Bill Gates Reveals First Resume Has 3 Bad Details

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  • I live with my parents.
  • I took $20 from my Mom’s purse to buy this printer paper.
  • I like wearing a pocket protector.

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Super ETFs and RoboInvestor (The Long and Short Of Investing)

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How would you like to make a lot of money even during a Recession?

And you do not have to sell your soul.

Before having the big reveal, let’s review a little history. 

History

1924                   1990       2006                2012 

MutualFunds -> ETFs -> InverseETFs->Long-shortETFs

First, mutual funds were created where your broker bought a batch of stocks at the end of a day for the long term.  These have usually been industry aka sector specific. 

Next, Electronic Traded Funds or ETFs came along that did the same as Mutual Funds with a long term bias by industry/sector but they have been allowed to be traded in real time. 

Then came Inverse ETFs which were ETFs but instead of long positions of stocks, these were only invested in shorted stocks for a particular sector or index.  Surprisingly, Inverse ETFs have not garnered a huge following though they perform well during a recession.

One unique recession strategy involves timing the move from regular ETFs to inverse ETFs.  But timing the market is well known to be very difficult and very risky.

What’s New?

Vanguard created possibly the first long-short ETF called the Vanguard Market Neutral Fund or VMNFX.  It tries to balance long investments in profitable growth stocks with short sales on failing stocks.

This is intriguing.  Most analysts already concentrate on an industry/sector and know the best companies as well as the worst ones.  These analysts already know which ones will beat and which ones will miss earnings estimates.  

Unfortunately, Vanguard makes several mistakes with VMNFX in terms of the long/short mix and the industry/sector mix.

First, VMNFX is neutral meaning it is 50% long and 50% short ALL THE TIME as seen in the following portfolio composition figure. 

Even though this last year has seen VMNFX beating many normal ETFs, it does NOT increase the percentage of long stocks when the market is going up NOR increase the short position when the market is going down. In other words, VMNFX never changes it long/short percentages.

Secondly, the VMNFX fund is charted to analyze A LOT of industries, as the previous composition figure shows, but with just a few analysts.  A group of normal ETFs covering many industries would have hundreds of analysts in comparison.  Consequently, the VMNFX fund has grown a mere 20% in 10 years as seen below in a hypothetical growth chart.

Is There A Better Way?

A better approach would be to have a group of sector specific ETFs that invest in a mix of long stocks and shorted stocks. These could be called Super ETFs because they are profitable in good times and could easily make money even in bad times like a recession.  How is that possible you ask?

Besides concentrating on a particular sector, Super ETFs would have several fund managers to determine the variable ratio of long purchases versus shorted positions.  For example, the ratio might be 75% long and 25% short during a normal market year.  

Fund Manager 1 might suggest 70% long and 30% short. Fund Manager 2 might suggest 80% long and 20% short.  The third Fund Manager might agree on the average of the other’s recommendations and end up with 75% long and 25% short.

But soon as a recession approaches, such as this year, a Super ETF might have a higher percentage of short positions. For example, 80% short and 20% long.

Fund Manager 1 might suggest 85% short and 15% long. Fund Manager 2 might suggest 75% short and 25% long.  The third Fund Manager might agree on the average of the other’s recommendations and end up with 80% short and 20% long.

Returning to Vanguard’s long-short VMNFX ETF, it is clear from the many industries in the portfolio above that the goal was to automate a complete investment portfolio mix for any investor.  But as already mentioned, this new long-short investment product took on too many sectors and, thus, failed to consistently beat other ETFs.  For example, the Fidelity Biotech ETF (FBIOX) grew 50% in ten years compared to VMNFX which grew only 20%.

Why Super ETFs?

A Super ETF has the higher probability of success because of its variable long-short mix yet dedication to a single sector as most normal ETFs do today.

Each Super ETF could also use the following standard recession predictors to change the percentage of long versus short positions.

1. Yield curve – Treasury 10 -year minus 2 year rates

2. Dow Jones Transport Index

3. GDP Now

4. VIX – Volatility Index

A better example than VMNFX is the 18-month old Leatherback Long/Short Alternative Yield ETF or LBAY.   As the following LBAY performance chart shows, it has grown from $24.50 per share to $29 YTD or 18% when most stocks are down this year.  Also, it has grown 45% since its inception in November 2020.  By the way, FBIOX is down 46% in that same 18 months.

But unfortunately, LBAY is hindered by the same philosophy as VMNFX of using a few analysts to cover a lot of industries/sectors.

How Should We Invest In Multiple Sectors?

Multiple Super ETFs can be used to achieve the intended VMNFX and LBAY goals of automation of a complete investment portfolio for any investor.

