Monetary Mountain Madness; Beyond 60/40 Portfolio

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I and others however, have for several years now, suggested that the primary problem lies with zero/negative interest rates; that not only do they fail to provide an “easing cushion” should recession come knocking at the door, but they destroy capitalism’s business models – those dependent on a yield curve spread or an interest rate that permits a legitimate return on saving, as opposed to an incentive for spending.

They also keep zombie corporations alive and inhibit Schumpeter’s “creative destruction” which many argue is the hallmark of capitalism. Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield. $11 trillion of negative yielding bonds are not assets – they are liabilities.

Factor that, Ms. Yellen into your asset price objective. You and your contemporaries have flipped $11 trillion from the left side to the right side of the global balance sheet. In the process, you have deferred long-term pain for the benefit of short-term gain and the hopes that your ancient model renormalizes the economy over the next few years.

It likely will not. Japan is the petri dish example for the past 15 years. Other developed market economies since Lehman/2009 are experiencing a similar fungus.

– Bill Gross, “How I Found My Golf Game But Lost My Wife,”
FA Magazine (September 1, 2016)

I’m writing to you this week from Chicago, where I presented at the Morningstar ETF Conference.  My discussion, along with fellow panelists, was on going beyond the 60/40 portfolio.  The good news is we have a lot of tools available to help us.

There were several sessions I found particularly useful.  They included discussion on investor behavior, value and momentum investing and something I’m seeing more and more of in the press…”trend following works.”  You can find a link to my paper on that subject here.

Jason Hsu, Ph.D., Research Affiliates and Rayliant Global Advisors, discussed the 10-year underperformance of value stocks.  Richard Bernstein and Mark Yusko shared some specific ideas in a session I found quite valuable.  Dr. Hsu suggested we are all (meaning all investors) market timers.  And we humans are bad ones at that.

I’ll figure out how I can get you a replay of the more interesting presentations and I’ll share them, along with my bullet points, with you next week.  There is a lot I want to spend time on and organize my thoughts in a way that I can best share with you.  Know that there are a few good investment ideas to consider.  More on that next week.

All About That Fed — let’s set our focus there today.

“ZIRP – NIRP doesn’t appear to be effective at all.”
“Theoretically, negative interest rates work; in practice, they do not.”
“It (the Fed) has fueled an artificial market.”

— Richard W. Fisher

Richard Fisher.  I love this man.  Mr. Fisher appeared on CNBC yesterday morning.  The former Dallas Fed President was one of the few in the room with real-life practical business experience.  He speaks candidly.  Click here for the short clip.  Well worth your time.


What is the Fed going to do?  More eggs, my friend, expect more eggs.  The Fed needs to raise rates and should raise rates, but they won’t do it.  What are our elected officials going to do?  Fisher captured it best, “I think the real thing is, can we get our fiscal act together… and good luck with that.”

If you read just one piece this week, read John Mauldin’s “Monetary Mountain Madness.”  His promise: “I trust that by the end of this letter you will better understand just how bankrupt – and disastrous – what passes for sound economic thinking among the world’s central bankers actually is.”  You’ll find the link below.

On the other side of the next dislocation is the next great investment opportunity.  There we will find those 12% returns we all seek.  Let’s seek growth, but in a way that helps us better get to that opportunity in a healthy state.

Grab a coffee and find your favorite chair.  Click the orange On My Radar link below and page down to the Monetary Mountain Madness section.  There you’ll find Mauldin’s full letter.  Next week, we’ll look at a number of ideas that came out of the Morningstar ETF Conference.  A “what you can do now” type of letter.

Included in this week’s On My Radar:

  • Monetary Mountain Madness, by John Mauldin
  • Trade Signals – Sentiment Better, Risk On Remains

Monetary Mountain Madness

Indeed, what was revealed in the papers and discussions and then in the interviews that followed the conference alarmed me and in some cases truly outraged me to the point that I was spitting epithets.  When the dust settled, I was left with a profound sense of sadness over our global economic leadership’s obvious lack of understanding of the real world.

