Everyone ran for cover recently as we saw large weekly outflows in U.S. junk bond funds culminating in the largest on record at 7.1 billion. This amid seemingly every financial columnist, Wall Street strategist, and junk bond guru screaming about the the imminent demise of this wildly overvalued market. So how bad was the recent carnage? Using the Merrill Lynch High Yield Master II Index (the proxy for junk bonds) it was a mere 1.95% correction from closing high to low. Hardly even a garden variety correction compared to some others since the infamous mid-December 2008 bottom in junk bonds. Since the bottom the market has already rebounded 1.49% and sits only around one half of one percent from all time highs. A pretty impressive performance considering all the negative hype and record outflows. Stay tuned for what comes next - all times highs or a decline below the recent bottom.
Edit: I should mention the above refers to junk corporates not junk munis as that market continues to set YTD highs seemingly week after week.

Fitch recently raised Ally's credit rating to BB+.

http://www.stockhouse.com/news/press-releases/2014/04/01/fitch-upgrades-ally-financial-s-idr-to-bb-outlook-stable

At BB+, if it were a bond, it would be a junk bond
Doesn't sound like a very good credit rating.
But they have an awesome internet only, FDIC insured bank.
They consistently pay higher rates for online savings accounts and CDs

Fitch recently raised Ally's credit rating to BB+.
http://www.stockhouse.com/news/press-releases/2014/04/01/fitch-upgrades-ally-financial-s-idr-to-bb-outlook-stable

Last time I looked, its debt rating wasn't so hot. Given it is trading at premium, are you pretty sure there aren't negative scenarios, that could occur in the near-term, that would prevent them from having enough to cover (like financial system distress, causing another lock-up? another bailout unlikely, but a bail-in with your money not off the table)? Just musing here.....

"
So you have a fund going long and short based on what brilliant people think should work and they would have been better off just going long (and the more heavily shorted companies, the better) for the last 5 years or so.

Remember the Long Term Capital Management hedge fund?
If ever there were brilliant people, that was it. IIRC, possibly two Nobel Prize winners in that group of geniuses. It failed, and required a bail out from our government to prevent a wider spread financial crisis.
There was a book written about it [I haven't read it though]:

Rjb112, I think you are correct. I don't believe the Fed is attempting some sort of financial social engineering here. If that were the case, then would the opposite hold true as the Fed slowly raises rates?
The Fed wanted to stimulate the economy which they did, albeit slower than most wanted it, and the rush into the stock market was secondary.
I'm not sure what the writer was trying to achieve here.

But was FundAlarm the first Financial twitter?

Hi Again Junkster,
Thanks for taking time to so courteously reply.
I always have a well defined purpose when I submit to any forum, and especially when that forum is MFO. In part, that’s because of the high respect I have for MFO members and their considered financial questions and advice. Full agreement is never expected. Markets would be ineffective without diverse timeframes, goals, and perspectives.
I am not surprised by the extent of your financial library. It is clearly demonstrated in your many informed posts.
My own postings likely overemphasize my actual dedication to math skills and statistical analyses. Since my posts are very goal oriented, I wanted to establish some area of expertise that was not firmly claimed by other MFO contributors. Monte Carlo analyses and the need for statistical application seemed to fit that goal in spades.
Over extensive readings of both FundAlarm and MFO submittals, I concluded that at least a few investors are truly mathematically dysfunctional. Others were not familiar with the power of statistical methods to better inform investment decision making. My judgment also included the professional field. Americans have notoriously bad math skills.
This deficiency is ultimately harmful to anyone’s portfolio. I hoped to address this defect just a little with some directed references and with a few carefully crafted commentary. Some would conclude that I miserably failed. That’s okay; I have broad shoulders.
I fully recognize that required math skills are tightly correlated with the job demands. Different sets of math skills are useful for disparate careers and tasks. Investing and financial matters are inundated with statistical data sets. All investors could improve their odds of success if they enhanced their math and statistical tool kit.
In the end, my desire to improve that tool kit for all MFO members motivated my postings. I am fully aware of the limitations of math in this regard. All numbers do not have equal validity; all analyses are not firmly grounded in a real world model. Under certain circumstances, number crunching can generate poor conclusions and/or give an investor a false sense of confidence and security.
These pitfalls can be partially moderated or entirely avoided with adroit numbers handling. Like any tools, math and stats have definite limitations, and are only effective when properly applied to tasks. Again, experience is the best guide to identifying any shortcomings in the tool set or its application.
Well, that’s why my MFO submittals tend to focus on math matters. I am near the bottom of the totem pole when it comes to identifying superior mutual funds, so I leave that task to the many experts on our MFO panel. I simply do not commit sufficient time to that arduous duty assignment.
I hope this clarifies my submittal stress towards math and Monte Carlo analyses.
Best Wishes.

