PACWP - Busting Today's Market Myths With Matthew Tuttle And Rob Isbitts
2023-07-05 06:30:00 ET
Summary
- Matthew Tuttle and Rob Isbitts dissect myths and facts in today's stock market.
- S&P 500, Dow, and Nasdaq - price is all that matters.
- Problematic small caps.
- Yield curve creep.
Listen to the podcast below or on the go via Apple Podcasts or Spotify .
- 2:30 - S&P 500, Dow and Nasdaq - 'Price is all that matters in the end'
- 11:40 - Why investors should focus on forward looking due diligence
- 19:45 - Problematic small cap indexes
- 24:40 - Risk management and why short selling is not a bad thing
- 30:35 - Yield curve creep
Transcript
Rob Isbitts: Let's get started. This is Seeking Alpha's Investing Experts Podcast. I'm Rob Isbitts. I'm a Seeking Alpha contributor. And you can find my work under the profile name, Modern Income Investor . Today, I'm joined by my friend and fellow investment industry and ETF industry veteran, Matthew Tuttle , who is now also a Seeking Alpha Contributor.
And in this episode, we are going to span the globe. We're going to look at what's real in today's markets and what is mythology. And when we see myths, we're going to bust them. So that's kind of what both of us have done really since about the 1990s. So, welcome to this no BS zone. Matthew and I have not seen it all, but we've seen a lot.
So, you're not going to get conventional wisdom here. We're also both long-time chartists , so expect some chart talk here. And with that said, let's start spanning the globe for investment ideas. Ready to go?
Matthew Tuttle: Yeah. I mean, I'm kind of expecting this is like ESPN8: The Ocho for finance.
RI: Absolutely. Absolutely. So, look, you and I agree that good ideas start with themes. Like, understanding the reward and risk situation in the broad markets, and we use our charts and plenty of other inputs as a truth teller because we both believe the price is all that matters in the end, not what this or that TV personality says when they're on the air talking their book or maybe make loud noises to entertain you. I know you're familiar with at least one of those.
So, let's start with item number one here. Okay? The stock market. And in particular, I'm looking at the Nasdaq-100 and the Dow. I've tracked this relationship from several articles on Seeking Alpha this year. And in particular, I've looked at rolling six-months returns of the ( QQQ ) and the ( DIA ) with the Nasdaq and the Dow, and I've compared them. And I'm going back to the 1990s with this. And to me, the evolving relationship between those two and not the S&P 500 is what clues us into what the market is rewarding and how unique and dangerous this environment has really become if you don't take risk management seriously.
So, let me just run this volume and see what you think. The six months ended last Friday, June 23rd. We're recording this on Monday the 26th, afternoon eastern time. QQQ was up 36% in the last six months. DIA up 2.6%. That's a 33% difference in six months. There have been two other times in the past quarter century where we saw anything like this. One was September of 2020 when it started looking like the market was coming out of the pandemic for good, and then Nasdaq fell 10% in the next month. S&P fell similar. Dow fell only about 6%. And then as we know, it was off through the races for the end of 2020 and 2021, until 2022 hit.
The other time we saw the Nas dominate the Dow like this was in November of 1999. What happened next? The gap got much wider. And by late March of 2000, the Q's six-month return was 96% non-annualized, 96% in six months. The Dow over that time 4%, 96% to 4%. It sounds like a softball score when I used to play in college, except we were the 4. And the Dow was actually close to - I mean, what happened the next couple of years, that was the blow off top in the dot-com bubble, right? A little bit of history here because I think it's so important today.
Next two years, March of 2000 through March of 2002, the Q's, which had almost doubled in six months, fell 70%. S&P fell 23%, The Dow only fell 4% and was actually close to flat for most of that period. So, my point of all this is, especially in today's markets, and we can talk about what the reason is for that, but the Nasdaq and the Dow, which for a long time, much of history were at least moving somewhat in sync with each other, even if one was moving a little higher than the other. They've completely divorced from each other. So, what does this mean for the current market environment?
