Tactical investing news, views and resources for financial advisors
By Stephen Blumenthal, CEO, CMG Capital Management Group
Three points to think about that may help you with your portfolio positioning and risk management:
Along with the market, margin debt is at a record high – note March 2000 and July 2007 margin debt peaks.
By Steve Blumenthal, CEO, CMG Capital Management Group
Valuation confusion is common in our business. Especially to the engineer, schoolteacher, doctor, business owner and pretty much everyone else (your client) who loves what they do yet looks at the market with sometimes dispassionate interest.
To sort through the confusion on valuation, I think Doug Short, Vice President of Research at Advisor Perspectives, did a great job of explaining where we are today (expensive stock market) and how investors should think about Price-to-Earnings valuation metrics.
The simple takeaway today is the market is expensively priced.
If buying investments when they are on sale vs. buying them when their prices are inflated can increase returns then we should view these valuation states differently.
By Stephen Blumenthal, CEO, CMG Capital Management Group
Have you watched any of the great Netflix TV series House of Cards? Set in present-day Washington, D.C., House of Cards is the story of Frank Underwood (Kevin Spacey), a Democrat from South Carolina’s 5th congressional district and House majority whip who, after being passed over for an appointment as Secretary of State, initiates an elaborate plan to get himself into a position of power. The series is primarily about ruthless pragmatism, manipulation, power, and doing bad things for the greater good.
Kevin Spacey is simply amazing. I love it when he looks into the camera and speaks directly to us, revealing who’s paying off whom or how much pork is needed to secure a particular vote. I can’t help but wonder how close this is to today’s reality given last week’s passing of legislation that puts banks’ future derivatives losses squarely on your back and mine (the U.S. taxpayer).
CMG Capital Management Group CEO Steve Blumenthal is quoted in the Investor’s Business Daily story Russia ETFs Reel From Crumbling Ruble, Rate Hikes. Excerpt fom the story:
“Raising rates is an attempt to attract foreign investors to buy Russian bonds at 17%,” thereby shoring up the ruble,” said Steve Blumenthal, CEO of CMG Capital Management.
Top-Heavy In Energy
The fortunes of Russia ETFs are closely tied to oil and gas; energy stocks make up 40% of RSX’s portfolio. The highly concentrated RSX’s top 10 holdings include Novatek, Lukoil (OTCPK:LUKOY) and Gazprom (OTCPK:OGZPY).
By Steve Blumenthal, CEO, CMG Capital Management Group
Steve Blumenthal, CEO, CMG Capital Management Group
Last week Bill Gross and the former co-CIO of PIMCO, Mohamed El-Erian, were advising clients to lighten up on stocks. You may agree that these two people certainly have a passion for what they do. To that end, we all benefit.
I personally believe there is more run left in the equity market. Yet risk is high and I certainly don’t want to be left sitting on the tracks in front of an oncoming train. Stay nimble and alert. And remember while risk can be measured (high today due to high valuations), it is more difficult to time.
Extreme bullish sentiment, pushes risk arrow farther to the right.
By Steve Blumenthal, CIO
CMG Capital Management Group
Trade Signals, Wednesday Nov. 26, 2014 — Trend evidence remains positive as measured by Big Mo and the 13/34-Week EMA on the S&P 500. Sentiment is far too bullish, suggesting short-term caution.
Sentiment has reached the extreme bullish state about 28.5% of the time since 1994. The average return is a -10% when such extremes have been reached. The simple message is to be weary of crowds at extremes.
Investment Risk Elevates: Due to current extreme bullish sentiment, I’ve moved the risk arrow farther to the right.
Conclusion: Trend evidence remains positive and don’t fight the Fed or the tape remain the important theme. Own equities (but hedged).
By Steve Blumenthal, CIO
CMG Capital Management Group
Trend following process moved us from HY
to very short-term bond exposure last week
For more than 22 years I’ve been trading the intermediate-term trends in the high yield market. I wake up each day, grab a coffee and sit in my favorite chair. With laptop online, the first thing I do is look at the prior day’s high yield bond mutual funds’ closing prices – it’s a pretty long list. Do anything for that long a period of time and you gain a feel for trend. Of course, my wife looks over and says, “Looking at charts again.” It has remained so interesting to me. I know – I need to get a life.
Anyway, I’ve been warning on the coming default wave in high yield and I can say with some confidence that high yield is usually one of the first asset classes to warn of recession. Though, of course, past performance means zilcho in this business.
The traditional 60/40 buy and hold portfolio is dead, CMG Capital Management Group CEO Steve Blumenthal told InvestmentNews in the story Investment Managers ditching 60/40 portfolios in favor of more liquid alternatives
Enhanced Modern Portfolio Theory is what Blumenthal calls it. It’s not that Modern Portfolio Theory (MPT) is wrong, rather that it’s time to question whether 60/40 remains the best way to optimize the risk-reward relationship. This asset mix is simply too narrow in the current low-dividend-yield, low-inflation, low-interest-rate environment.
The CMG risk meter tilts back slightly.
By Steve Blumenthal, CIO, CMG Capital Management Group
Investor Sentiment
The S&P 500 is down nearly 10% from its September high of 2019. I’m going to tilt back the risk meter just a bit as investor sentiment is now at levels of extreme pessimism and the market is testing some technical support.
On the concern list: QE is ending this month and Europe, Japan and China are in decline (with recession in Europe), commodities are in a steep sell-off (signaling global economic weakness), war risk and add Ebola. We know risk to be elevated – whether a short-term market scare or the beginning of another crisis remains to be seen.
Investor sentiment has become more pessimistic which is short-term bullish for the equity market
Equities The equity market trend remains positive as measured by Big Mo and 13/34-week EMA. There is good technical support at S&P 500 Index 1900 area.
Bonds After a pretty healthy sell-off, our high yield strategy has moved back into a “buy” signal. The Zweig Bond Model is also back in a “buy” signal reflecting a bullish environment for longer-term treasury and corporate bond exposure.
Sentiment Daily sentiment is in the Extreme Pessimism zone (a bullish counter indicator) and weekly sentiment is nearing Extreme Pessimism.