Dear friends,
I talked for about 45 minutes with Ms. Kong, who'd already visited the board, read and thought about your questions. Here's the short version of what I heard:

• headline risk is the least of your worries. We started with the questions around Russia and Ukraine. Her position is that the outcome there is relatively short-term and difficult to predict. At the margins, the presence of NATO sanctions is causing wealthy Russians to move their money to Asian financial centers but those flows really aren't driving markets.
  the US is being irreversibly marginalized in global financial markets which is what you should be paying attention to. She's neither bemoaning nor celebrating this observation, she's just making it. At base, a number of conditions led to the US dollar becoming the world's hegemonic currency which was reinforced by the Saudi's decision in the early 1970s to price oil only in US dollars and to US investment flows driving global liquidity. Those conditions are changing but the changes don't seem to warrant the attention of editors and headline writers because they are so slow and constant. Among the changes is the rise of the renminbi, now the world's #2 currency ahead of the euro, as a transaction currency, the creation of alternative structures to the IMF which are not dollar-linked or US driven and a frustration with the US regulatory system (highlighted by the $9B fine against BNP Paribas) that's leading international investors to create bilateral agreements that allow them to entirely skirt us. The end result is that the dollar is likely to be a major currency and perhaps even the dominant currency, but investors will increasingly have the option of working outside of the US-dominated system.
  
• the rising number of "non-rated" bonds is not a reflection on credit quality: the simple fact is that Asian corporations simply don't need American money to have their bond offerings fully covered and they certainly don't need to expense and hassle of US registration, regulation and paying for (compromised) US bond rating firms to rate them. In lieu of US bond ratings, there are Asia bond-rating firms (whose work is not reflecting in Morningstar credit reports) and Matthews does extensive internal research. The depth of the equity-side analyst corps is such that they're able "to tear apart corporate financials" in a way that few US investors can match.
  
• India is fundamentally more attractive than China, at least for a fixed-income investor. Most investors enthused about India focus on its new prime minister's reform agenda. Ms. Kong argues that, by far, the more significant player is the head of Indian's central bank, who has been in office for about a year. The governor is intent on reducing inflation and is much more willing to deploy the central bank's assets to help stabilize markets. Right now corporate bonds in India yield about 10% - not "high yield" bond but bonds from blue chip firms - which reflects a huge risk premium. If inflation expectations change downward and inflation falls rather than rises, there's a substantial interest rate gain to be harvested there. The Chinese currency, meanwhile, is apt to undergo a period of heightened volatility as it moves toward a free float; that is, an exchange rate set by markets rather than by Communist Party dictate. She believes that that volatility is not yet priced in to renminbi-denominated transactions. Her faith is such that the fund has its second greatest currency exposure to the rupee, behind only the dollar.
  
• the appointment of a new comanager is mostly a recognition of the strong contributions that person has made since joining the fund at inception. The new comanager is a credit specialist. The existing one is an interest rate specialist.
  
• two factors seem to be constraining growth of AUM: (1) there's a general withdrawal from fixed-income in reflection of interest rate anxiety and that withdrawal seems to disproportionately impact non-core categories and (2) advisors are intrigued even to invest their own money in many cases but not yet ready to invest their clients. They seem to be waiting for a three year record and "clarity" in the market.
  
• the fund's maximum drawdown continues to track the firm's expectations which is good given the number of developments which they couldn't have plausibly predicted before launch. They're sitting at a beta of about .30.