MT: Alright. So, I just took a little nap there, but just woke up. So, not a whole heck of a lot, and here's why. To me, the Nasdaq, the Dow, the S&P, probably the Russell, are just stupid indexes, the way they're constructed. So, right now if you look at the Nasdaq, how much of that is in Seven stocks ? I think it's -- well, I mean, Nasdaq-100, I think it's like almost half now, maybe even more than that. You look at the Dow, how much is ( UNH ) because that's the highest priced stock.
RI: Right.
MT: So, they're just not real good representations except from the standpoint of we know the Magnificent 7 stocks have been doing really, really well, and nothing else has been.
What that also tells us is, that probably can't keep going on forever, but what I would want to guard against in, you know, I play around on Twitter I think a lot more than you do. I think they are a massive amount of permabears who made a lot of money last year and have just gotten crushed this year because they're looking at this and saying, all of these stocks keep going up, keep going up, I'm going to short them, I'm going to short them, and they're getting crushed.
At some point, does this relationship have to come back to some sort of normalcy? I mean, it probably does, but -- and I get worried, I mean, I see people keep focusing on, are we in a bull market, are we in a bear market? Somebody today pulled out, well we're in a bull market because look at the S&P, and said, well, but look at the equal weighted S&P.
I mean, the equal weighted S&P is up like 3.5% this year. I mean, not awful, but certainly nothing to be pounding the table on. So, just I think you need to be very careful . And also, I think the comparisons between now and the dot-com bubble are somewhat problematic because a lot of those companies in the dot-com bubble were zeros. I mean, they put a dot-com at the end of their name and all of a sudden, everyone is buying, I mean now they are gone.
RI: Yes.
MT: Whereas you look at these Magnificent 7 companies, yeah are they overvalued? They probably are. But absent AI , are they real companies? Yes, they're real companies. So, could we have a crash like we had during the dot-com bubble? Yes, we could. Could these AI companies keep going up and the Dow, kind of industrial types of companies keep going down? Yes, they could. So, I mean, one of the things we always tell people is, trade based on what you see, not based on what you think.
RI: Yes. Now that's really good insight. The thing I would say is, wow, you and I both managed money through the dot-com era. Okay. We've been in the trenches, so to speak. And, you remember when the markets were down three years in a row, 2000, 2001, 2002, and into 2003 before it's over. I think you're absolutely right that there are a lot of differences from that time, but to me, the one thing that never really changes from era to era is human nature and human emotions when it comes to investing.
MT: Right, which also then means the one rule that is always there in the markets, you just don't know when it's going to happen is, reversion to the mean?
RI: Yes. That's right. That's right. And so, again, before we get a little bit more micro, finish the sort of macro portion of the program here, we can draw any historical parallels we want. Okay? I mean, I personally believe that you can almost throw out, maybe not throw out, but you have to discount almost any performance of any investment or index before the beginning of 2022 last year.
You have to discount it. And the reason is, it is like when people say, well, now what's your track record? Well, what's anybody's track record when you have a combination of rapid rate hikes. We don't yet know the full impact because it hasn't worked through the economy yet. Yes, people are rediscovering income yield in a, let's call it relatively safe form treasuries, short-term, et cetera. And now the curve is starting to bleed out a little bit more. So, a two-year or three-year is starting to have palatable yields for a chunk of people's portfolio. I mean, we've never had an environment like this or have we?
MT: No. Because AI makes things very different. And I suspect we have no idea how different it makes it. Look at all the different things that AI theoretically could replace. Will it? I don't know, but it could. And you brought up a really good point, what's your track record? To me, that's a term that's probably caused people more money than anything else. We teach something here called forward-looking due diligence. And it's always amazed me, the industry makes us put in big bold letters on everything, past performance doesn't predict future results. But then everyone uses past performance to predict future results.
And so, we talk about forward-looking due diligence, which is, alright, I want to look at past performance, but not from the standpoint of, alright, you were up 20% last year, you're going to be up 20% this year, but you're up 20% last year, how'd you do it? Is that repeatable? And what could go horribly wrong? And it's that, what could go horribly wrong question that I would suggest people ask before they buy anything. That will save your butt at some point in your life. Trust me on that one.
