1. In all the discussion of the current portfolio I failed to mention this year's yield to date. As of yesterday it was a paltry 0.54% which annualized is about 3.3%. This a combined figure on all invested assets except for home and a lifetime annuity, but includes non interest bearing MMFs and gold.
2. Regarding short term cycles, yesterday was a (potential) turn date for ocean tides in New York harbor, for the 4 day "delta/roto" cycle and for Larry Berg's Timer Data. Also MarketTrak's neural nets were on the verge of a sell. They don't all do this together very often, but coupled with today's economic and sentiment releases the odds were improved for down.
3. I haven't been publishing the short term cycle information here, but I plan to start doing that every other month for the following two months. Nothing is perfect, but this is helpful to me. I don't do much short term trading these days, but short term info helps me when I am buying something for longer term or when I am closing out a longer term position. It gives me an extra profit edge most of the time.
What I will do is mention the most probable dates for ocean tide turns and only mention the other cycle methods (in parentheses) if they coincide with tide dates or are at extremes of their own. MarketTrak only reports when they get a buy or sell and those dates are not known in advance.
4.The next cycle dates after yesterday are for March 1 (+delta/roto), March 9, March 17, March 22 (+ delta/roto, Berg, equinox), and March 30 (+delta/roto). I'll headline these dates as "Short Term Cycle Update" and post them here starting in late March for April and May.
5. Further information about tides and other good stuff is available at cyberfriend Larry Moores' "Tides, Trends, and Trading" always clickable from my "Blogs I Like List".
Surviving the market crashes of 2008 and early 2009 meant being largely in cash and "near cash" with short term agency notes (VSGDX, VSIJX) and short term municipals (VWSUX). The all-account total return for 2008 was +0.18%! I was earning 2-3% on the near cash which masked actual losses in other assets, but I was grateful to end up with a micro over-all gain.
As the shock moderated in 2009 I gradually started extending durations and getting into higher yield assets. Asset classes with high yield included preferred stocks, longer duration corporate bonds (LSBDX), Pimco Bond (PTTRX), Pimco All Asset All Authority (PAUIX), Hussman Strategic Return (HSTRX), foreign bonds (GIM and later AWF) closed-end hedge funds of all varieties (GGN, IRR, HIO, PKO), and MLPs (EPD, ETE, ETP, NS, NSH, DMLP). Later in the year I increased "hedge stock funds" from minimal to average amounts (HSGFX. OAKBX, FPACX, TFSMX). Nearly all asset classes (except cash) were going up in price while paying very substantial dividends, a delightful experience. Gold also went up 24.5% for 2009, and I made some gains trading CEF and other golds. And I bought back into the Vanguard specialty energy (VGENX), mining (VGPMX), and health care (VGHCX) funds. Keeping in mind that I was heavily at the short end early on in 2009 and was still fairly much so even later, I had a total return for all accounts of 14.31% on the year, even better than 2003!
As long as money kept running out of cash everywhere I looked and into stocks and bonds, I tried to keep my emotions and opinions out of investment decisions as I discussed here recently. Opinions don't pay an investor's dinner tab or the rent or buy her a new car.
Sentiment studies like the very simple 2CS and credit spread charts, or just the historic charts of bonds funds and closed end fund discounts for the whole decade said not to worry yet. I was fairly conservatively invested, but I was able to stay long when a lot of experts were calling for market tops nearly every week after March 8, 2009.
Other than 2CS and credit spreads (and closed end fund discounts) one of my strongest supports for "staying the course" was James Stack and his InvesTech publications. I had subscribed to Stack and visited his HQ in beautiful Whitefish, Montana, close to Glacier National Park, in the early 1990's. As is so often the case I had moved on to other ideas. But in the craziness of last year one day I thought I really should find out what Stack thought. And I did. Stack and his team worked out their market indicators in the 1980's, and they have stood the test of time. Be mindful that I don't sell *anything* here and I don't get free subscriptions either. I pay full price for everything I mention here.
Stack isn't an exciting or camera-seeking guru type guy. He just does market data analysis and presents it simply and honestly. There can be months or years when his opinion doesn't change much, but he shows you "why" every four weeks and with interim updates.
Stack is still bullish and so am I. But we are close to having a year of bull market behind us. Much of the catch-up of devastated market sectors has occurred. The very easy money to be picked up off the street has been made. It will be more competitive going forward. Sector and stock and bond selection will matter more. After March 8 last year you could pretty much buy anything or everything and do well.
This lengthy introduction is to tell you why I am starting to look for possible market timing windows this year. There may be new and unexpected positives that are unknown but which can lead to huge further gains, but perhaps not.