For what that's worth,
David

http://www.everythingzoomer.com/strategic-versus-tactical-asset-allocation/#.U-1dSLl0yF0
"Strategic asset allocation is an investment theory based on the principles of a Nobel prize winning dissertation. At the inception of the portfolio, a base policy mix is established, founded on expected returns and risk. Then the asset class mixes are rebalanced to target weights according to the original mix, usually at regular intervals such as monthly or quarterly, to maintain a long-term goal for asset allocation.
In other words, there is no attempt on the part of the managers to purposely deviate from the original determined weights. The emphasis is on preserving the fixed weights because they ultimately relate to a larger performance objective based on historical data.
Tactical Asset Allocation
The objective of tactical asset allocation is to move among various asset classes within a risk-controlled framework to seek to create an additional source of return. An attempt is made to take advantage of short and intermediate term market inefficiencies as a means of managing investors’ exposure to market risk.
Managers normally do this by evaluating the relative attractiveness of equity and fixed income markets through financial valuation, growth and sentiment measures. They will then use a systematic process to evaluate the different asset classes.
The investment philosophy is usually based on the belief that investor psychology and market forces can lead to periods of misevaluation. A tactical allocation process attempts to capture these misevaluations. It is not a fixed asset weight mix and the allocation and the risk level of a portfolio may change quite dramatically."

Hawk: This is presumably for a 403b? I figured, but you didn't say so--- though you mention "matching" funds up to 9%. ....Has TIAA CREF improved its game? There have been issues in the not-too-distant-past. I think performance was an issue. The funds just did not do a good job of investing. Were there legal matters, besides?
From the days of the depths of the Financial Crisis, for which no one has yet gone to jail:
http://chronicle.com/article/Is-TIAA-CREF-Safe-/44807
...But Oregon is using TIAA-CREF for its 529 Plan.
http://www.savingforcollege.com/529_news/?page=plan_news&plan_news_id=1004
This might only be marginally helpful, but take a look. :)

FYI: Last week, the guy who created the Dilbert comic strip created a stir when he likened investment advisers to palm readers. We couldn’t help wondering: If the two professions are so similar, would they give you similar advice?
Regards,
Ted
http://www.marketwatch.com/story/we-asked-a-palm-reader-and-a-financial-adviser-how-to-handle-our-money-2014-08-13/print?guid=A8C13174-230F-11E4-8729-00212803FAD6

Domestic Energy/Heath-Bio
https://www.google.com/finance?q=NYSEARCA:IEO&ei=xj3sU6CECYbPrQGu_4HwCA
https://www.google.com/finance?q=MUTF:FRAK&ei=xj3sU6CECYbPrQGu_4HwCA
http://news.morningstar.com/fund-category-returns/energy-limited-partnership/$FOCA$LP.aspx
http://news.morningstar.com/fund-category-returns/equity-energy/$FOCA$EE.aspx
http://news.morningstar.com/fund-category-returns/health/$FOCA$SH.aspx
http://etfdb.com/index/health-care-select-sector-index/
An Economist's Perspective From Mesirow Financial's Diane C Swonk
"I debate with my colleagues on economics,
politics and psychology about the nature
of the changes that we are seeing: if they
are “cyclical,” then the effects of the
changes will be short-lived, and over within
a few months or quarters; or, if they
“structural,”then the effects of what we are
seeing will take much longer to play out;
it will take years to see the full impact and
could affect the lives of our children as well
as ourselves. This report takes a closer look at some of
the structural changes that we see emerging,
and how they are likely to affect the pace
and composition of growth going forward.
Technically we have shifted from a recovery
into an expansion. Waiting for a more
pronounced recovery, however, has been a
bit like waiting for Godot. Much of that
is because of the structural shifts we are
seeing in everything from a slowdown
across emerging markets, most notably in
China, to the ongoing challenges that the
Eurozone faces, and what those shifts mean
for monetary policy."
CHICAGO, August 13, 2014 – In the August issue of Themes on the Economy®, Mesirow Financial' s Chief Economist Diane Swonk muses on economic challenges and burdens that baby boomers are leaving for the millennial generation. "This will no doubt trigger some backlash, particularly among younger workers who will have to pay more into the system to keep the promises made, but they will not get much (if anything) in government-sponsored retirement benefits for themselves."
And, don't look to make it up in stock market, technology or housing bubbles; the Federal Reserve is keeping a much closer eye on the banks it regulates. Chair Janet "Yellen has talked about higher capital requirements and more conservative underwriting standards as ways that the Fed could deflate emerging bubbles. She has also praised the use of regulations targeted at tempering the rise in home prices..." The Fed plans to exit its QE3 program gradually, but the "fear is that the economy is more sensitive to rate hikes now than it was in the past. If the Fed acts too aggressively, it risks leveling the whole forest."
The picture looks different in other parts of the world, too. China will still represent opportunity but competition as well, and not just on the economic front, as it increases military spending. Swonk also cautions that, "stability in the Eurozone is illusory," with "the ongoing risk of deflation" and the effects on sovereign debt.
http://www.mesirowfinancial.com/economics/swonk/themes/themes_0814.pdf
Everything is Good!
Tonight's Headline
Shares, bonds rally as investors bank on ENDLESS stimulus.
Reuters By By Wayne Cole
2 hours ago
http://news.yahoo.com/asia-shares-investors-bank-more-stimulus-013020693--finance.html

