November 29, 2013
By Steve Blumenthal
Today I share our UK partner, Niels Jensen’s, November client letter. I always enjoy Niels thinking and particularly enjoyed this letter. It begins, “In his masterpiece The General Theory of Employment, Interest and Money, John Maynard Keynes referred to what he called the ‘euthanasia of the rentier’. Keynes argued that interest rates should be lowered to the point where it secures full employment (through an increase in investments). At the same time he recognized that such a policy would probably destroy the livelihoods of those who lived off of their investment income, hence the expression. Published in 1936, little did he know that his book referred to the implications of a policy which, three quarters of a century later, would be on everybody’s lips. Welcome to QE.”
In this week’s shortened On My Radar, I share the following link to:
As a brief aside, I’ve known Niels for many years. It was about four years ago that my friend and partner, John Mauldin, suggested I look into Niels’ Global Equity Strategy. Niels has a disciplined way to rank thousands of publically traded stocks based on how well they manage their balance sheets and how consistently they deliver strong earnings growth. The process selects and equally weights to the top 50 and there are a number of years of audited history. We entered into a research relationship and added the strategy to our platform in May.
As I discuss in Trade Signals, some form of active risk management is prudent, if not mandatory. I believe that there will be fallout from QE. Maybe, just maybe, the powers that be can soft-land this thing. I have significant doubt.
The good news is that there are important and diverse ways for you to gain equity exposure while intelligently hedging that exposure. Just as you diversify your equity holdings, I would recommend you diversify the way you risk protect. Within in our Global Equity Strategy, Dr. Andrew Lo and his team from Alpha Simplex serve as sub-advisor and analyze downside price volatility to determine when to hedge and not hedge. There are other ways, such as buying out of the money puts or a collared option strategy, as I suggest in Trade Signals. My simple message is that there are a number of liquid and inexpensive ways to hedge.
If we were in a period of time where valuations were low (not the case today), dividend yields high (not today) and inflation high (also not today), I would say there would be no need to risk protect. I personally believe a market reset is coming. I see a more painful decline ahead within the next 18 months creating what I believe will be a generational buying opportunity. The cyclical bull move is aged and QE will go away at some point. Make sure you’re in a position to take advantage of the buying opportunity. Many won’t be.
If I’m wrong, and I hope I’m wrong, I believe the low cost to risk protect will still have been worth it.
Finally, as Niels mentions in his letter, on December 2, his business partner Nick, sets off to row, unaided, 3,000 miles across the Atlantic Ocean. Nick and his rowing teammate Ed will be in the boat for 50-60 days before arriving in Antigua in late January, and they probably won’t speak to each other for 50-60 months thereafter! It is all done in support of Breakthrough Breast Cancer, one of the leading cancer research charities globally. So many people continue to be diagnosed with breast cancer every year. 1 in 8 women will be diagnosed over the course of their lifetime. Nick’s wife, Ellen, was one of them. Go get ‘em Nick!
Wishing you an outstanding weekend!
With kind regards,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
Philadelphia – King of Prussia, PA
steve@cmgwealth.com
610-989-9090 Phone
610-989-9092 Fax
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