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The Quest for Yield

Posted on 10.10.16 |

Yields are at 5,000-year lows.

71% of the world’s government bonds are yielding less than 1%.  33% yield less than 0%.  In a picture it looks like this:

10-07-12

Source: Bloomberg; JPMorgan Asset Management, BofA Merrill Lynch

Risk is being overlooked in HY bonds.  Yields on high yield debt are close to the same yields on less risky loans.  The chase for yield has driven investors to riskier asset classes.

I am anticipating a once-in-a-generation buying opportunity in HY bonds.  While the trend this week is up, continue to invest with the trend.  Move to the safety of cash or Treasury Bills when the trend crosses down.

Click below for a great chart showing what a 1% increase in interest rates does to bond prices.  Show it to your clients!

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Categories: Fixed Income, Monetary Policy, Tactical Investment Strategies Tags: Bonds, Debt, fixed income, high yield, On My Radar, Stephen Blumenthal, Steve Blumenthal, Tactical Investing, The Fed, Trade Signals, valuations, Zweig Bond Model

Bloomberg Markets Most Influential Summit Recap

Posted on 10.03.16 |

ho92rmshLast week, Steve Blumenthal attended the Bloomberg Markets Most Influential Summit.  In this week’s On My Radar, Steve shares his notes from the conference, as well as links to select video interviews.

Hedge fund legend Julian Robertson kicked things off on Tuesday evening. Julian sees opportunities in technology and biotech stocks and he believes there’s pain ahead for investors not properly positioned due to the bubble created by Fed Chair Janet Yellen and the global central banks.

Steve also highlights interviews with Howard Marks of Oaktree Capital Management and Marc Lasry of Avenue Capital Group.

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Categories: Conferences Tags: Equities, fixed income, Gold, high yield, On My Radar, Stephen Blumenthal, Steve Blumenthal, The Fed

Mauldin’s “Monetary Mountain Madness”

Posted on 09.12.16 |

If you read just one piece this week, read John Mauldin’s “Monetary Mountain Madness.”

John’s promise: “I trust that by the end of this letter you will better understand just how bankrupt – and disastrous – what passes for sound economic thinking among the world’s central bankers actually is.”

Terrific article!

Categories: Monetary Policy Tags: fixed income, high yield, The Fed, Zweig Bond Model

Trade Signals – Sentiment Better, Risk On Remains

Posted on 09.07.16 |

With a nod towards broad portfolio diversification, following is a quick summary of what I am seeing this week — organized by investment category (equity markets, fixed income and liquid alternatives):

Equity Markets: Investor Sentiment moved from excessive optimism to neutral.  The trend remains positive.  Supply and demand continues to evidence more buyers than sellers (a bullish signal).  Don’t Fight the Tape or the Fed moved from 0 to -1.  This next chart shows us why we want to watch out for -2 (an unfavorable trend and unfriendly Fed environment):

09.07.01

The 13/34-Week EMA trend indicator remains bullish.  The CMG NDR Large Cap Momentum Index is nearing a buy signal; its model trend line is bullish.

A quick note on the chart above:  NDR shows price appreciation and not total return.  So, the Buy/Hold + 8.55% Gain/Annum would be higher with dividends added in.  That would be more informative; however, since we are comparing the price appreciation in each zone (+2, +1, Neutral (0) as reflected), I believe the data is telling and useful in giving us a sense for which environments suggest more or less risk.  Actual returns in each category are higher.  A thank you to an astute reader.

Fixed Income: The 10-year Treasury Yield is back down to 1.52%.  Money is voting with its pocket… saying the Fed won’t raise rates.  The Zweig Bond Model remains bullish on bonds and our HY remains in a buy signal.  The underlying HY fundamentals are terrible; however, this is another good example where trend following can be a good friend.  We will ride the uptrend until it reverses.  Further, we see “JNK” and “PCY” exhibiting the strongest relative strength in fixed income (this from a universe of nine ETFs ranging from short-term and long-term Treasury bonds, corporate bonds, munis, high yield, emerging market, inflation and developed market bonds).

Liquid Alternatives: The CMG Opportunistic All Asset ETF Strategy is currently allocated approximately 81% to equities and 19% to fixed income.  We are seeing strong relative price leadership in “EEM” (Emerging Markets), “VT” (Vanguard Total World Stock ETF), “QQQ” and “IYW” (Technology ETFs) and “IYF” (U.S. Financials).  Our two fixed income ETFs, “EDV” (Vanguard Extended Duration Treasury) and “TLT” (iShares 20+ Year Treasury Bond), have rallied nicely.  Biotech looks to be recovering from the Hillary Clinton statements.  For weightings by asset class, please see the CMG Opportunistic All Asset Strategy pie chart below.  Gold (“GLD”) looks to have held support at 125.  The cyclical trend for gold remains higher as evidenced by the Gold chart you’ll find in the full post (link below).