RI: You are so spot on. And for all the reasons you probably think, but even a couple of that you probably didn't even realize. How's this for timing? Okay. I'm very active in the comments section on Seeking Alpha. And I've written , I don't know, 150 something or other articles in the last several months. And I love going back and forth with the commenters, including the ones that, rip me to high heck because…
MT: No. Those are from me. I'm sorry.
RI: Yeah. Right. The assumed names.
MT: I've got a couple of burner accounts on Seeking Alpha, and I'm just messing with you.
RI: Yes. I thought I'd be able to tell, but it doesn't come through with that originally from Boston accent of yours, so which is very, very subtle. So, yes, I was just explaining to somebody. I try to use it as an educational opportunity whenever possible. And literally, just like two days ago, I was responding to a comment on one of my recent articles, and I was talking about helping them understand what performance attribution means? Okay.
It's one thing to say, perfect example. Okay. Well, the S&P 500 is up double-digits this year. Why is it up double-digits? Well, it's up largely because of the Nasdaq, and a small number of companies in the Nasdaq. Yes, they're in the Dow too, two of them, Microsoft ( MSFT ) and Apple ( AAPL ), but they - it goes back to what I said at the beginning. I think you were asleep for this, you said. So, let me rehash it.
There's the - you can attribute the performance of the S&P this year to the Nasdaq. There are other years where you can attribute it to certain other things, but if you don't know why you performed well, poorly, or somewhere in between, then I think what you're saying is you're kind of flying blind.
MT: Alright. Yeah, without a doubt. And if you're looking at any type of index investment, and especially if you're looking at an active investment, then you want to know, you know, performance attribution from a strategy standpoint. So, like anyone who's running an inverse strategy should have made money last year. Does that mean they're a great money manager? No.
It means they were short of the market. And you've got to react accordingly if you're talking to a money manager and they can't explain to you why they're getting the returns they're getting, and why those returns will or will not be able to persist, that's a situation where you run away.
I mean, just a very quick aside, I was asked years ago by a client at the time to review a hedge fund-to-funds that had been putting up extraordinary numbers, went met with the guys, really nice guys, seem smart, could not explain where their returns were coming from and why they would persist. And, really, I mean, it wasn't like they're being secretive. They just didn't know. Hey, we're making money. We don't understand this market. We're making money.
Turns out half the fund was in Madoff, you know, so I could have, you know, ferreted that out before Markopolos did. Unfortunately, I didn't ask them the other question of, hey, which funds are you invested in? Then I might have been able to figure it out. But certainly you want to do some sort of attribution on anything you're doing.
RI: Yes. And I mean, these are such important questions to ask now. I think because there's just so much hype out there. And people get caught up in history. And like I said, what's happening in the markets today? I mean, I think you probably see it from where you sit, just as much, if not more than I do. It's not just the mean stock traders, but it is - and the zero DTE, zero days to expiration options, which are kind of screwing up the VIX as we know it.
It's things that have been around for a while. Hedge fund activity, high frequency trading, and frankly, the dominance or the increased dominance of indexing. You were talking before about that one situation as far as attribution and a manager in the Madoff time and everything.
Well, I had something very, very recently, I won't steal my own thunder because the article hasn't come out on Seeking Alpha yet. But I kind of took on one of the, let's call it I don't know, sacred cows of the dividend ETF world.
And what I basically said was, hey, nothing wrong with it, it's competitive, but it probably shouldn't have taken off like a rocket ship in terms of assets under management, because most of its growth. They happened to have one stock that probably isn't normally thought of as a dividend stock, but at a moment in time, it caught their dividend screen.
And I think something that people -- we'll touch a little bit on ETFs here today. maybe more in future episodes. But when it comes to ETFs, I think one of the common mistakes people make is, they think that there's something going on other than tracking an index. And in 95% to 98% of the cases, it's just an index. Okay. It may be a well-constructed index, but it's the index that's riding...
MT: Not a lot of well-constructed indexes.
RI: Well, going back to what you said before, Russell, et cetera, et cetera. By the way, quickly on small caps. You don't love the Russell 2000, neither do I. What about the…
MT: All of the small cap indexes out there suck. They're chock-full of regional banks -- small regional banks.
RI: Yeah.
