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Pension PartnersMarkets Webinar
September 2017
1 | September 2017 Markets Webinar
Disclaimer
September 2017 Markets Webinar2 |
This webinar is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this webinar should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this webinar.
PENSION PARTNERS, LLCAbout Us
Investment manager of a mutual fund and separate accounts
Absolute Return strategies
Systematic investment process focused on positioning defensively ahead of potentially higher stock market volatility periods
Open, transparent communication through various writings, media appearances, and social media
For more information, contact us at [email protected]
1 | September 2017 Markets Webinar
Foundation
Overarching Theme
Managing volatility is the key to long-term outperformance
Strategies Building Upon Award-Winning Research Papers
An Intermarket Approach to Beta RotationThe Strategy, Signal, and Power Utilities
2014 Charles H. Dow Award Winner
Leverage for the Long RunA Systematic Approach to Managing Risk and Magnifying Returns in Stocks
2016 Charles H. Dow Award Winner
Lumber: Worth Its Weight in GoldOffense and Defense in Active Portfolio Management
2015 NAAIM Wagner Award Winner
4 | September 2017 Markets Webinar
An Intermarket Approach to Tactical Risk RotationUse the Signaling Power of Treasuries to Generate Alpha
2014 NAAIM Wagner Award, 3rd Place
MYTHS, MARKETS, AND EASY MONEY
5 | September 2017 Markets Webinar
“Easy Money”
September 2017 Markets Webinar6 |
“Finally, while my observations are uncertain and should be taken
with a grain of salt, what I am sure of is that valuations and markets
are elevated, and the easy money in this cycle has been made.”
– Howard Marks, Oaktree Capital Memo (July 2017)
“The easy money has been made.”
If that saying sounds familiar, it’s because
you’ve been hearing it over and over again
since 2009…
“Easy Money”
September 2017 Markets Webinar7 |
Easy Money?More than quadrupled, 163 all-time highs…
September 2017 Markets Webinar8 |
Source: Pension Partners, Stockcharts.com
What could be hard about that?...
2009Worst bear market/economic contraction since the Depression
September 2017 Markets Webinar9 |
“Earnings Drive Stock Prices”2009: Worst earnings in history…
September 2017 Markets Webinar10 |
Source: Pension Partners, S&P
Trading Earnings Through the Rearview Mirror
Stock prices lead earnings, not the other way around…
September 2017 Markets Webinar11 |
Source: Pension Partners, Robert Shiller
2010: The “Flash Crash”May 6, 2010: worst day since April 2009…
September 2017 Markets Webinar12 |
Pension Partners and Sec.gov
Are large down days a reason to sell?No
September 2017 Markets Webinar13 |
Pension Partners and Stockcharts.com
Lesson: instead of fearing panic, learn to embrace it…
2011: “Hear We Go Again”21% decline in the S&P 500…
September 2017 Markets Webinar14 |Pension Partners and Stockcharts.com
2011: “Recession”Are all bear markets indicative of a recession?
September 2017 Markets Webinar15 |Pension Partners and Stockcharts.com
2011: Are all bear markets indicative of a recession?
No. The stock market is not the economy.
September 2017 Markets Webinar16 |Pension Partners and Stockcharts.com
2012: All-Time Highs“Top”
September 2017 Markets Webinar17 |
Pension Partners and Stockcharts.com
2012: All-Time HighsWhat tends to follow new all-time highs? More all-time highs.
September 2017 Markets Webinar18 |
Pension Partners and Stockcharts.com
2013: “Rising Rates”Should Equity Investors Fear “Rising Rates”?
September 2017 Markets Webinar19 |
Pension Partners and Stockcharts.com
2013: “Rising Rates”Should Equity Investors Fear “Rising Rates”?
September 2017 Markets Webinar20 |
Pension Partners and Stockcharts.com
2013: Should Equity Investors Fear “Rising Rates”?No. 0 correlation between S&P and 10-Year Yields
September 2017 Markets Webinar21 |
Pension Partners and Stockcharts.com
2014: “King Dollar”Should Equity Investors Fear a Rising Dollar?
September 2017 Markets Webinar22 |
Pension Partners and Stockcharts.com
2014: Should Equity Investors Fear a Rising Dollar?No. Correlation b/t S&P 500 and Dollar is 0.
September 2017 Markets Webinar23 |
Pension Partners and Stockcharts.com
S&P 500 would finish 2014 up 13.7%...
2015: “Oil Crash”Does the S&P need higher Oil?
September 2017 Markets Webinar24 |
Pension Partners and Stockcharts.com
2015: Does the S&P really need higher Oil?No. Correlation b/t S&P 500 and Oil is 0.
September 2017 Markets Webinar25 |
Pension Partners and Stockcharts.com
2015: “Fed Rate Hike”Are Rate Hikes Necessarily Bearish?
September 2017 Markets Webinar26 |
Pension Partners and Stockcharts.com
No.
September 2017 Markets Webinar27 |
Pension Partners and Stockcharts.com
Are rate hikes necessarily bearish?
Should you sell 52-week lows? Not exactly…
September 2017 Markets Webinar28 |
Pension Partners and Stockcharts.com
2016: 52-Week Lows in January/February
Should you mix politics and your portfolio?