For charts, analysis, and commentary see the rest of the story in Trade Signals — Sentiment Better, Risk On Remains.

The current opinions and forecasts expressed herein are solely those of Steve Blumenthal and are subject to change.  They do not represent the opinions of CMG.  CMG’s trading strategies are quantitative and may hold a position that at any given time does not reflect Steve’s forecasts.  Steve’s opinions and forecasts may not actually come to pass.  Information on this site should not be used as a recommendation to buy or sell any investment product or strategy.

Categories: Tactical Investment Strategies Tags: CMG NDR Large Cap Momentum Index, CMG opportunistic All Asset Strategy, Equities, ETF, fixed income, Gold, high yield, Tactical Investing, Trade Signals, Zweig Bond Model

Trade Signals – Strength in Health Care, Telecom And Fixed Income

Posted on 07.28.16 |

The “Don’t Fight the Fed or the Tape” indicator is showing the strongest reading in some time (+2).  The reading has been +1 for a number of months.  Note in the following chart that such readings have happened only 5.74% of the time since early 1999.  The annual gain per annum was 25.60%.  A +2 reading can last for days or months.

7.27.1

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Categories: Tactical Investment Strategies Tags: Don't Fight The Fed, fixed income, Health Care, high yield, Steve Blumenthal, Trade Signals

High Yield Bond Opportunity On The Horizon

Posted on 07.25.16 |

steve_foxThe chart below tracks the delinquency rate on commercial and industrial loans from all commercial banks on a percent change from the prior year (blue line).  It then compares that change to Bank of America/Merrill Lynch US High Yield spread (red line).  The spread is simply the current yield minus the comparable yield for a safe investment, like U.S. Treasurys, that has a similar maturity.  If the average maturity is five years on the ML HY Index, then the spread is that yield less the five-year Treasury yield.

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Categories: Tactical Investment Strategies Tags: BlackRock, high yield, Steve Blumenthal, trend following

Look For High Yield Opportunity Ahead

Posted on 06.23.16 |

CMG Capital Management Group Inc.HY moved back to a buy signal early this week. The asset class tends to be a leading indicator of both economic and stock market direction. We had a great run and we are pleased. Right now, the signal is for more “risk on.”

However, much of our return was gained by the sell-off in the second half of last year. Note in the following chart how yields (as compared to Treasury Notes) rose sharply to nearly 9%. Sidestepping the losses in price (when prices sell off, yields rise) and subsequently buying back in at a lower price and higher yield proved profitable.

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Categories: Tactical Investment Strategies Tags: high yield, Steve Blumenthal

Time To Buy High Yield ETFs Again?

Posted on 03.07.16 |

ETF.comCMG Capital Management Group CEO Steve Blumenthal spoke to Cinthia Murphy at ETF.com about the state of high yield bonds. Excerpt from the story:

From a technical—and more tactical—perspective, high-yield bond ETFs could prove to be a great short-term opportunity, but not a long-term one, says Steve Blumenthal of CMG Capital Management Group.

“A simple smoothed moving average can tell us a lot about both the short-term and the longer-term trends in high yield: It’s a short-term buy for now, but trading it with stops in place for the overall longer-term trend picture remains less favorable,” Blumenthal said.

See the full story in ETF.com: Is It Time To Buy High Yield ETFs Again?

Categories: Tactical Investment Strategies Tags: ETF.com, ETFs, high yield, HYG, JNK, Steve Blumenthal

Chart of the Week From CMG #highyield

Posted on 02.22.16 |

Steve Blumenthal, CMG Capital Management Group, on hedging your equity exposureOne of our advisor clients called and asked for my thoughts on what the high-yield bond market may be telling us about recession.  I shared the following:

My nearly 25 years of trading HY has taught me that the sector is a good leading indicator for the equity market and the economy.  I believe that, in general, bond managers are really on top of their individually-held corporate credits (bonds).  As you’ll see in this chart, the major long-term trend for HY is down.  This is concerning to me.

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Categories: Tactical Investment Strategies Tags: Chart of the week, high yield, On My Radar, Steve Blumenthal

Negative Trend Continues For Equities

Posted on 02.21.16 |

Steve Blumenthal, CMG Capital Management Group, at Bloomberg ETF Master Class

Steve Blumenthal

The trend remains negative for equities and is neutral for high yield.  Investor sentiment remains extremely pessimistic.  Such extreme readings are generally bullish for equites.  We are finally seeing the oversold rally.

The S&P 500® Index is nearing its February high at 1947.20.  The 50-day moving average line (trending lower) is currently at 1960.  I favor establishing hedges on equity exposure in the 1925 to 1960 area.

Read More >

Categories: Tactical Investment Strategies Tags: $SPX, Equities, high yield, S&P 500, Steve Blumenthal, Trade Signals

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