MT: And no revenue, hope our drug goes through biotechs. So, it's really, they're not a good representation because those stocks are just so much more volatile than the other stuff that's in there. I tweeted about this the other day that somebody, and probably not me, should come up with a better small cap index that maybe either takes that stuff out or has it, it's such a small waiting that you can really get some exposure to some more stuff you want exposure to.
RI: And yes, he asks coyly, what's the matter with lots of small regional banks in 2023? Just kidding. I think we know .
MT: Yes. I mean, we're recording this on what, the 26th. We'll see - it's looking like regional banks are rolling over again. PacWest ( PACW ) just had to sell-off some assets, which made their stock price pop. Yes, I'm thinking that may be a gift to short sellers. We'll see.
RI: Yes. So, let's kind of finish this discussion of -- I just want to call, risk management in 2023. Matthew, there are two things about which they say, you don't buy it, you rent it. So, one of them is beer. I learned that in college, long time ago. And also, today's stock market and…
MT: Chili also.
RI: Don't get me started. I just came back from the southern hemisphere for the first time. And it wasn't the south of France or anything like that. So, yeah.
We both learned lessons. It's funny. When we were prepping to do this for the first time together, we both realized we had something in common. I have a bunch of things that are considered my risk management influences. One of them is the fellow's picture behind me here, my late father, Carl Isbitts, passed away about 10 years ago. Probably he charted stocks, when I was 16. I mean, 43 years ago.
He was one of the influencers but the one that we shared is, we were both in Lower Manhattan, not on the ultimate tragedy of 9/11. But in 1993, when the Trade Center was bombed, they bombed the basement and they missed. I climbed down 97 flights of stairs with all of my co-workers that day. You were kind of caught or maybe on your way in there. Is that right?
MT: No. I was down there at a meeting, then we have a lunch meeting, and then we called our car to take us back to the airport, and the car service was like, what are you crazy? We can't get a car down there. I was like, well, what happened? We're on the World Trade Center. I had no idea.
RI: Right. Especially because it was 30 years ago now, and it wasn't like the phone was buzzing
MT: I mean, I had a cell phone, I think. I mean, I guess cell phones existed back in 1993…
RI: They didn't do that…
MT: …or maybe they didn't. I don't even remember.
RI: Right. Right. Well, so look, I mean, we've all had risk management influences. I mean, to this day, every time I go into an elevator, and I see that sign, and it says in case of fire do use stairs, I think to myself, yes. Why is that the case? I mean, in the Trade Center, I used to go to 97th floor, took two elevators. The method you take on the way up might be very different than the way you take on the way down. And like all things, we like to bring it back to investing.
Investing is that way too, because we have pretty long bull market, arguably, again, not to mix the terms bull and bear. But we had, let's call it, generally, forgiving markets with either light corrections or short, sharp, very quick bear cycles that reverse themselves, really going all the way back to the beginning of 2009. So, what do you think that people should be doing differently?
Let's call it second half of 2023, into 2024, and beyond, if you like, that, let's say, is a little different from maybe what they've done the last 15 years or what they've learned to do last 15 years?
MT: So, it really depends, unfortunately. I wish I could say, hey, this is the right answer. And I think finance is a lot like nutrition. There is no one right answer. There's what works for you, but there are a lot of bad answers. And I think just like the standard American diet is probably a bad answer, the standard way of investing is also probably a bad answer. What works for you though is going to depend on a few things.
Number 1, how much time you have. So, I'm sitting here all day every day going in and out of things trading. I've got time to do that. Also, what your level of expertise is. Investing is one area where - and I've worked on Wall Street since 1990 and have been trading since the early 1980s. Wall Street is one area where if you are not knowledgeable, you run the risk of being taken advantage of. And it's also in a lot of ways a zero sum game. So, if I'm making money on something, someone on the other side of that trade lost money.
So, I got to be better than that guy on the other side. I think, certainly, you want to narrow down what works best for you, but the risk side is extremely important. I would focus on the fact that short selling is not a bad thing. It gets demonized. People are like, you've got to be long only, you've got to be long only short selling. And they'll say things like, well, if you had shorted Amazon ( AMZN ) at the bottom in 2002 and kept your short the whole time, you would have lost, like, okay, but that's stupid. I mean, I wouldn't have done. Risk management is - part of that is position sizing.
