Q: Do you subscribe to realvision TV? Fred [Hickey] is on next week. Maybe this week you can talk about all time lows in miners such as gdx? would love to say the washout today was “it” but seems like they never want to go up even though they have recovered. Interested in when you put a stop on some of these? When the Fed doesn’t raise next week gold will still get hammered because people will think they will do so in October or December? Never ending cycle. Have you ever read some of the Jesse Livermore books and what are some of your favorites on investing? You did a podcast for someone—-when can we hear it?
J: I do sub to RealVision. Love it. See my comments on the miners in this week’s chart book. Feels like lower lows but it’s not!
The StockTwits podcast comes out next week, I think.
I also did one back in April with The Daily Gold: http://thedailygold.com/thedailygold-weekend-podcast-2/
And one with FXStreet in June: http://www.fxstreet.com/analysis/forex-live-analysis-room-interviews/2015/06/19/02/
Q: As always, thanks for sharing your wisdom and answering questions available to your premium subscribers.
I’m working on a portfolio for an elderly family member who wants a fixed income via dividends.
I’m looking at NLY, NXRT and KMI; all of which offer a decent dividend.
What are your thoughts on those stocks continuing with their current dividend and how will the Fed (either way it goes) play into them over the next year? I’m a little nervous about the restructuring that I’m reading about at NLY, not sure how this will play out with other investors sentiment.
Any advice is welcome….
J: There is no such thing as “fixed income via dividends.” If you want a truly fixed income then you need to focus on bonds, mainly treasuries and agency bonds. I just really worry about people reaching for yield here. They venture outside their comfort zone because yields are so low and end up taking on much more risk than they can afford. That’s a huge mistake to make. Long story short I can’t tell you how secure any dividend is aside from saying it’s not nearly as secure as a treasury coupon.
Q: What’s your opinion on DCF? I know Buffett doesn’t use it, but it seems to be very popular. Just wanted your thoughts! I know there’s no science to reducing the growth rate, but what are some tips to determine if it’s a fair estimate?
J: I think it’s a fine method but very easily screwed up. The biggest mistake I see people doing with it today is reducing the discount rate without reducing the growth rate. That’s just intellectually dishonest. It’s one of three valuation tools I use. The other two are the company’s current valuation relative to its own history and its valuation relative to its peers. I weight those three equally.
I always use a very, very conservative growth estimate. For example, I used a 3% growth rate (with 10% discount rate) when evaluating Apple back in early 2013. Clearly, they’ve crushed that since but going forward that could be the high end of their range. It’s just WAY too easy to overestimate growth, especially in a low-interest rate environment.
Q: Alerts are very helpful! Just curious why “by design” you don’t publish the returns.
J: Mainly because I don’t think anyone should just try to mimic the portfolio. Providing returns info encourages that and that’s not at all what I’m trying to do. I’d rather people figure out exactly how they should integrate the information based on their own goals and risk tolerance.
Q: From reading your alerts comments, you still believe that (we) will eventually resolve to much lower than current levels. Are we trading out the shorts faz, sqqq, and srty, because it appears the market will rally from here (short term)? Do you have higher conviction in bis and soxs to decline vs previous shorts?
If we were to invest like W Buffet etc, wouldn’t we continue to add to our shorts if market rallies from here since we are ‘betting big – like hedge funds’ believing the market will eventually resolve downward?
Any update on your gold investments?
J: Yes, I still believe we are now in a bear market. At this point I would rather be short semis and biotech than financials and small caps for reasons I outlined in a new alert. I wanted to reduce my large short exposure a bit as the recent downtrend was broken to the upside. As for trying to short in a Buffett-esque way, that’s difficult if not impossible. Successful short selling requires a LOT more trading, especially using the vehicles we are. They are certainly not for buying and holding even if the market will be lower over the next several years. It’s just not that easy. Having said that, I’m trying to do it in a way that requires the least amount of trading.
Q: Can you clarify a little what’s the difference between short and hedged? From I can tell BIS/SOXS are short as well?
J: A short sale is purely a bet on the downside. A hedge is a position put on to protect another position. For the most part, I’m using the inverse ETFs as hedges for my long positions (mainly HLF). At the same time, when I see fit, I put on extra short exposure above and beyond what can be considered a hedge. This is just a bet on the downside.
Q: What did you mean by: “and I’ve taken the stop on SQQQ to breakeven.”?
J: That just means I’m using a stop loss at the same level I entered the trade. If it continues to rally I will simply sell for breakeven.
Q: if the market reached new all time highs, wouldn’t it be proportionate to have margin debt at new highs, and it seems only slightly above levels of 2000 and 2007,
love your stuff,
J: Appropriate? I don’t think so. Margin debt doesn’t automatically increase with market cap. It must be added and that only happens when folks believe lower prices are unlikely. The more unlikely they believe the more margin debt they take out. Ultimately, the high negative correlation with forward returns is what makes it most meaningful to me.