Several brokerages have created Robotic aka Software Tools such as Fidelity’ Go that invest in a mixture of funds, usually their own.  The goal of these is similar to VMNFX and LBAY: create a complete, automated, diversified portfolio. But Fidelity Go does not perform well in bad times because all of its ETFs are normal ETFs invested only in long-term products.

A RoboInvestor software tool could be designed to utilize just Super ETFs.  That way it leaves the long/short mix to the funds and can concentrate on creating a diverse portfolio.  

A RoboInvestor can take advantage of cyclical or seasonal sector trends.  It is common knowledge that cyclical stocks are volatile and tend to follow trends in the economy.  Also non-cyclical stocks tend to outperform the market during an economic slowdown.  For example, the RoboInvestor can invest in the retail sector before the end-of-the-year holiday rush and increased consumer sales.  The RoboInvestor can also rotate out of cyclical stocks and into defensive stocks depending on where in the business cycle the economy is headed. 

Here is a chart of historical performance of sectors across the business cycle that Fidelity provides and that a RoboInvestor tool can use.

Summary

In conclusion, you do not have to sell your soul to have an automated successful investment portfolio.  That is because investment success can come with a combination of Super ETFs and a RoboInvestor.  Together they can automate a complete investment portfolio for any investor. 

Super ETFs will have a proper mix of long and short stocks in a specific sector.  A RoboInvestor software tool will pick the correct mix of cyclical and non-cyclical sector Super ETFs.  The result is investors will see profitability automatically in both good times and during bad times such as recessions.

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#Assassination Book Trilogy

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Three fictional thrillers based in the future by Michael E Kelley.

Available now
Available Dec 2022
Coming
Summer 2023

Visit Amazon.com or BarnesandNoble.com or WalMart.com or Lulu.com to purchase a paperback or ebook. Make sure you buy the 2022 Edition.

The Federal Reserve is Topsy Turvy [Yes I am old] But Can Be Improved

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The Federal Reserve has been slow to act for fear of market reaction. Here is proof.

  1. Kept balance sheet high for too long. Quantitative Easing (QE) has gone on too long.
  2. Drank the unemployment Kool-Aid and ignored other signals.
  3. Looked at CPI as temporary and ignored Wage Inflation.
  4. Did not increase frequency of meetings to once a month during tumultuous time.
  5. Reacted rather than be proactive.
  6. Targeted inflation at 2% when the previous 50 years averaged 2.5% inflation.

The Federal Reserve can take these steps to fix some things.

  1. Meet monthly.
  2. Reduce Balance sheet aka stop QE.
  3. Increase interest rates 0.25 each month and avoid 0.50 increases.
  4. Assume recession is coming and be prepared to stop tightening.
  5. Set inflation target at 3%.
  6. Add non-voting younger University Economics Professors to board.

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#Syria Soon To Be A Country of Five

#Syria is soon to be a country of five. Today over 250 mostly civilians were killed in the city of #Ghouta as President Bashar al-Assad tries to forcefully gain control of Syria.

Screenshot 2018-02-20 at 5.48.31 PM

 

Select your favorite caption for this photo.

1.  What war?

2.  What game do Syrian children play?  Life

3.  What is the goal in Syria?

4.  Something to think about besides the #Olympics2018.

Enjoy!

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#SilentMajority Is Silent No More

Sometimes you just gotta voice your opinion.  #PeopleWatching #WomensMarch.

 

nytimes_women_march_a_tiefenthaler

Women have been in the news lately.  With #MeToo and #TimesUp and now #WomensMarch.

This silent majority is silent no more.

This is a Progressive group if I ever saw one.

This could explain the recent election upsets in several national and state elections where Republican incumbents were upset by Democrats.

I would not be surprised to see a lot more coming in the next year.

One sign in one of today’s marches said, “Grab ’em in the midterms”.

So stayed tune for #Midterms.

 

 

Thanks to Ainara Tiefenthaler of New York Times.

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Explaining #BREXIT

Why is this such a shock and what does it mean?.

brexit

 

SHOCK

The financial world is in shock  because they like the status quo.

The BREXIT was approved because the world aka the 99% including Britain wants change, any kind of change.  Which of course explains Donald Trump’s success in the US.

The polls probably did not reflect the last minute decision makers and instead reflected the people who were able to be polled aka the retired people on the street who had time to answer silly polling questions.  These are generally conservative people who do not like change.

WHAT DOES BREXIT MEAN? 

Well the financial world is in turmoil because they also do not understand what this means.  So you can expect the stock markets around the world to be very negative for quite a while.  There may be enough negativity that we may experience a recession, which a number of respected economists have predicted for months.

