Sign up with your email address to be the first to know about new products, VIP offers, blog features & more.

You are viewing Trend Updates

A Brief History of Bubbles

By Posted on In Investment Behavior, Investment Strategies, Trend Updates, Uncategorized

Excerpt from Faber’s “Learning to Love Investment Bubbles: What if Sir Isasc Newton Had Been a Trendfollower”

“From a behavioral and psychological standpoint [a trend following investment strategy] is often the most difficult to deploy when it is most useful. Strong discipline would have been required to sell technology stocks in 2000, REITs in 2007, or South Sea stock in 1720, especially when one’s colleagues, friends and neighbors were making money hand over fist. In the end, for those who imposed such discipline, it was the prudent choice.”

Seems relevant for what we’re seeing in today’s recovery.

If you want to read more about how trend following works during investment bubbles, read this paper (especially the summary at the end):

Why Wasn’t There a Taper Tantrum?

By Posted on In Economy, Investment Strategies, Trend Updates, Uncategorized

If you recall, the markets declined by about 5% in May and then again in August due in part to the possibility of the fed reducing its bond buying program.

And then yesterday happened – the Fed went ahead and started to taper the bond buying program.

Based on the past, you would think the markets would have declined, right? Wrong. They surged upon hearing the news.

USA Today has a brief article that outlines five reasons why the markets reacted positively to the news.

Active Asset Allocation Trend Updates: October 2013

By Posted on In Trend Updates, Uncategorized

The Active Asset Allocation Portfolio utilizes a trend following strategy by buying and selling securities based on established price trends in each asset class. Below is a snapshot of the current trends we are following:

US Equities:

The bright spot in the world economy, US Equities have been one of the few asset classes that has been doing well this year. Almost everything else is flat or down. Dark clouds continue to loom in the distance for the US Equities like they have for most of the year. During each of our last updates this year, we have highlighted potential “speed bumps” stemming from issues/indecision from the Federal Reserve or the Federal Government. Fiscal cliff, bond tapering, government shutdown and now a possible default have all captured our attention and the headlines. The markets rally when there is clarity (either good or bad outcomes), but slowly decline as issues and problems drag on. This kind of response has been happening for over a year and will likely continue in the future.

Foreign Equities:

Trailing behind the US Equities are Foreign Equities. They have not been taking the indecision from the Fed or Federal Government as well as the US Equities. The charts show the Foreign Equities slightly more volatile than US Equities. Of course there are sub asset classes that have been doing better than others. We are watching Emerging Markets as a possible investment opportunity.

Bonds:

Bonds have been a minor holding in our portfolio for most of the year. Almost across the board, we have been lightening up on bonds. With the Fed announcing that the economy may be able to come off life support and can taper its bond buying program, it is reducing the value of existing bonds.
How does that work again? With the Fed buying less bonds there will be more supply than demand for bonds. That will result in bond issuers having to compete for a more limited number of buyers. They will do this by making their bonds more attractive – raising interest rates. New, more attractive bonds will make the existing bonds less valuable.
Ultimately, interest rates going up are a good thing for investors. The process of getting there is difficult.

Real Estate:

US Real Estate has been tracking closely with bonds – and for the same reasons. Foreign Real Estate has been performing better and could be an opportunity to invest if the positive trends continue.

Commodities:

Our holdings at this time are minimal.

 

Active Asset Allocation Trend Updates: June 2013

By Posted on In Trend Updates, Uncategorized

The Active Asset Allocation Portfolio utilizes a trend following strategy by buying and selling securities based on established price trends in each asset class. Below is a snapshot of the current trends we are following:

US Equities:

The trends in US Equities are currently in question. The markets have not responded positively to the news from the recent announcement from the Fed regarding the efforts to stimulate the economy. What does this mean? If recent history is an indication for what to expect, a market correction would occur but has not yet affected the overall positive trend. It could be a “speedbump”. When QE1 ended, the S&P 500 Index dropped by 15% but quickly rebounded leaving the overall trend positive. The same thing happened with QE2.

We continue to see some bright spots – technology, healthcare and financials seem to have avoided the same sort of decline as the S&P 500 experienced over the last few weeks. These groups might provide leadership in any “rebound”.

Foreign Equities:

The trends that exist in the U.S. equities are similar to the ones we’re seeing in the foreign markets.

Bonds:

During the month of June, we have lightened up on our bond holdings. Again, this can be traced back to the Fed. As the economy shows more signs of improving, the Fed will reduce its bond buying program and slowly raise interest rates. As interest rates rise, the value of existing bonds become less valuable since they pay a lower interest rate than newly issued bonds..

Real Estate:

Our longest held position is currently trying to find a trend. We have been pulling back on some positions and will continue to monitor it closely. The reasons for the trend reversal are similar to what was outlined above.

Commodities:

Our holdings at this time are minimal.