September 2017 Markets Webinar29 |
Pension Partners and Barron’s.com
2016: Politicians “killing the market”?
No. Election years actually slightly outperform non-election years.
September 2017 Markets Webinar30 |
Pension Partners and Stockcharts.com
2016: Should you mix politics and your portfolio?
S&P 500 finished 2016 up 12%.
Brexit: high volume sell-off, low volume advance…
September 2017 Markets Webinar31 |
Pension Partners and Stockcharts.com
2016: Volume and the Big Lie
Not exactly. They are the norm.
September 2017 Markets Webinar32 |
Pension Partners and Stockcharts.com
2016: Are high volume sell-offs and low volume advances bearish?
Does it mean stocks can’t go higher? No.
September 2017 Markets Webinar33 |
Pension Partners and Stockcharts.com
2017: Extreme Low Volatility in January…
Does it mean stocks can’t go higher? No.
September 2017 Markets Webinar34 |
Pension Partners and Stockcharts.com
2017: Extreme Overbought Conditions in February…
No.
September 2017 Markets Webinar35 |
Pension Partners and Stockcharts.com
2017: Is Overbought necessarily bearish?
21 Corrections since March 2009. Easy Money?
September 2017 Markets Webinar36 |
Pension Partners and Stockcharts.com
2009 – 2017 Gains
1) Noise: Can You Ignore It?
September 2017 Markets Webinar37 |
Pension Partners and Stockcharts.com
Takeaways
The only way to have a chance of holding your position?• Ignoring the noise
• Extreme Forecasts• Predictions• Calls• Prophesies • Targets• Myths
• Why is Ignoring the Noise so important?• Because the big money in markets is not made from thinking but from
sitting.• Sitting through big market advances and letting your investments compound
is hard enough, becomes infinitely harder when being compelled to take action based on falsehoods.
• True whether you are active or passive investor.
2) Ego: Can You Surrender It?
September 2017 Markets Webinar38 |
Pension Partners and Stockcharts.com
Takeaways
• Need to get over your fear of saying 3 important words: I don’t know.• Why is knowing something (or thinking you know something) so harmful in
investing?• Because knowing -> Overconfidence -> Overtrading ->
Underperformance
• Knowing why the S&P 500 suffered those 21 corrections was more harmful than helpful b/c it justified action based on emotion instead of evidence.
• Is there ever a reason to sell or change a portfolio?• Absolutely. But it should be based on the evidence and ideally executed in an
emotionless, systematic fashion.• And it should be done with humility, with the understanding that it
could be wrong.
3) It’s never easy
September 2017 Markets Webinar39 |
Pension Partners and Stockcharts.com
Takeaways
• Will markets become hard in the years to come? Probably.
• Does that mean it was easy up to this point? No.
• There’s no such thing as easy in investing.
MARKET ENVIRONMENT“THE BEST OF TIMES”
40 | September 2017 Markets Webinar
EquitiesIs the S&P 500 the new Money Market?
September 2017 Markets Webinar41 |
Pension Partners and Stockcharts.com
EquitiesSecond longest period without a 3% Correction…
September 2017 Markets Webinar42 |
Pension Partners and Stockcharts.com
Equities: Most Peaceful Market in HistoryLowest average intraday range over past few weeks…
September 2017 Markets Webinar43 |
Source: Pension Partners
Equities: Most Peaceful Market in HistoryLeast Volatile September…
September 2017 Markets Webinar44 |
Source: Pension Partners
Equities: Lowest Vol year since 1964
September 2017 Markets Webinar45 |
Source: Pension Partners
Equities: A Global AdvanceAverage YTD Total Return of 21.4% (As of September 25, in US$)
September 2017 Markets Webinar46 |
Source: Pension Partners, Stockcharts.com
Credit: Risk OnLowest Credit Spreads in Emerging Markets since October 2007
September 2017 Markets Webinar47 |
Source: Pension Partners, Stockcharts.com
Credit: Risk OnYields in European Junk Bonds at Lowest Level in History
September 2017 Markets Webinar48 |
Source: Pension Partners, Stockcharts.com
Fed: Still Extraordinarily EasyYes, Even After 4 Hikes…
September 2017 Markets Webinar49 |
Source: Pension Partners, FRED
Fed: Dovish ExpectationsMarket expecting next hike in December of this year, and only one additional hike over next 3 years…
September 2017 Markets Webinar50 |
Source: Pension Partners, FRED
Meeting Odds of a Hke (Today)
Nov-17 2.0%
Dec-17 77.9%
Jan-18 78.9%
Mar-18 87.6%
FOMC - Rate Hike Odds (Source: CME Group)
@CharlieBilello
Watching: Will Europe Start Hiking? With inflation picking up, negative rates still justified?
September 2017 Markets Webinar51 |
Source: Pension Partners, FRED
Watching: Yield CurveNo steepening/uptick in growth…
September 2017 Markets Webinar52 |Pension Partners and Stockcharts.com
SummaryEnjoy!
September 2017 Markets Webinar53 |
– Everything
– Is
– Still
– Awesome