MJG, going back in time a bit. Over the 10 years ending March 31, 1999 only 2 newsletter timing strategies out of 59 tracked by Mark Hulbert were able to beat the returns of a buy and hold strategy in the Wilshire 5000 Index. Over the previous five years (ending March 31, 1999) just 1 out of 104 timing strategies beat the Wilshire 5000 Index. (source: The Hulbert Financial Digest April 27, 1999 issue p.12)
As for Dalbar, they mapped investor return data from January 1984 to December 1997. Over that period the S&P had an annualized return of 17.1%. But the Dalbar study found that the average equity fund investor had an annualized return of only 6.7%. (source: "1999 Personal Planning Investment Guide" Special Advertising Section, Forbes Magazine, May 3, 1999, p. 12.)

Hi Guys,
This MarketWatch referenced article should really not shock anyone.
It is simply another report on the very consistent Dalbar studies, but with an extended comparative array of investment categories. Typically, the Dalbar individual investor returns analyses are only contrasted against the S&P 500 long-term returns as the standard of performance measurement.
These comparative performance measures have been so consistently against the private investor that I elect not to Link them on the MFO Board. It is “old stuff”, and not particularly remarkable.
The most noteworthy data in the chart presentation are the 20-year average returns for the vast array of categories that were included in the chart itself. Will these disparate results remain intact in the future or will there be a regression-to-the-mean? Therein rests the investor’s challenge.
If you are dismayed by the 20-year data presentation, you will be even more offended by the poor 30-year performance record attributed to individual investors. It too emphasizes the humiliating and destructive performance of Joe Six-Pack. Here is a Link to a recent Jason Zweig NY Times article that focused on this same topic for a 30-year period:
http://online.wsj.com/news/articles/SB10001424052702304655304579551914113672646
The article does a workmanlike job of explaining its title: “Just How Dumb Are Investors?” Zweig finds an easy answer to that vexing question which was discussed on the MFO Board a few weeks ago.
Zweig observes that “Investors aren't nearly as dumb as Dalbar's numbers suggest. But everyone can still get smarter.” Hope springs eternal.
The Dalbar methodology is surely not perfect. Even Dalbar has acknowledged that observation. However, it is sufficiently structured to capture the overarching investor lackluster performance. Absolute numbers are method dependent.
It appears that individual investors suffer from a triple investment whammy. Morningstar constantly reports that actively managed funds usually underperform their representative benchmarks. Because of poor timing or other financial commitments, fund investors typically collect returns that are below those generated by the funds they buy. Embedded within that finding is that investors tend to favor the “hot-hand” behavioral style of performance chasing. All these misbehavior factors, and many others, erode investor annual returns.
The numbers change depending on the timeframe and the study methodology, but the dismal investor rewards pattern has remained intact for decades. Not that its especially good news, but institutional agents also underperform their respective benchmarks, although by a slightly lesser magnitude than the citizen investor.
These data comparisons are one of the persistent arguments for a buy-and-hold strategy for extended, but not forever, timeframes.
Best Wishes.

