Investing in Uncertain Markets

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Investing in Uncertain Markets. Presentation to AAII Baton Rouge Chapter Meeting April 2014. BEARS (going into 2013): Without the Fed, this market falls apart, because The global economy is buried under the weight of debt - PowerPoint PPT Presentation

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  • Presentation to AAIIBaton Rouge Chapter MeetingApril 2014INVESTING IN UNCERTAIN MARKETS

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    BEARS (going into 2013):Without the Fed, this market falls apart, because The global economy is buried under the weight of debtDeleveraging (reducing the debt) cycle will keep earnings and investor sentiment downEurozone workouts and China slowdown are big known risks.U.S. budget issues and related debt are a big potential risk The Fiscal Cliff!

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    What a DRAG!

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • THE IMPACT OF GLOBAL DEBTDON LANSING (DON@LANSINGINVESTMENTS.COM)*Living in Reinhart/Rogoff World:Research by Reinhart/Rogoff widely sited for concerns about U.S. debtStudied financial situation of 44 countries over two centuriesFound that debt to GDP >90% was a tipping pointLed to reduction in growth of -1% for years on end (20+ years)Why? Limits governments ability to investResources going to pay down/support debtInterest rates spike as markets demand more compensation

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • BUT THE RULES DONT APPLY TO THE U.S. YETDON LANSING (DON@LANSINGINVESTMENTS.COM)*Is the U.S. different?Yes for now. Almost unlimited ability to borrow, and very cheaply!Reserve currency and related Treasury bond market provide important buffer size of markets without peerDebt has been transferred from private to public lowers net interest expense in the systemDebt supporting investment is preferential to debt supporting consumption hello GreeceIt gives us the freedom to be irresponsible

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Government spending growth grinds to a halt

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *CONSUMERS DE-LEVERAGEDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    @parhedge Be LONG insanity and SHORT common sense

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*How common is it to have a 10%+ intra-year decline?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • WHAT DRIVES MARKET PRICES?DON LANSING (DON@LANSINGINVESTMENTS.COM)*Fundamentals Economic Cycle and Corporate Earnings

    Investor Sentiment Enthusiasm drives P/E ratios for stocks; Yield spreads for bonds

    Liquidity Availability of capital; money flow; Fed policy can influence this

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    Corporate Earnings x PE Ratio = Market Prices

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    And then THIS Happened

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *CORP PROFITS TAKE FLIGHT IN 2013DON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *INTO THE GREEN EUROPE BEGINS TO RECOVERDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *BOND INVESTORS GET SHOCKEDDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *QE SPARKED A FLOOD OF MONEY INTO BONDSDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*What if only a fraction of that bond wave flows back into stocks?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *DON LANSING (DON@LANSINGINVESTMENTS.COM)The stock market is all about money. Money goes in and the stock market goes up. Money flows out and the stock market goes down. Jesse Livermore

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Asset Allocation Funds have a poor year

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • BEARS: FALLING LIKE DOMINOS DON LANSING (DON@LANSINGINVESTMENTS.COM)*I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years time.I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.I am out of justification to fight the uptrend. Up until now, I have had what I thought was compelling evidence to believe in the bearish case, but it has now been revealed to have been insufficient for the task.

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*20%+ Returns are Common

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Compared to Historical Rallies

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • THIS BULL MARKET JUST WONT STOP!DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Been a long time

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *WHAT IS NORMAL?DON LANSING (DON@LANSINGINVESTMENTS.COM)In the average bull market, the S&P 500 falls by 10% or more every 16 months. It has now been over 31 months since the last such pullback. Investors have forgotten what a normal market looks like. CIO of $130B firm

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*What is normal?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    ARE STOCKS EXPENSIVE?

    Corporate Earnings x PE Ratio = Market Prices

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*NOT COMPARED TO RECENT PRIOR PEAKS

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Nor Compared to Projected Earnings

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Compared to Historical Rallies

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    2014 the Road to Nowhere?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *2014 SO FAR STATE OF GLOBAL ECONOMIESDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *2014 SO FAR: IMPACT ON THE SECTOR PLAYBOOKDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *2014 SO FAR SIMPLE MEAN REVERSIONDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    Will Higher Interest Rates kill the rally?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*And Stocks do fine

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Spending Changes As We Age

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*How to invest in a rising rate environment?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*What bonds are best in a rising rate environment?

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • MANAGING INCOME PORTFOLIOSDON LANSING (DON@LANSINGINVESTMENTS.COM)*

    Importance of Duration+1% move in interest rates = -D% move in bond price

    Managing spreads instead of ratesSpread = Difference between rate of bond & Treasury rateHigher the spread, the more compensation being demandedLower spreads = nearer to end of cycleWatch spreads for clues about the end of the cycle!

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    Dealing with Uncertainty

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *WHY THE UNCERTAINTY?DON LANSING (DON@LANSINGINVESTMENTS.COM)Here is the simple reality we try desperately to ignore: Most of the time, we have no idea what is going on. Barry Ritholtz

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *THE BENEFIT OF NOT PAYING ATTENTIONDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • WAYS TO MITIGATE RISK INCREASE DIVERSIFICATIONDON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *DEALING WITH UNCERTAINTY SIMPLE TIMINGDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • *DEALING WITH UNCERTAINTY SIMPLE TIMINGDON LANSING (DON@LANSINGINVESTMENTS.COM)

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DON LANSING (DON@LANSINGINVESTMENTS.COM)*Avoid the bad times.Keep vol low.

    DON LANSING (DON@LANSINGINVESTMENTS.COM)

  • DEALING WITH UNCERT

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