There are several people or groups I know of who do excellent longer term timing or cycle work, and they use different methods and are independent of one another. To start with there is always the longer term "seasonal" or one year chart of what a given asset has done over the decades. Then there is what Edgar Lawrence Smith in the 1930's and Edson Gould in the 1960's decribed the decennial or decade cycle for US stock prices. Years ending in "0" tend to be down years. "1" years tend to rally and "2" years mark major lows
In more recent decades I've followed Terry Laundry (short to long term, MarketTrak's neural network project (very short term), Financial Forecast Center's artificial intelligence projections (intermediate term), and Steve Berg's timer data (short to long term). Three of these (excluding MarketTrak which does only short term work) are looking for a stock market high this summer,and a low in the third quarter. Higher highs look probable in 2011-2012.
In the work of these people, gold looks higher into this fall with perhaps a year's pullback thereafter. Ditto for crude oil. Bond rates look higher into 2011 after a small pullback this summer.
How do I use this stuff? I am not going out tomorrow morning and buying Eurodollar, gold, crude oil and stock options for 2011. I am just going to be warier of staying long when market breadth and sentiment as I measure it get frothy this summer, if they do. And also I'll be watching to see if James Stacks's indicators get bearish. Major geo-political, macro-economic, or geologic/weather events can overwhelm market events, of course. Berg incorporates some of his ideas on weather and geologic events being affected by the sun, as of course is the annual seasonal charrt.
Right now I am sticking completely with the portfolio I recently updated here and am re-investing hefty dividends. If indicators and events start to spook me I will cut back gradually in stock and bond areas and/or buy more gold.
In years past I never paid any attention to market opinions, economic or political. Ed Seykota's famous remark about fundamentals was key in my mind:
"Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them funnymentals."
Unfortunately I am prone to doubt and error like most of us, so I am often a backslider on Seykota's dictum. The past two years have been a "funnymentalist" heaven. Sellers of opinions have had a bull market, and I have read a lot of commercial trash I wouldn't normally have read. Then the politicians and their propagandists got to me at times. And I know this has happened to lots of other people because people email me and I talk with many people.
Gradually as I read the classic narratives of market manias, panics and crashes I got a bit of perspective.
The three following reports come from intelligent and thoughtful people I respect although one must admit that all three have "something to sell" which I do not. Read them all. They are fairly short. They all together re-establish the concept of Seykota. Do your own work and run your own money with thoughtfulness and risk management or be totally mechanical if you are investing very long term. Funnymentals are not good for the mind or pocketbook.
After all the market and political-economic confusion of the past 18 months I have transitioned even further into a yield-based portfolio in the IRAs with still significant inflation (metals and stocks) and deflation (cash) reserves elsewhere. That is to say that I have extended maturities to capture what would be normal yields under normal conditions. This is referred to now as "increased risk appetite", but I can assure that the appetite isn't to obtain risk.
Around the world every government of note is reducing interest rates, keeping them near zero, thereby knee-capping savers and especially the retired and poor in order to save the banking system on which our economies are based. I have recently mentioned Kindleberger's classic "Manias, Panics, and Crashes" and also Peter Bernstein's "The Power of Gold", but Reinhart and Rogoff's very recent "This Time It's Different" is, well, different. It has the data for previous episodes in history like our own recent one. Actually it isn't really different in history, just in current minds' expectations of what is supposed to happen. Basically the reason is too much debt. While you're reading, also do get Dr Ron Paul's "End the Fed".
But that's all big time, and I'm quite small time with the assigned task of living off my assets, which I firmly intend to do! After all the self-debate here last year about whether to cash out the IRAs or convert them to Roth's I decided to bleed them down quicker than required by law but not so as to put income tax brackets too high for the coming income taxes increases. As such I'm not the least bit interested in capital gains and not much interested in inflation-hedging in these specific funds. Instead I am more than ever committed to yield and liquidity. Over all I'll be getting about 7%.
I went back into LSBDX (high yield but conservative in everything right now) and doubled up on PTTRX (Bill Gross's moderately aggressive fund), traded VFIJX (Ginnie Mae) for VWETX (long term investment grade A-rated bonds at double the GNMA yield) and most of the rest in preferred stocks and closed end funds. There is almost nothing in cash except for a few months of distributions and only a small gold position. It's now money to be spent or given away in due course.
In the taxable "free market" accounts it's quite the contrary. The actual recent changes are matters of degree and mindset and not radical. I think this is the sort of portfolio I can hold for a long time under conditions likely to continue for some time. But if the inevitable sovereign defaults spread, all bets are off and gold will need to replace all this.
