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



  1. I have to wonder if Dr Siegal took out the exceptionally high earnings produced by those same financial companies from 2003-2007? I highly doubt it as he is part owner of a large ETF company. It reminds me of companies that report non-GAAP earnings or earnings without the bad stuff.

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The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

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The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

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