RI: Yes. I call that Rip Van Winkle investing. You don't fall asleep for 20 years and then wake up and see how you did.
MT: Right. I mean, the one thing I would say is, you don't set it and forget it because we've got something right now that we haven't had in a long time, which is 5% interest rates. That's a game changer.
It used to be, cash was trash. Now it's not. I mean, I just saw Tom Lee come out this morning and tweeted something bashing 5% saying, "Hey, the markets are up this, having money in cash earning 5% is bad and then he offered a subscription to his premium service."
So, I wonder why he's saying that, maybe it's trying to get people to buy his subscription service, which you don't need if you can earn 5%. So it's really focusing on the risk being flexible, educating yourself, markets are not a set it and forget it. And Wall Street's going to want you to think it is. They're going to want to sell you a target date fund or something like that…which is the stupidest idea I've ever heard of….
RI: Agreed.
MT: …but like a lot of dumb ideas, there are parts of it that you listen to, and you're like, wow, that makes a lot of sense…
RI: Accentuate the positive.
MT: …until you start delving through it, then you're like, oh, wait, no, it doesn't.
RI: Yes. They - well, any time Wall Street can annuitize the fees they're going to put a lot of marketing muscle behind it. So, moving on, I'm going to cover a little bit of that and then get to some specific ideas for everybody. But I would say this. I mean, anybody who is listening to this: Seeking Alpha listener, subscriber or otherwise, get familiar with the phrase 'talking your book', okay, because that's kind of the golden rule of Wall Street, right?
And I guess, you were talking about the four food groups. So, I guess to put a wrapper on that part of the conversation, so you're saying the four food groups are not fried food, processed food, soda, and beer?
MT: No. The four food groups are steak, eggs, bacon, and steak.
RI: Okay. Thank you. So we've solved that if nothing else. Now just briefly on interest rates. I mean, I do want to get your opinion on this. So, I mean, I've written extensively, in fact, to my shock and surprise and delight. When I first started writing for Seeking Alpha last year, I was covering a lot of the things that both I owned or I thought were getting interesting or that were undercovered because I'm kind of the undercovered or undiscovered ETF guy at Modern Income Investor.
And with T-Bill rates, okay? Every time I wrote about, like, a T-Bill ETF, there was so much interest. And this is when part of the pun. But - because there is a lot more interest in T-Bills, both financially and let's call it emotionally and people moving their dollars.
And like you said, with what Tom Lee was saying, at this point, I don't think I've ever been a bigger fan of watching the treasury yield curve not only because they have a printing press, and that's a good friend to have as opposed to credit bonds, corporates, things like that. I think the people that are reaching for high yield are doing so with their peril unless they really, really, really know that.
But the other thing I'm noticing is there is what I would call yield curve creep. The six-month bill, yes, as of maybe 24 hours ago, was at 5.4%, but the two-year is at 4.7% and the three-year is at 4.3%, even the five-year is now just crossing 4%. And I know whether, again, as people have been financial advisors or if you're a do-it-yourself investor, you kind of look at that and you say, "Well, it's nice to be able to lock in 5.4% for six months, but you're only getting it for six months."
What's happening now when I think of the story in the bond market, and especially treasury market, is that if you think it's going to be two, three years of mess, well, the price or I should say the benefit of not having to deal with that with a big chunk of your portfolio, the benefit is starting to go up. And I wonder if we're going to get the same type of, let's call it, deluge of assets into two-year, three-year type treasury, ETFs, direct to the bonds, what have you. What do you think about that maybe evolution? Because I've never looked at bonds like I have now?
MT: Yes. So, I would say if you think that the guys on the Fed are the smartest guys in the room directing things, have their finger on the pulse of what's going on, you're crazy. They're making this stuff up as they go along.
RI: Yes.
MT: And in the markets trying to figure out what they're going to do. And, I mean, it's like trying to predict what a schizophrenic person is going to do. There's no rhyme or reason. At the beginning of the year, the market was going up because people thought they were going to pivot. Now they didn't pivot unless you count a pause as a pivot. Now they're saying two more hikes and no cuts for a while. Maybe , maybe not.
