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« ETF Update: Time to Buy Oil Exploration Stocks? | Main | Reviewing John Mauldin on Employment and the Economy »

July 05, 2010



Mike C - The asset allocation program is a model-driven method that uses our sectors to adjust positions in reaction to the market "message." Like humans, it can get defensive - and even short - without regard to earnings.

I do not report changes in this program unless there is something dramatic. More often I discuss Vince's trading programs (Oscar and Felix) or my own approach.

We have four different programs. For most clients some combination is best.

As I have frequently mentioned here, on a forward earnings basis stocks are extremely attractive for long-term investors.

And thanks for asking!


Mike C

For long-term investors our asset allocation program has shifted into a heavier allocation to bonds.

You've lost me here. Can you clarify the rationale? I thought you were in this camp:

Strategist: Stocks Reach Cheapest in 60 Years

The U.S. stock market is the cheapest since 1951, according to a model comparing earnings valuations to corporate bond yields. The S&P 500 has a so-called earnings yield of 9.1 percent, which when compared to corporate bond yields at 6.1% forms the largest gap in six decades, wrote Michael Darda, chief strategist and economist at MKM Partners.

Darda calculated the ‘earnings yield’ by taking the inverse of his current market multiple of 11, which is based on the trailing four-quarters corporate profit data released in the GDP report. This method is similar to the ‘Fed Model’ allegedly used by Alan Greenspan, which took the earnings yield and compared it to government bond yields.

According to this model or any of its variants, wouldn't the long-term move be to shift out of bonds into stocks and not the other way around?

Paul in Kansas City

As always your analysis is very helpful. I think you can make a case for focusing on the Energy MLP and Royalty Trust sectors which dovetails nicely into your oil exploration post. THese may be a little more resilient to techinical indicators everyone appears to be fearing! At least they look cheap on the spreadsheet :) !!

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