FYI: As soon as the program becomes available for free, early tomorrow, I will link it.
Regards,
Ted
May 7, 2015
Dear WEALTHTRACK Subscriber,
Federal Reserve Chairwoman Janet Yellen caused a bit of a stir in an interview Wednesday when she commented that “equity market valuations at this point generally are quite high.”
It wasn’t exactly an “irrational exuberance” speech, a la Alan Greenspan in 1996, but pundits were quick to point out that his observation was about four years early, as the markets continued to rally until the March 2000 peak.
The market is expensive historically, based on several longer term measures including one of our favorites, the CAPE ratio, or Cyclically Adjusted Price Earnings ratio, created by frequent WEALTHTRACK guest, Nobel Prize winning economist Robert Shiller.
The CAPE, which is figured by taking the current price for the S&P 500, divided by the average of S&P earnings over the last ten years, adjusted for inflation, is currently around 27. That is well above its 20th century average of about 15.
Fed Chairman Yellen isn’t the only one concerned about stock market levels, professional investors are too.
According to a recent survey from State Street Global Advisors, of over 400 institutional investors worldwide, 63% of them increased their stock exposure over the last six months, but 53% wish they could decrease it and would if they had a more attractive alternative. Talk about conflicted!
Plus, 57% expect a market correction of between 10 and 20% in the next 12 months!
Normally investors could turn to bonds for income and protection, but with bond yields near record lows, they are no longer a viable option.
According to this week’s guest, Clifford Asness, both stocks and bonds are more expensive now than they have been in 90% of market history. Asness is Founder, Managing Principal and Chief Investment Officer at AQR Capital Management.
AQR stands for Applied Quantitative Research, which they use in a number of strategies.
Founded in 1998, AQR, now a global investment management firm, oversees more than 130 billion dollars in hedge funds, mutual funds and a diversified collection of investment strategies, from traditional long-only ones to multiple alternative approaches. I asked Asness how unusual it was for both stocks and bonds to be this expensive at the same time and what investors should be doing in response.
If you’d like to see the show before it airs, it is available to our PREMIUM subscribers right now. We also have an EXTRA interview with Asness, about his new venture with London Business School, available exclusively on our website.
If you have comments or questions, please connect with us via Facebook or Twitter.
Have a great weekend and make the week ahead a profitable and productive one.
Best Regards,
Consuelo

Hi Old Joe,
To quote Ronald Reagan from the 1980 Presidential debates with Jimmy Carter: “There you go again”.
What pleasure do you take in building a straw-man (that’s me), and then meaninglessly attacking that straw-man? That could be a dangerous practice for you. This straw-man chooses to fight over either flight or freezing. My posting record shows that over and over again.
In this instance, you purposely misinterpret simple declarative statements that I wrote: "If you guys want to continue this discussion, that’s fine. Everyone is free to disagree." I meant nothing more than what I said. There is no deep hidden meaning that lurks below the surface.
Somehow, with malicious intent, you distort and insinuate my real meaning to declare that I hold MFOers postings as “substandard commentary”. That’s a total fabrication that was invented in your own mind. That’s sad indeed.
But I do appreciate this addition to your continuing and gratuitous tirade directed at me.
It further documents your spiteful and nasty nature. Your written words say much more about your character than they identify my shortcomings. It permits seasoned MFOers to compare and judge the merits of your superfluous assertions against my posts. I’m sure they recognize and measure the quality to these exchanges.
I note that in your comment, you use the plural “we” when recording “our” disapproval. Given your choice of pronouns, you presume to be speaking for the bulk of the MFO community.
To satisfy my curiosity, I wonder how you assembled this imagined cohort. Did you conduct a comprehensive and independent survey? Did Professor Snowball provide you with some statistical documentation? Or are these the rants of a lone dissenter who has an old, rusted axe to grind? I suspect the latter.
Why you persist in your ill-conceived vendetta totally escapes me. But I still hope for your rapid and complete recovery from this wasteful malady.
Best Wishes (sort of since my patience is thinning but my resolve is not).

