More from the TDAmeritrade Conference in Orlando…

Dr. Jeremy Siegel of the Wharton School of the University of Pennsylvania addressed attendees, with a heavy focus on the state of the bond markets worldwide in light of target inflation rates and an extension of the zero bound rate environment announced by the Fed. We’ve covered the Fed’s actions on the blog previously, but Dr. Siegel’s personification of an avid bond investor, particularly in TIPS, not only got a round of laughter from the audience, but was spot on.

“Essentially,” he said, “Investors are handing their money over to the U.S. Treasury, and saying, here, take this money for ten years and, at the end, give me back less, with no income in between.”

For the traditional stock and bond investor, this is far from a laughing matter. Dr. Siegel’s solution after looking at long-term real returns was a recommendation of dividend paying stocks, calling them undervalued. The data presented was compelling, and if you’re following our updated Efficient Frontier model and you’re investigating your stock investing opportunities, his research may be worth a look. The hole in his argument is presented by the equally renown Dr. Robert Shiller (think housing index), who, as an alternative to the evaluations presented by Dr. Siegel, evaluated real returns on a cyclical, 10 year level. Shiller’s calculations suggest that stocks are currently overvalued.

Interested in understanding Shiller’s side of things, Siegel looked into the data, and found that the overvaluation conclusion was derived from the performance of 2008, and would continue to influence valuation conclusions under that model for years (remember, the 10 year cyclical evaluation aspect). He further found that the bulk of the hit presented by 2008 in Shiller’s analysis was derived from the ultra low earnings of just three S&P listed companies- Bank of America, AIG, and Citigroup- skewing the data.

Boiling it down to brass tacks, Siegel’s argument was that because 2008-2009 were outliers, they should be ignored in analysis pertinent to today’s market, which is ultimately validating the undervaluation position and bullish case for stocks.

Dr. Siegel was clear about the fact that we are living through unprecedented times. That’s kind of hard to deny. But this raises an important question: If we’re living in unprecedented times, then how do we justify ignoring 2008 in our risk calculus and evaluation of stocks? Trying to argue that these unprecedented times are waning is in our opinion, a hard sell.

Our point? We won’t argue that bonds have performed well, but we aren’t willing to jump on board with Siegel’s evaluation of stocks as the best place for a real return (real = inflation adjusted).  All this talk of real returns made us wonder… How would the so called real, or inflation adjusted, performance of managed futures stack up against stocks and bonds? We think the numbers speak for themselves, leading us to ask… Hey Dr. Siegel – what about managed futures?

 

Past Performance is Not Necessarily Indicative of Future Results

Write a Comment

The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.