Financial Festival

I first met Minyanville’s Todd Harrison more than 10 years ago. Subsequently the first “Minyans in the Mountains” confab was held in Crested Butte, Colorado. Todd’s Minyanville idea was to create a financial community whose participants would bond over the years and share investment themes, strategy, and investment ideas. Minyanville also tried to advance the financial education of children. The “glue” that seemed to tether everyone together was dubbed “The Buzz and Banter” where all of us could contribute to the ongoing financial blog. A little over a year ago Minyanville was sold to T3 and I feared Minyanville’s investment community would be lost. Silly me, for last weekend that community gathered at the Mayfair Hotel in Coconut Grove, Florida for the first ever T3Live’s Financial Festival, an event I hope becomes an annual scene. Indeed, the dream is still alive!

The show was kicked off with a bull/bear debate between my friend John Mauldin and myself. I will let y’all figure out who was the bull. One of John’s pearls was that investors should diversify across different trading systems because when one of the systems is out of favor (not working) it is likely another may be in phase. I had not really thought about diversification in that way, but it makes a lot of sense to me. Following our 45-minute diatribe was a panel discussing the future of online trading with TD Ameritrade’s Nicole Sherrod and E*Trade’s Kunal Vaed. Both had similar views, but I only scribed Nicole’s. She began by stating that TD Ameritrade is trying to level the “playing field” between the institutional investor and the individual investor and noted the distance between the two has shrunk dramatically. The company’s research also finds investors are moving beyond more information to true investment insights, to identify a “signal” from the “noise,” if you will. She concluded that TD Ameritrade’s client base is seeking a co-pilot to help them and are more interested in a “community” rather than just a hot technology platform (there is that word community again).

Next was Josh Brown, a CNBC contributor and CEO of Ritholtz Wealth Management. He began by stating there are 1.2 million households with $5 million or more of investable assets and there are 10.2 million households with $1 million. While the ranks of investors are growing, the number of financial advisors is shrinking, with the count now at ~301,000 versus 339,000 in 2005. He opined that retiring investors are not all that concerned with fees, but rather if they have the right financial advisor giving them the advice; and he said, “They want advice.” Speaking to “robo investment platforms,” Josh called the term an oxymoron because “robo advice” is not advice. Notably, the average account size at robo investment services is around $20,000.

From there was another panel discussing the Federal Reserve with the conclusion being – 1) unemployment is down from ~10% to 5%; 2) while GDP growth is spotty, it has still grown by about 2.25%; and 3) inflation is nearing 2% – so it’s mission accomplished and the time for lift off (raise interest rates) has arrived. It was also mentioned that we had to dig ourselves out of the credit overhang and therefore the typical business cycle has been vastly extended. Concerning price-to-earnings (P/E) ratios, one of the panelists said the average yield on the 10-year T’note has been 6.5% over the past 50 years. To equilibrate that yield to a P/E he divides 1 by 6.5% and comes up with a bond P/E ratio of 15.4x, further opining P/E ratios for bonds and stocks tend be about the same over a long cycle. Since the historical average P/E for the S&P 500 (SPX/2099.20) has been roughly 15.4x that made sense to me. Going forward he said it is unlikely the yield on the 10-year T’note will travel above 4% any time soon. Using the same sequence (1 ÷ 4%) produces a P/E ratio for the SPX of 25x. I will let y’all do the math on that P/E ratio if S&P’s 2016 earnings estimate of ~$127 is anywhere near the mark.

As always, David Rosenberg’s session was a smash hit. Rosy figures it is much ado about nothing concerning China because what we are seeing is a “compositional change.” That’s something I have written about ad nauseam as China morphs from a manufacturing/export driven business model to one of more consumption. You can see this happening with iPhone sales up more than 70%, Nike sales jumping +30%, and food importation up more than 20%. He thinks there is a decent chance China is moving into a new super-cycle since China’s service sector is growing by ~8.5%. He is also very bullish on India and its growth prospects. Turning to the U.S., he states the U.S. is “hitting on more cylinders than it has in the past six years.” He counsels “real final sales to private domestic purchasers” are growing at a fairly robust 3% - 4% in the U.S., zero interest rates are now doing more harm than good, services inflation is picking up, and the Canadian bank stocks should be bought. Rosy recommended that the secular bull market in bonds is over and “bearsteepeners” should be scale bought over the next few months ( Another idea was to short Treasury bonds and go long corporate bonds using extreme leverage, but I NEVER use leverage! In fact, it was Jimmy Ling, of Ling-Temco-Vought fame (LTV), who said “leverage, that’s the last dollar the bankers will lend you!”

That night I had dinner with my dear friend David Kotok, of Cumberland Advisors’ fame, and his brilliant wife Chris. David is negative on the insurance industry and urged me to read Nuveen’s ADV, part 2a dated 9/25/15, page 67, last paragraph ( After reading said paragraph I too am concerned. David also believes negative interest rates are going to land on America’s door like they have in many of the international countries. While I agree with just about EVERYTHING David says, with this I have an exception. To me it seems incomprehensible that if the economy is going to improve, as I believe, how interest rates are going to decline into the nether lands doesn’t foot.

Obviously there were many more panels suggesting the Canadian Dollar has bottomed, financials should be bought, midstream MLPs are a screaming “buy,” be long Europe and Japan, quantitative easing goes to the strongest parts of the economy so in Europe play Frankfort and Berlin, go long India, and the list went on. Speaking to my models, regrettably they are still counseling for caution on a short-term trading basis despite the fact that I think the secular bull market is alive and well! As one particularly bright portfolio manager told me at last weekend’s conference, “I like the fact that you have a model when most strategists only have opinions. A model tends to work much better than opinions!”

The call for this week: I am back in St. Pete and trying to play catch up after last week’s jaunt to NYC, Orlando, Cincinnati, Columbus, and finally Miami for T3’s conference. I will spend this Wednesday in Atlanta speaking to the World Congress, but then back to Florida Wednesday night. As for the stock market, despite the fact the SPX has stayed above my 2080 “pivot point,” I do not trust the upside move. The D-J Transports, the Russell 2000, and the small cap indices are all showing weakness, while the S&P 500 Equal Weighted Index is struggling below its 200-day moving average, and my model is flashing caution. Indeed, there are just too many divergences conflicting my models to suggest a clear bullish view in the short-term. Hopefully, my crystal ball will improve in the days ahead.

© Raymond James

© Raymond James

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