Hi Hank,
Thank you for replying.
Reading your agitated response clearly demonstrates that I was not too far off base when I commented that I was “Sorry if I touched a tender spot”. Again, based on your reply, I not only touched a tender, soft spot, I apparently violated it.
I suspect one reason for your highly charged response is at least partially connected to a Conformational bias. “A man hears what he wants to hear, and disregards the rest”. We all fall victim to this behavioral bias.
It certainly appears that you have concluded that our investment philosophies and practices differ somewhat. That’s likely true. Most of what appears on these discussions is simply market opinion. There are very few absolute rights or enduring wrongs when investing.
It seems you most strongly object to my MFO posting style. That’s presumptive on your part. But, you are welcome to your opinion. Others on MFO share that opinion, but others do not. I do not aim to please everyone.
Rather than addressing the substance of my posts, you challenge my form and format. You said: “To profess respect - and than proceed to inundate a discussion with your own doctrinaire perspective(s), superior intelligence and recommended reading list is not respect.”
Yes, I do write with purpose; I try to clearly state that purpose and my position. That’s what communication is all about. Words are powerful tools. I try very hard to assemble them to produce a lucid investment composition that is also entertaining.
I never, never claimed to be an expert. I frequently extol my amateur status and have freely admitted that I’m a self-educated investor with many shortcomings. I certainly never claimed “superior intelligence”. By the way, that’s a losers game since data shows that superior intelligence does not correlate positively with superior investment returns.
In my entire work-life, I competed for contracts with written proposals, so I do try to write with conviction and to document my positions. Hence, I provide statistics and references to buttress those positions. All this takes words and carefully crafted, logical sentences. Why some MFOers want to enforce a tight word limit escapes me. The solution is obvious: If the submittal is too long, ignore it.
For my entire FundAlarm and MFO posting period, I have stressed the benefits of a statistical understanding and the merits of Monte Carlo analyses under some conditions. This has angered some other participants, perhaps because of their mathematical limitations. But I remain committed to that purpose. If I have not yet won that battle, I surely have not yet lost it either.
“You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.” That’s not me talking, it’s a quote from Friedrich Nietzsche.
Best Wishes.
ADDED COMMENT: Perhaps my comment that provoked your ire was too simplistic. I certainly never intended to coupled you with misguided axioms. You partially agreed with 4 of them. My misguided term referred to misled and/or misinformed investors. I may not agree with specific investors, but I still respect them.
And I really mean Best Wishes. I want all of us to succeed as investors.

"Don't piss into the wind,
Don't step on Superman's cape ..."

Yes, "the results are lackluster considering the sheer size and duration of easy monetary policy this time." No argument.
How many years did it take to escape the Great Depression?
I'll happily accept "lackluster" in lieu of another World War to revive an economy.

This chart is CAPE vs DSENX beginning with inception.
Click onto the the green/red icon at the far left end of the 350 day slider for a bar graph representation of the returns.

except with a lot of bonds (at a remove). What ratio, is my question.
This whole thread started with acknowledgment of it as LV, yes. I mean, check out the CAPE index it attempts to surpass.

ha, legs are long broken, partly, metaphorically, investment and otherwise.
Looks like about half stocks and related. How I read 'other', in other words.
See
http://www.thinkadvisor.com/2013/11/22/gundlach-on-shiller-cape-fund-a-better-mousetrap
Value orientation, in other words.
And this for the etn CAPE that DSENX also mimics:

The Index incorporates the principles of long-term investing distilled by Dr. Robert Shiller and expressed through the CAPE (cyclically adjusted price/earnings) Ratio. The index aims to provide notional long exposure to the top four US equity sectors that are relatively undervalued as defined by a modified version of the classic CAPE Ratio and possess relatively stronger price momentum over the prior twelve months. Each US equity sector is represented in the Index by one of the nine S&P Select Sector Indices (the "Sector Indices").
They also throw one sector out per some criterion to avoid value trap; I will try to find exact language. Ah, Fido summary:
It aims to identify undervalued sectors based on a modified CAPE ratio, and then uses a momentum factor to seek to mitigate the effects of potential value traps.
Hence the M* LV designation, or so I infer.
Possibly interesting take of a hatah:
http://www.etf.com/sections/blog/20177-inside-professor-shillers-cape-etn.html
I think Snowball commented recently that the delta over the etn was due chiefly to the bond play.
A key difference between the ETN and the new fund, according to DoubleLine, is that the ETN’s Treasury bill holding is fully exposed to counterparty risk, while the DoubleLine product is protected against such risk through exposure to its fixed-income structure.
Thanks for wishes. I am doing this with quite a bit of trepidation but also conviction, whatever that means.

FYI: Larry E. Swedroe and Andrew L. Berkin
Excerpted from the book, The Incredible Shrinking Alpha: And What You Can Do to Escape Its Clutches (BAM Alliance Press).
Regards,
Ted
http://wealthmanagement.com/print/investment/incredible-shrinking-alpha

You'll simply be buying shares from larger institutional holders as they cash out.
p.s. Shiller CAPE hit 27.6 on Friday. :)

Awesome! Are we hitting escape velocity yet, on the stairway to Heaven?
OOOOOOH, you're too good to be true
Can't take my eyes off of you
You'd be like Heaven to touch
I want to hold you so much
And every day I survive
I just thank God you're alive
You're just too good to be true
Can't take my eyes off of you.