So, the way I've been doing it is I've been buying all of them. So I've been buying the six-month. I've been buying the two-year. I've been buying the three-year…
RI: Yes, you ladder it.
MT: …knowing that if we're sitting here six months from now and rates are at 7%, I'll be kicking myself for buying a two-year, but also knowing that the Fed could break something and have to substantially decrease interest rates. And I'll be sitting here cheering that I bought a two-year or a three-year. So I think you've got to have all of the above because you just have no idea what these guys are going to do because they have no idea what they're going to do.
RI: Well, you, my friend, are in luck because if you hold on for a couple of minutes, I'm going to include in the stuff that I'm following, owning, et cetera, writing about on Seeking Alpha, something that actually can address that issue of the higher rates.
And with that, why don't we head into what we are going to call for now, the thunder round? No, it's not the lightning round because somebody else uses that.
MT: Yes. I still like the struck by thunder or struck by lightning round.
RI: You know what? You go boss, okay? The struck by lightning round, great, all right? I feel a country song coming on now.
So these are actionable ideas, okay? Or as I might call it, for everything that comes up, you're bull, you're bear, or you don't care. Because it's funny. Somebody I knew in a business years ago, they came out with a, I think, a great vision for what happens when you're managing money professionally.
This might have been a Warren Buffett quote, I'm not sure. But they say three trays on the desk: in, out, and too tough. And sometimes, it's just too tough. And look, with 3,000 some odd ETFs and thousands of stocks and a million ways to work in the bond, the option markets, and futures, and all that, you don't have to swing at every pitch, right?
And frankly, for me, there's a lot of that too tough on my screen right now. So let's do a little back and forth if we can here. I mean, my general take is equities are a trade at best, okay? Maybe the QQQ narrowly-based market continues for a while, we're almost at the end of the second quarter as we record this, funky things happen when new quarters start. July is when earnings season starts.
So yes, it's a curious time of the year given what's already happened. But as from one chartist to another, I try to look for things that I can say are more than just, let's say, a trade or a tactical move in equities. And one by one, they're just rolling over small caps, transports, financials, biotech, homebuilders, REITs , just of everything.
And that's why I say, "Wow, getting familiar with single inverse ETFs is a good idea for investors." I actually just reported - wrote on Seeking Alpha on symbol ( REK ), which is a very underfollowed, a 60 million AUM, 50 million something like that. It's been around for 13 years.
But when you really have a chance to make a lot of money shorting anything much less REITs, and so that's when I put out there. What do you have when it comes to, let's call, the equity markets broadly and then narrow down, drill down as much as you like?
MT: So I like to always look for the fat pitches. And I would agree with you from the standpoint of, they're not really any fat pitches right now. It's a lot harder than it was. So you mentioned REITs . We were shorting REITs in regional banks. A couple of months ago, to me, that was a fat pitch. That was easy money. I still think the REITs and regional banks are shorts here.
RS: Yes.
MT: I just don't think it's going to be nearly as easy as it was in the past. So, now I'm looking for pops. If something goes up, hit some sort of resistance area, and we'd still we'd look to short it there versus trying to short a falling knife or something like that. I think the Magnificent 7 stocks are undergoing some sort of correction. I would be shorting them here, but very, very, very, very cautiously. And we have been and so far so good, but that could turn around at any minute. I like to watch the precious metal stocks.
RI: Yes.
MT: Because those are names that can move up or down regardless of what the equity markets are doing. There really hasn't been anything going on there for a while. Long precious metals was easy money a couple of months ago. I mean, we're really in an environment where there's just nothing where I can say, "Hey, that trades a fat pitch."
I mean, crypto now is one of those - Cramer likes to say, own it, don't trade it. Crypto is one of those trade it, don't own it. Great trades in crypto. I mean, we were doing - we had a lot of fun last week in Marinecoin. I missed the trades on Marinecoin today, unfortunately. You had some longs and then some shorts in there, which could have been nice.
Yes, but there really are no fat pitches, which is why I mean, I'd be looking at that 5% cash, especially after Tom Lee came out and banned it because his track records, let's say not great.
