Start Social Security At Age 62 [View article]
    The calculation can be simplified by looking at each year as a separate decision to defer for one more year. Then, the decision is whether you want to receive the year's benefit during that year, or receive 8% of that amount for the rest of your life. It becomes an amortization calculation based on life expectancy.

    Each year should be separately judged based on your life expectancy at that point. Every year you decide whether to defer for another year, or start taking the benefits.

    Viewed that way, with a 22 year life expectancy (for a couple), the first year (age 62) 100% benefit will be amortized to equal the 8% per year with an investment rate of 5.7%.

    The needed investment rate will decline with each subsequent year as the remaining life expectancy declines.

    At a 20 year life expectancy the needed investment rate is about 4.9%.
    At 18 years the needed rate is 4.2%
    At 15 years the needed rate is 2.1%
    At 13 years the needed rate is 0.6%

    The decision to defer gets less attractive as each year passes, and your remaining life expectancy declines.

    The full deferral from 62 to 70 will be the sum of all eight deferral decisions...

    I think for most married couples the sum of all the years will work out to about the same as just using a 20 year life expectancy. So, the needed investment rate should be 4.9%

    For a single man the sum/average calculation will be closer to that of a 15 year life expectancy. So the needed rate will be only 2.1%

    For a single woman the overall calculation will be closer to that of a 18 year life expectancy. So the needed rate will be about 4.2%

    The above calculations assume that tax rates and inflation will be the same under all scenarios. The holdback should have only minor impact, affecting only the first few years.
    Aug 28 06:10 AM | 5 Likes Like |Link to Comment
  • Nobel Prize Winner Shiller Is Damaging His Reputation With CAPE Ratio Talk [View article]
    Valuation is a useful metric.
    But, valuations rise and fall in a cycle.
    My focus is cycle timing, not valuation.
    I like to ride the wave to the full profit at the cycle top.
    Above average valuations are part of the process.
    However, I do avoid extreme valuations.

    Since I have no intention of holding through the downturn, I don't care if the price level is above the average valuation. What I care about is where the stock will peak. So, I stay fully invested until I think the ride has played out.

    I agree that leverage is very useful. I used to lever up when I was still working. But, I retired over 6 years ago (in my early 50s) and prefer to use less debt leverage than I did before. I currently have only about 19% debt to gross investment assets. But, I do use 3x leveraged ETFs instead. I think that 3x leveraged ETFs are safer than using lots of debt.
    And, I have been very pleased with my UMDD and UPRO positions over the last two years... (which, btw, I bought using margin).
    Aug 27 09:57 AM | Likes Like |Link to Comment
  • Nobel Prize Winner Shiller Is Damaging His Reputation With CAPE Ratio Talk [View article]
    That it some serious leverage! And great returns!

    Returns of 9x in 5 years = about 55% annual rate of return.

    Sounds like a leveraged play in distressed real estate, not stocks.

    I used to lever up about 3 or 4 to 1 on rental properties.
    I would buy early in the cycle and sell near the top.
    In the 80s, 90s and 2000s I averaged over 25% ROE in real estate.
    Now, I just pay cash for my rentals, so the ROE is much lower.
    Aug 27 09:22 AM | Likes Like |Link to Comment
  • Nobel Prize Winner Shiller Is Damaging His Reputation With CAPE Ratio Talk [View article]
    Stability is the prudent thing to do for most people.

    But, it comes at the price of lower returns.

    If you are willing to live with volatility you can make far more money.
    Aug 26 06:38 PM | 1 Like Like |Link to Comment
  • Why I Will Start Social Security At Age 62 [View article]
    Also keep in mind that if you keep working, your SS benefit will be reduced. So, early participation might not pay as well as you think.
    The amounts held back will be paid to you after your regular retirement age (66?). But, I don't remember the details of how this works...
    Aug 26 01:47 PM | 2 Likes Like |Link to Comment
  • Why I Will Start Social Security At Age 62 [View article]
    Robert, If you earn less than 8% on your investments then waiting is probably a good decision. If you can borrow for less than 8% then waiting is probably a good decision... (subject to longevity risk)

    If you earn more than 8% on your investments, then the decision is pretty clear: take the money as soon as you are eligible, and invest it (or reduce your withdrawal of existing investments).
    Aug 26 01:38 PM | 11 Likes Like |Link to Comment
  • Is It Time To Ignore The Fed? [View article]
    Swaps, The Fed's original mandate was bank liquidity.
    Their mandate was expanded/changed in 1977.
    They are now concerned about more than bank liquidity.
    Their focus is price stability and employment.

    The Fed moves interest rates up and down in their effort to manage liquidity, price stability and employment. These goals typically conflict with each other. So, what helps one goal will hurt another goal.

    Congress provided liquidity in 2008 because of the scope and magnitude of the financial crisis.

    Your questions are answered by the items in my posts.
    Do some research if you still don't understand it.
    Google is a great tool.

    PS. I am happy to answer questions, but, I do not want to get into explaining basic money and banking.
    Aug 26 01:24 PM | Likes Like |Link to Comment
  • Why I Will Start Social Security At Age 62 [View article]
    Each year that you defer SS benefits you get an 8% increase in the payout.
    Effectively this makes each year of deferral an investment that will yield 8%, for as long as you live. If you like dividend yield, then you should love an 8% yield paid by the US government.

    However, if you normally beat an 8% investment return, then you are better off taking the money now, and investing it to beat the 8%.

    Another way of looking at it is by taking early benefit you are forgoing the 8% yield, effectively the same cost as borrowing at 8% to have the money now.
    Aug 26 10:53 AM | 2 Likes Like |Link to Comment
  • Nobel Prize Winner Shiller Is Damaging His Reputation With CAPE Ratio Talk [View article]
    Simple metrics and complex formulas can lull you into a false sense of accuracy, distract you with irrelevant precision, and obscure the big picture. The markets are not so easily tamed by formulas and ratios. You will never have all the data input needed to have truly reliable formulas.
    It is far better to analyze and digest the bigger picture.

    As Keynes said, it is better to be roughly right than precisely wrong.

    I don't trade based on any set patterns, formulas or simplistic ratios like CAPE or PE, or the Death Cross. I watch the fundamentals of the economy and earnings trends, and make my portfolio decisions based on that macro analysis, combined with market conditions.

    My bias is to be fully invested in stocks (not bonds), seeking maximum rate of after-tax return. My risk tolerance is very high.

    I sell when I believe the fundamentals of the economy and earnings cycle suggest that the bull market is played out. Until then I ride out corrections and blips. I also rotate and harvest along the way.

    By doing this I liquidated prior to the 2001-02 bloodbath. I held bonds during that decline until I fully repurchased equities in early 2003.
    I rode that market, using debt leverage, options, and high beta stocks until late 2007 when I liquidated again.

    I watched the 2008 meltdown (sitting in cash, but should have bought treasurys) until the S&P declined to about 800, and then I started buying into the bottom and rebound, until I was fully reinvested at an average of about 800 on the S&P.

    With margin leverage, high beta, and leveraged ETFs, my gains are again outpacing the market. I will sell when I think the cycle is played out.

    CAPE, PE and other similar valuation metrics are interesting info. and using them can enhance your success... as can the Death Cross.
    But, these are simplistic and suboptimal compared to full analysis.
    So, I do not use them to drive my trading point decisions.
    Aug 25 07:20 PM | Likes Like |Link to Comment
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