How 'bout this...?
Maybe the Great Recession created more deep value opportunities that, unfortunately, are simply more volatile than in times past. Not to say it's changed always, just now. I also believe he sees financials within his circle of confidence. Often citing savings bank failures in the '80s.
So, for him at least, the volatility landscape had to change given the deep value nature of his strategy and the opportunities that have presented themselves.
That simple.

FYI: Among U.S.-listed exchange-traded products, 10 “socially responsible” products account for only $1.14 billion, or just 0.06% of ETP assets.
Regards,
Ted
http://www.investmentnews.com/article/20150127/FREE/150129922?template=printart
ETF Trends.Com: Socially Responsible ETF's
http://www.etftrends.com/?s=socially+responsible

From past commentary by Mike M, I would be very surprised if his "GI" comment was not meant sarcastically, especially given the highly dubious proposition that "Poor people can escape Poverty in the U.S........ ANYTIME they WANT TO"
tb's remarks are interesting to me because of the rather unpredictable mix of reasonable and logical commentary with obvious absurdities such as the above quote.

Redistribution of wealth has never worked, and will never help the poor escape poverty. And nobody -- whether liberal, independent or conservative -- is amenable to having the government forcibly redistribute their personal wealth to somebody with less wealth, of course after the government takes their cut of the transaction, thereby making it a very inefficient transfer of wealth.
I agree with the maxims of Rev. William John Henry Boetcker originally published in 1916:
• You cannot bring about prosperity by discouraging thrift.
• You cannot strengthen the weak by weakening the strong.
• You cannot help little men by tearing down big men.
• You cannot lift the wage earner by pulling down the wage payer.
• You cannot help the poor by destroying the rich.
• You cannot establish sound security on borrowed money.
• You cannot further the brotherhood of man by inciting class hatred.
• You cannot keep out of trouble by spending more than you earn.
• You cannot build character and courage by destroying men's initiative and independence.
• You cannot help men permanently by doing for them what they can and should do for themselves.
Margaret Thatcher and Ronald Reagan had the same thoughts about wealth redistribution. Here is a classic Margaret Thatcher moment:

Kevin

Lower fuel costs stand to hurt Alcoa. Aluminum is an expensive (lightweight) alternative to steel for transportation needs. Expensive to produce. Expensive to work with. That's why Ford's all aluminum F150 is going to struggle. Sure, they'll sell a bunch out of the gate, but it won't be the hit they envisioned until gas gets up over $3. Probably be offering big discounts about the time gas levels off at $1.50 nationwide.
The following article appeared in April, just three months before the plunge in oil began. At that time there were wildly optimistic forecasts the use of aluminum would spread rapidly among auto makers.
"Ford's New Alcoa Connection" (April 2014) http://www.post-gazette.com/auto/2014/04/17/Ford-F-150-Alcoa-Connection/stories/201404170089
It's hard to escape politics in all of this. There are mounting pressures already to ease up on mandated fuel economy standards in coming years.

Hi Tanpabay, Hi Mrdarcy,
Thank you for reading and reacting to my posts. I really appreciate feedback since that implies that I reached both your minds and your emotions.
But I didn’t expect the harsh nature of your highly charged replies. I suppose football does cause such sharp reactions from some loyal fans; football touches many emotions and nerves. I’m not one who is so influenced by football.
I didn’t comment or forecast the outcome of the Rose Bowl game because I simply did not care one way or the other. I had no skin in the game although I have a close relative who has both her undergraduate and graduate degrees from Florida State. I try to never forecast since that is a Loser’s game.
My primary purpose in referencing the Oregon-Florida State game was to introduce the investment reversion-to-the-mean concept in a manner that would attract MFO readership.
From your replies, I succeeded, but not in the way I wanted. You focused on the peripheral introductory football analogy, and not on the main investment regression topic. I’m disappointed.
You guys misinterpreted the extent and the thrust of my football analogy. I was surely not writing about the Florida State 2012 and 2013 seasons. They were superb and honestly earned by a superior football squad directed by a Heisman quality quarterback in 2013.
My comments centered only on Florida State’s 2014 season. The 2014 team did not dominate opponents like in previous years. They fell behind in a majority of their 2014 games by huge negative margins, and were very fortunate (lucky) to pull these games out of the fire. Their escapes baffled handicappers. Professional odds makers estimate that the team had something like a 1 in 10,000 chance of winning all those games. I wanted to illustrate how quickly luck can evaporate.
Also, the Florida State quarterback in 2014 did not play to the high performance standards he established in his Heisman trophy year. Statistically, the Oregon quarterback possessed a much more impressive 2014 record. That’s why he won the trophy this year. In the future, he too will likely suffer a regression-to-the-mean.
I’m sorry that you fellows are so sensitive to the Rose Bowl outcome. It neither pleased me or displeased me whatsoever. My posting was designed to direct attention to the random, checkerboard character of major investment classes, their non-predictability, and their reversion-to-the-mean tendency. The football commentary was meant to be merely ancillary.
By the way, I do Las Vegas about three times a year, and sometimes (rarely) leave with a fatter wallet. I also ran a small consulting firm after retiring as the head of a major research operation. The lesson here is to not make wild guesses or false assumptions. You never know who is on the other end of the exchanges.
I really take no umbrage from your comments. Once again, thanks for reading my posts.
Best Wishes.