Jackson Hole revealed things that did not make it into the reporting of the event by the mainstream media.  Turns out, the academic and philosophical underpinnings were laid down there for a radical expansion of the Federal Reserve’s toolbox.  I guess you could call that creative, but I wouldn’t call it helpful, because the unthinkable policy that I have been warning about since last May – yes, we’re talking negative rates – was not only discussed at Jackson Hole, it was discussed in a positive, even slavishly approving, manner.  I am going to share with you my sense of what happened at Jackson Hole and what it really means.  I trust that by the end of this letter you will better understand just how bankrupt – and disastrous – what passes for sound economic thinking among the world’s central bankers actually is.

By John Mauldin (

Trade Signals – Sentiment Better, Risk On Remains

S&P 500 Index — 2,184

Posted each Wednesday, Trade Signals looks at several of my favorite stock, investor sentiment and bond market indicators.  It is my weekly risk management dashboard, designed to keep me better in sync with the major technical trends.  I hope you find the information helpful in your work.

Click here for the most recent Trade Signals blog.

Personal Note

Bags are packed and it’s a mad dash to catch a quick flight home.  I just got word that my boys’ 4:00 pm soccer game was cancelled due to the excessive heat.  Have to say I’m a bit disappointed, but the hope for an on-time flight and the race from PHL through the Philadelphia traffic is a stress that is off my plate.

Speaking of stress, Rob O’Neill, one of the most highly-decorated combat veterans of our time and a former SEAL Team Six leader, was the keynote speaker during lunch yesterday.  The room, and I, were captivated as he storied us through his experience to become a SEAL and detailed a number of his missions.  Missions he and his team were pretty sure they would not return home from.

Nice to know we have people like this on our team.  His message, as we all press through with your challenges in life – “go get it.”  You’ll have stresses and challenges.  Know that the stress will pass.  Don’t hold onto stress.  Keep pushing forward and “NEVER QUIT!”  If I can somehow get a recording of this presentation, I’ll share it with you.  It was awesome!  I’m on it.

Denver is up next week.  I’ll be attending a one-day S&P Dow Jones Indices forum entitled “Managing Risk Without Curbing Returns.”  A meeting with John Mauldin and team follows the event.  A “how to get over the bridge” brainstorming session with a handful of seasoned players.

Late September finds me in Charlotte (a business meeting to be followed by golf at Quail Hollow), then a speaking engagement in Indianapolis on the 22nd, followed by a trip to NYC for the Bloomberg Most Influential Forum on September 27-28.  Coach Lou Holtz is the keynote speaker at the Indianapolis advisor event.  I’ll be speaking about how to incorporate momentum and trend following into portfolios.

I find that I do enjoy the travel as long as it is a quick few days.  I learn so much and find most trips to be a great deal of fun.  OK – a bit too much red wine last night, I must admit.  Technology has evolved in such a great way — from investment technologies that improve advisor office efficiencies and client experiences, to ultra-low fee ETFs, to instant access to information on our smartphones, to wifi at 36,000 feet.

How about solar receptors on our roofs?  Not the ugly large mirrored panels, but tile shingles and paint with material that pulls in energy and feeds to a battery device that powers your home.  It’s coming.  Think about what that might do to disrupt the utility industry or will they get into that game?  OK, enough rambling.  Our future is bright and so is the moment in which we live today.

If you find the “On My Radar” weekly research letter helpful, please tell a friend … also note the social media links below.  I often share articles I feel are worth the read on twitter.  You can follow me @SBlumenthalCMG.

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Wishing you and your family the very best!


Stephen B. Blumenthal
Chairman & CEO
CMG Capital Management Group, Inc.

Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Chairman and CEO.  Steve authors a free weekly e-letter entitled, “On My Radar.”  Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.

The objective of the letter is to provide our investment advisors clients and professional investment managers with unique and relevant information that can be incorporated into their investment process to enhance performance and client communication.

Click here to receive his free weekly e-letter.

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