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HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates
I. Market Update
II. Scenarios – First World Deflation
III. Got Income?
IV. Do Income Strategies Work?
Got Income?
Macro Snapshot
Nasdaq saw a slight correction - Was that it? S&P earnings good, driving down P/E. New home sales are bucking the uptrend.
Deflation Review – How did we get here?
sources: HiddenLevers, TSPstrategies , MoneyCafe
Fed Funds Rate Near 0% = CDs Near 0%.
Falling 10-Year Interest Rate= Shrinking Annuity Income
Deflation Review – Global
sources: HiddenLevers, Economist,
technology automation
commodities sinking
first world baby bust
decreasing birth rate
sluggish GDP growth
Deflation Review – USAZIRP = Zero Interest Rate Policy
- max that monetary policy can do
- ensures housing loans are cheap
- will outlast quantitative easing
- makes returning to normalcy hard (Japan)
sources: HiddenLevers, LA Times, Bloomberg
5 yearsno
inflationzero rates
5 yearsUSD d
ZIRP – the costsNo interestZIRP has cost savers 760 billion usd in interest
Just inflationBank customers 100 billion in purchasing power each year since 2009 because inflation, while low, isn’t zero
Scenario: First World DeflationGood
rates and inflation at 0
Badworldwide
ex-US
Uglyworldwide
including US
The Goldilocks scenario – can the Fed keep the bowl warm but not hot?
Sweden and Japan already at/near deflation – if EU tips, this might push US to correction.
If entire first world falls into deflation, a global recession is likely close behind.
Got Income? – Overview MLPs and Energy Trusts
Municipal CEFs Buy-Write on Dividend Stocks
REITs + mREITs
Got income? – MLPs + Trusts
source: HiddenLevers
Master Limited Partnerships• Many with 7%+ yields• Almost all in energy sector• Be aware of MLP tax
complexity• ETFs and MFs exist as well
Energy Trusts• Simply a share of royalties in
certain oil/gas fields• Double-digit yields common
• Beware new finite life trusts! Older is often better here
Got income? – REITs
source: HiddenLevers
Correlation Screener
Diversified REITs Yield S&P beta
Omega Healthcare Investment (OHI) 5.90% .80
Arbor Realty Trust (ABR) 7.2% 2.06
Apollo Commercial RE Finance (ARI) 9.6% .50
Mortgage REITs Yield S&P beta
Hatteras Financial Corp (HTS) 10.6% .52
American Capital Agency (AGNC) 11.9% .52
iShares Mortgage Real Estate (REM) 15.77% .92
Got income? – Muni Bond Closed-End Funds
Muni Closed-End Funds• Trade like stocks and ETFs• Tax-equivalent yields of 10-15% for
many clients• Less liquid than MFs and large ETFs
source: HiddenLevers, CEFConnect.com
High leverage = risk
Discount to NAV = opportunity
Got income? – Dividend Equities + Call Writing
Buy-Write Strategy• Buy the stock, sell the call• If the call expires, repeat• If call is exercised, capital
gains realized• Quarterly writes work well
source: HiddenLevers, Yahoo Finance
GE Example• Sell July $27 call for 0.57• 4 writes/year = 8.5% income• 11.8% total yield• Equity downside remains
Risk versus Income – MLP review
source: HiddenLevers
MLPs have generally outperformed the S&P over the last 10 years.
5 years shows MLPs keep pace, struggle to outperform recent bull market.
Master Limited Partnerships Yield S&P beta
TC Pipelines, LP (TCP) 6.6% 0.83
Fiduciary/Claymore MLP Fund (FMO) 6.1% 1.1
Enbridge Energy Partners, LP (EEP) 7.5% 0.95
Risk versus Income – REITs review
source: HiddenLevers
Mortgage REITs have been crushed by rising rates – bonds in equity clothing?
REIT Fund vs mREIT Yield S&P beta
Annaly Capital Management (NLY) 10.9% 0.55
SPDR Dow Jones REIT ETF (RWR) 3.2% 1.16Traditional REITs have recovered with S&P in current bull market.
Is income generation really that difficult?
boomers more used to volatility
pervasive marketing of ETFs and MFs
easy to give up and chase S&P
no one wants to do the
homework
short term thinking
Bonds + CDs suck
Life of Pi “You might think I lost all hope at that point. I did. And as a result I perked up and felt much better.” Yann Martel
Meredith Whitney
yes, you too can generate income sky high yields = caveat emptor
global deflation happening under your nose
Got income? – Recap
demographics = destiny
HiddenLevers Use Cases
scenarioEnd of QE
War RoomDemographic
Shift
War Room Tech Bubble 2.0
scenarioCommodities Perfect Storm
scenarioFirst World Deflation
Got Income?
Data CenterCPI + 10y rates
Macro ThemeMega Caps with
Yield
Macro ThemeMLPs with 5%+
Yield
• Overall Performance improvements
• Risk Monitoring – export to MS Excel, re-run stress test
• Proxy mapping improvements
• Cross Correlations - Color Highlighting in Matrix
Coming soon:
- Annuities Support (Fixed / Variable / Equity Indexed)
- Advisor Fees Support
- Options Support – Call Writing
Product Update