Hi Guys,
Charles’ recent “Irrational Markets - Proof Positive” post prompted me to initiate this topic. That discussion highlighted the discordant opinions and recommendations made by supposedly financial and investment experts. The cacophony is loud, endless, and often much less than useful. Chaotic investing is a likely outcome.
The Charles post emphasized the mind-bending character of old wisdom saws like “Out of the mouths of babes comes wise insights, yet, only with age comes wisdom”.
If the latter is true, I have accumulated much wisdom. I guess you should seek investment advice from either young Wharton business school graduates or perhaps from older, more senior graduates. I listen to both, but weight them differently.
For many years, an industry agreement seemed to have been reached with regard to an acceptable retirement portfolio drawdown rate. Portfolio survival for an extended retirement period is the obvious goal.
These earlier studies mostly suggested something approaching a 50/50 mix of equity and fixed income holdings. High portfolio survival rates were estimated when withdrawal rates were limited to roughly 4% per year adjusted for inflation. The original work in this arena was done at Trinity University in 1998 and has been frequently updated.
Here is a Link to one readable update written by Wade Pfau in 2010:
http://wpfau.blogspot.com/2010/10/trinity-study-retirement-withdrawal.html
The Pfau analysis didn’t much change the earlier study findings. However, some concern over the current overpriced marketplace, coupled with a very low interest rate environment, has persuaded a few gurus to shorten the recommended drawdown schedule from the standard 4% rule-of-thumb to an even lower 3% annually.
Now for the controversial analysis and recommendation that wants to upset this comfortable apple cart. It will surely add to Charles’ distress over conflicting and competing financial advice. That’ll never change.
It is a retirement study from the Director of Research at the Putnam Institute. Here is the Link to this cart upsetting 16-page, 2011 release:
https://www.putnam.com/literature/pdf/PI001.pdf
Please give it a road test. It merges portfolio returns uncertainty with life expectancy probabilities for both men and women separately. The methodology deploys a novel Retirement Present Value (RPV) model to project portfolio survival likelihoods.
The RPV’s surprising and controversial output is that the retirement portfolio that offers the best survival prospects includes a much smaller fraction of equity holdings than does the original Trinity study and other follow-up Monte Carlo analyses. Check it out; controversy is good.
Personally, I’m not comfortable with the Putnam work product. The manner in which the “optimum” portfolio equity/fixed income mix was determined escapes me. Certainly a portfolio with only a single Index-like equity position is retirement dangerous because of its volatility (standard deviation). But fixed income is likely more dangerous because of muted annual returns.
The standing answer has been broad portfolio diversification that trades off a little annual return for a major decrease in overall volatility. Outcomes are definitely timeframe dependent, but I still trust this generic and time-tested approach.
You get to choose your own poison. My head spins off-axis as often as Charles’ does. Let MFO members know your thinking on this matter.
Best Regards and Happy Holidays.

from the DSENX report end September:
\\ In the six-month period ended September 30, 2014, the DoubleLine Shiller Enhanced CAPE returned 7.39% and the S&P 500 Index returned 6.42%. The DoubleLine Shiller Enhanced CAPE performance was due to a 6.05% return from exposure to the Shiller Barclays CAPE U.S. Sector Total Return Index and a 1.34% return from the fixed income portfolio. Hence the key driver of outperformance was the fixed income portfolio. The Shiller Barclays CAPE U.S. Sector Total Return Index was exposed to the healthcare, industrials, technology and energy sectors throughout the six-month period. All four of these sectors contributed positively to return with technology contributing the largest amount (2.58%) and industrials contributing the least (0.36%). The fixed income collateral pool was primarily driven by a rally in emerging market debt and mortgage-backed securities. The worst performing sector of the bond market was the high yield sector as new issuance was in excess of investor demand.
Don't know whether to transfer retirement equity fund moneys into this or not.