For an ETF, see perhaps:QUAL or SPHQ
QUAL
http://etfdb.com/2013/ishares-launches-msci-usa-quality-factor-etf-qual/
ETFdb:
The iShares fund takes a factor-based approach in trimming down the starting universe by employing a series of fundamental metrics screens to narrow down only the highest-quality of companies.
The methodology behind QUAL is based on three metrics of quality: high return on equity, stable year-over-year EPS growth, as well as low debt-to-equity.
SPHQ
https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=SPHQ
Powershares:
The [ETF is based on an] Index [that] is designed to provide exposure to the constituents of the S&P 500 Index that are identified as stocks reflecting long-term growth and stability of a company's earnings and dividends.

The word "alternative" is so vague. MASNX is classified as "Multialternative". Why? Because assets split between multiple stock and bond managers.
I think this word was coined by MF industry, M*, both in cahoots so MFs can pretend they are offering "hedge funds" in "mutual fund" format. And now, SEC wants to examine these funds, because they really have nothing else to do like catch the next Madoff, or protect investors and companies against naked short selling unless it is to protect investment bankers who themselves had others do it to them during financial crisis.
Last time I checked, SEC has no legal authority to do anything. How its findings will help the individual investor one way or another is beyond me. It is a toothless and spineless organization.

I stopped reading anything from MF a couple years ago. That doesn't answer anything here but not too interested in anything from financial writers.

Hi Guys,
I just read “An Honest Stock Market Update” article by the Motley Fool’s Morgan Housel. Housel is a very serious financial writer. In this instance, his current work is a satire, but with real world implications. Here is the Link to the short piece:
http://www.fool.com/investing/general/2014/08/12/an-honest-stock-market-update.aspx?source=iaasitlnk0000003
I’m sure you will appreciate and enjoy its dark-side humor. Folks always seem to need a plausible explanation for an event even when such a surefire explanation simply does not exist. Things just happen. The article does expose several semi-serious human tendencies and foibles.
I find it astonishing that financial writers cluster their topics so frequently; this is one such example. Is it a haphazard happenstance or is there a more insidious explanation? Probably neither reason fully explains these occurrences.
I suspect these writers read each other daily, conclude that some introduced topics likely share a wide common audience, and, consequently, these secondary writers have opinions on the matter that demand a public airing. In that sense, these recent plethora of articles on this same subject are somewhat incestuous.
The deeper implications of the referenced piece is easily coupled to the “Three Questions” issue that was explored in an earlier set of MFO postings. Here is the MFO Internal Link to those exchanges:
http://www.mutualfundobserver.com:80/discuss/discussion/14993/jonathan-clements-keeping-your-portfolio-on-track-for-the-long-term
Both Jonathan Clements and Ken Fisher incorporated a “what you think you know about investing that isn’t necessarily so” as an integral part of their three critical investment question guidelines.
As investors, we’re all a little guilty of selective data gathering and biased interpretations of those data. We tend to emphasize those data sources that reaffirm our predisposed investment positions, and we often tend to ignore contrary evidence. We do so as an unrecognized bias, and, in so doing, put our portfolios at unwarranted risk with this asymmetric way at completing market research. This is surely not a new or even a surprising discovery. But we pay a price for this natural characteristic.
Behavioral researcher Thomas Gilovich examined these partialities several decades ago. His early book titled “How We Know What Isn’t So” is very informative on the subject and is a fun read. The subtitle of the book is “The Fallibility of Human Reason in Everyday Life”. I recommend you all give it a try. It just might make you a more balanced and informed investor.
I wish you all better investment outcomes.
Best Regards.

"....Imagine you're advising your neighbors, who are the same age and in a similar financial situation. What portfolio would you advise them to buy? That's probably the portfolio you ought to own." Ding! Great way of expressing it. Thank you, Ted. I must get to my week-end WSJ in print!