12.6.14: Weekend Reading That Might Benefit Others

http://www.fa-mag.com/news/worst-returns-in-decades-hounding-active-stock-fund-managers-20074.html. This leadoff article details how tough a year it has been for active equity managers. Although I haven’t seen a fixed-income equivalent, I wonder how taxable bond managers are doing this year. With recurring liquidity issues and disparate volatility, you have to think the average active bond-fund manager might be struggling, too. In terms of how I am doing for clients in 2014, our equity performance as of 9/30/14 was mostly better-than-benchmark, although performance has softened since 9/30, and it also depends on the account too. To be frank, my taxable bond holdings this year have struggled, so using closed-end muni funds and an allocation to muni high yield has helped, and I even bought some muni CEF’s and funds for tax-deferred accounts when the yields were right (or close to it). I felt like the muni market was the place to be in 2014, from both a risk-adjusted an absolute return perspective, in terms of the bond market. I completely dodged the Energy collapse this year on the equity side of the ledger, but also didn’t own enough Healthcare, which is the best performing sector of the 10 primary sectors of the SP 500.

Greg Harmon, excellent technician that runs the Dragonfly Capital website, thinks MSFT is still a good-looking chart. Note the date that chart was posted. Rick Sherlund, the former Goldman Sachs “ax” on MSFT and current Nomura software analyst, came out in April ’13 when the ValueAct stake was announced and panned the stock at $26, but this week upgraded it at $48. That makes you cringe a little, but we’ve all been there. MSFT has been one of my top 5 holdings for clients the last 2 years, and is the #1 position by percentage weight as of 2014. (Long MSFT)

Dan Fitzpatrick, another technician I really like and get access to his free charts, was out with a note on UTX and LMT on Friday, December 5th. My United Technologies (UTX) and Boeing (BA) positions have had flat years within client accounts, but I also haven’t sold any for clients over the last 2 – 3 years. Fitz thinks a trade through $112 for UTX could see a quick run to $120. Undoubtedly the mid-term elections and the change in the Senate you would think would help the Defense sector, given the proclivity for the Republicans to be pro-defense and pro-defense spending. Boeing (BA) is actually down a bit on the year, after nearly doubling in 2013. After the October ’14 earnings report, consensus analyst expectations for BA per the Thomson Reuters data was for just 3% EPS growth and 4% revenue growth in 2015 for BA – that may be too conservative. (Long BA and UTX, looking for reasons to get longer too.)

Josh Brown, putting out his “best” of TheReformedBroker in one blog post this week. Bespoke sent out this graph on Thursday night, which was promptly sent around to clients as “food for thought” as to where client money might get allocated in 2015.

Ryan Detrick recently took a job as a portfolio manager with a firm in Cincinnati. He has left the dark side and can’t tweet anymore, so he will be missed. Who will fill the substantial breach ?

Barry Ritholtz, the other half of the Ritholtz Wealth Management duo (Josh being the other) with a good article on Friday’s jobs report.

Great graph from UrbanCarmel (ukarlewitz) from Twitter on “average hourly earnings” from FRED. Think this means far more to Fed than commodity inflation. Charlie Bilello, CMT, another great technician, on December seasonality.

From FundamentalMomentum’s (@FMInvesting) on the 2-year Treasury yield’s jump.  Even with a yield of 64 basis points, the 2-year Treasury is still negative from a “real rate of return” standpoint, with the core inflation rate at roughly 1.5% annually.

Timely article by Jeff Miller this week, particularly with Barron’s headline on Saturday. It is a stretch to think the SP 500 is wildly overvalued trading at 16(x) forward earnings with 8% earnings growth, and trading roughly 10(x) cash-flow.

Great chart by Norm Conley on the Energy sector’s relative strength. Wow. Here is another chart by Norm on the “mean reversion” occurring between crude oil and natural gas. If you aren’t following @JAG_Norm you absolutely should be.

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