In this week's issue of The Privateer from William A.M. Buckler of Queensland, Australia, Stein's Law is quoted:
"This law is named for Mr Herbert Stein, Chairman of the Council of Economic Advisors in the first half of the 1970's under Presidents Nixon and Ford. the law is simplicity itself and very useful when contemplating "unsustainable trends". It goes like this: "If something cannot go on forever- it will stop". So it will. The great global problem today is the manner in which "it" DOES stop". And, I would add, WHEN.
For the next two to three weeks I'll be very busy with a big project and may not have time to post.
In 2003 I began the transition from saving and investing for retirement to investing in retirement. From September 1, 2003 until the end of December 2006 my compounded annualized gain with all dividends reinvested (total return) and before tax was 11.85% per year.
For the three years from Dec 31, 2006 to December 31, 2009 my compounded annualized gain was 6.45% per year. For the entire period from 2003 the compounded annualized return was 8.45%. The original gold still held form September 1, 2003 compounded at 18.7% per year and is a much larger percent of my total portfolio now. I had some substantial long term profits from real estate investments taken in 2006-2007 which are not included in these results. The original accounts have stayed the same, and the new money has been similarly handled in a separate account
Part of the slowdown in gains after 2006 was due to my gradually shifting to a portfolio with a much higher percentage in bond and cash funds and part was the general market deterioration. The Vanguard SP500 Fund total return for 2007-2009 was -5.8% while the pure multi-sector bond fund PTTRX was up 9.29% annualized.
If we look at the whole period from September 1988, which is the start of my FastTrack data base, to present, PTTRX was up an annualized 8.92% per year while the SP500 Fund VFINX was up 9.00 and VWINX Wellesley Income was up 9.21%, all annualized total returns. On the other hand, for the past ten years PTTRX is up 7.88%, VWINX 7.06%, and VFINX down 1.16%, all again in annualized total returns. Using the FastTrack Ulcer Index of downside volatility, VFINX is five times as volatile as VWINX and ten times as volatile as PTTRX. What have I learned from all this? First, it's a good idea to de-emphasize stocks before a stocks bear market. :) I outperformed the total return SP500 Fund by 14.25% for 2007, 2008, and 2009 and both gold and PTTRX did much better than that! I had planned to reduce stocks anyway in 2006/2007, and I began to get worried about a bear market in 2006, so both motivations helped. The very last thing one wants to do is lose a lot of money just before or after retiring and drawing it down. If anyone reading this takes nothing more from this post than that and engraves it in memory, I will be very gratified.
Second, over much longer periods of time, as since September 1988, one can find a lot of funds which had fairly comparable and good results, with the examples of VWINX, VFINX and PTTRX all gaining approximately 9% annualized total return. This is the argument that many mutual fund boosters make for buy and hold young investors. Vanguard Wellington Fund is up 9.92% since September 1988 and is up 8.11% annualized total return since July 1, 1929.
Third, the bond market (or at least most sectors of it) has been in a bull market since the early 1980's, and stocks have been in a bull market for a lot of that period even with three very severe bears markets. So what I know is based on that. What happens in the future is unknown, but history says that bonds do not stay in bull markets forever. We don't know for sure when a bear market will start or will have started for bonds.
Fourth, when you start investing plays a big role unless you are investing for forty years or more. If you started ten years ago, PTTRX was up 7.88% annualized, VWINX up 7.06%, and VFINX down 1.16% as noted above. Gold is up 13.9% annualized.
My personal summary: If you have many decades to save and invest before you'll need the money, and you are not a consistently successful trader, or don't want to be, you should probably invest in a few high quality broadly-based funds and include some bonds, and then forget about it. Once you are about ten years from needing the money it's wise to start reducing volatility and increasing income by gradually increasing the bond component up to perhaps 70% from 20% which was the base.
Personally I would also include 5% in gold to start with and increase that gradually perhaps to 15% starting ten years before retirement. That's the inflation insurance in case both stocks and bonds don't do well in late pre-retirement years. Markets will probably be a lot different in forty years, but always remember Vanguard Wellington's 8.11% annualized returns for the past 80 years. This not to boost Wellington, although it's a good fund, but to suggest that stocks, seasoned with bonds or other assets, will still probably be a decent investment for retirement fund money over the long run.
All this sounds easy and certainly boring, but I can tell you that it is neither! It is very hard for most people to do these things consistently and willingly, and the volatility of markets and of our personal lives makes it even harder to do. As with most things, success starts inside each of us or not at all.