ANALYSIS

Change is coming.  The demographics show the population is becoming more diverse aka less Caucasian.  Also the young voters are saying “We are tired of inequality and of politicians paid by the rich to do their work.  Your generation had your chance.  Now it is our turn and we are going to do something different.”

If you want some other financial advice, see this.

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

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#FederalReserve aka #Fed Discovers Gold – Fools Gold

No.  I am NOT talking about the movie, Fool’s Gold.

foolsgold

I am talking about the Fed finding wealth and a strong economy where there is none.

Like the little boy who cried “Wolf!”,  the Fed keeps saying “The Economy is good!”

Here is the fool’s gold the Fed uses to keep saying :The Economy is good!”

1. Auto sales are up.  Well they were up until the recently released May report showed a drop of 6%.  The recent auto sales were propped up by easy credit but now they have run out of buyers.  Here are details.

http://www.reuters.com/article/us-usa-autos-idUSKCN0YN4K0

2. Home sales are up.  Well they were up until the June 1, 2016 report.  Again home sales have been boosted by easy credit and low interest rates until now. Here are details.

http://www.cnbc.com/2016/06/01/mortgage-applications-drop-because-of-rate-uncertainty.html

3. Unemployment is down.  Well unemployment has dropped to 4.7% but the recent jobs report announced June 3, 2016 showed a shocking one fifth the average number of jobs created.  Unemployment went down because more people have given up or are retired. Here are details.

http://money.cnn.com/2016/06/03/news/economy/us-economy-may-jobs-report/

=============

Here are the real concerns the Fed should be looking at.

1. Freddie Mac and Fannie Mae.  These firms have been using derivatives to hedge against interest rate changes and lost $475 million last year. Here are details.

http://www.marketwatch.com/story/freddie-mac-may-need-another-taxpayer-bailout-next-week-2016-04-29

2. US Productivity.  The statistics show it went down 1% in the first quarter and now one of the Fed members says it may go down again this month. Here are details.

http://www.reuters.com/article/usa-fed-evans-productivity-idUSU8N16O051

3. Corporate Bond Sales.  These are still high and may match last year’s record in order to finance other mergers. Here are details.

http://www.bloomberg.com/news/articles/2016-04-28/get-ready-for-a-big-wave-of-u-s-corporate-bond-sales-in-may

In summary, the 2008 bailout involved lower interest rates.  But the Fed should have raised interest rates in 2011 instead of maintaining the ridiculous 2% inflation target.  Here is how:

https://michaelekelley.com/2015/03/27/the-kelley-monetary-policy-rule/

Or if you want more information on whether a recession is coming or not, read this.

https://michaelekelley.com/2015/03/02/why-another-recession-is-coming/

==================

The Fed is chartered with controlling inflation and encouraging job growth.  One Fed member recently said they are too busy to add a third task aka improving the economy.  Well they have dropped the ball on job growth which would have improved the economy.  Here is what the Fed could have and still can do for job growth.

https://michaelekelley.com/2014/03/28/federal-reserve-can-create-jobs/

Good luck out there.

#Revenge Knows No #Religion Even In #Syria

People that are so angry that they seek revenge are in a hate zone.

vader

REVENGE

Examples of haters that sought revenge include Adolf Hitler and Star Wars’ Darth Vader both of whom sought to eliminate an entire race and were not religious.

But why do so many terrorists seek revenge and appear to have religion?

RELIGION

First the religion part of the question.  Muslims will admit that the terrorists say they have a religion but in fact the beliefs of terrorists do not resemble Islam.

Secondly many terrorists are from Syria or are Syrian supporters.  Why?

SYRIA AND WISCONSIN

Syria is about the size of Wisconsin.  Imagine the Governor of Wisconsin decided he did NOT want to step down and really wanted to keep his power.  First he started bombing his adversaries and then started bombing everyone.  Next he started using chemical weapons against his citizens.  Finally outside parties started bombing its citizens.  What do you think the people in Wisconsin would do?

Wisconsinites would migrate to another state.  That is exactly what is happening with Syrians in Europe.

Meanwhile a small percentage of Syrians decided to take revenge for the people that bombed their cities for several years and destroyed their lifestyle.  This could be people that supported President Bashar al-Assad or people that did not support him.

Thus you have terrorists trying to get revenge against several countries.

SOLUTION

So how do we solve this crisis?  We stop bombing Syria and start rebuilding it.  Shouldn’t there be money in the Defense budgets to fix returning soldiers as well as rebuild the cities we destroyed?  Some will say that is going too far.  But can we agree to at least stop the bombing?

Can I have an Amen, Ameen or Shalom?