RI: In full disclosure to kind of sum up how much I think we're aligned on a lot of this. I mean, personally, my portfolio includes put options on the ( SPY ), put options on the Qs, and a double short because there isn't a great single short on the gold mining stocks, small size because it's a double win and all that.
And I guess I want people to know, especially if we're invited back to this again, which I hope we are, we both look at the market, I would like to say, look at all things all the time, and it's not a matter of, I like to say, investing is never black or white, it's always shades of gray, not a movie reference there. Black or white does not work.
And so I will get a lot of comments on my Seeking Alpha article as well. If you like this or whatever or if you don't like the S&P, why don't you just buy an inverse ETF with all your money? Well, no, I mean, it's a - especially now, more than ever, it's a moving dial.
I keep something I created called a ROAR score, which is kind of like out of a $100, how much money would be in equities and or offense, as we call it, and how much money would be in defense in the form of T-Bill or short-term treasuries, whatever. And that ROAR score, the offense portion has not been above, I think, 40% or 45% of the total in, like, a year-and-a-half.
So, it's that type of environment. And so, -- yeah, and especially, we didn't really talk too much about time frame investing. But as chartists, we look at less than a day, a day, three-day, weekly, all the way out to monthly, and depending on your time frame, okay, I bet it's the same for you.
I mean, you could - you literally, I mean, there would be nothing wrong with, let's say, just take a very basic example, okay? Owning something and then also owning something that is most likely going to be negatively correlated with it because you don't know which one is going to happen first, and you can end up making money on both over the next several months.
MT: Well, also, you could have different time frames. I mean, we've got ( LJIM ) and (SJIM)...
RI: They're probably different time frames, yes.
MT: ….which are the exact opposite of each other. So, I've been personally an SJIM because I've been shorting the Magnificent 7. But if I see the market popping, I may buy some LJIM for a trade. So, yes, I mean, certainly, you can have that, you get different time frames in your portfolio, different things that you're looking at.
RI: Yep. So I will say this. The one - and I don't know -- I don't want to come back to the small cap thing for just a second and now because we're talking about time frames. If you have a three-year, four-year, five-year time horizon, which I think speaks to a good chunk of the Seeking Alpha audience, maybe the majority of it.
The best thing I can say about the equity market right now if you've got that longer-term high horizon, there are a lot of small cap stocks selling at single-digit price earnings multiples now, okay? The P is there. You don't know what the future of the E is, okay? But I'm single-digit.
So, yes, for instance, I mean, one of the ones that I own is the Pacer US Small Cap Cash Cows 100 ETF, symbol is ( CALF ). It sells for 5 times trailing earnings and 0.4 times sales. Do you think that anything that looks like that right now is just as much a mirage as a FANG stock selling it 4 times PE to growth, PEG ratio?
MT: So normally I'd say, no. What we don't know again is what impact AI is going to have.
RI: Yes.
MT: And if you are the leaders in AI , what that does for your earnings? And I think we just don't know. I mean, could putting a small cap cash cow in your portfolio for three to five years, what I think three to five years from now, you would have made money, I think you will. That's the type of thing where you've got to be able to put it in there and if you're that type of investor, not worry about it. For me, I'm not touching small caps right now just because I don't see opportunities there. I mean, again, I don't see all that.
RI: There's no right now in equities for me. Although, again because I like to look at offense and defense and play with them at the same time. You're already putting thoughts in my head, probably to be continued for next time along with a more sensitive AI conversation. Is something like a CALF or there's plenty of other small cap low PE stuff out there.
Over the next few years, I would feel strongly that if you were along that type of thing and you had a modest inverse position in the Nasdaq via, let's say, ( PSQ ), single inverse ETF, and not worry about tomorrow, next week, next month, next quarter. But over the next few years, again, go back to the dot-com bubble, 70% or 80% peak to trough for the Nasdaq going to happen at some point, and now you start spending more of your time looking at pairs, at least I do, and say, "Well, what's going to outperform." So, anyway, last…
MT: You just got to have the patience for it.
RI: Yes. Well, that is.
MT: The Nasdaq, I'm sure - if the Nasdaq is going to crumble, which it may very well, bet you, it's got at least another run left in it. And the last thing you want is to be staring at massive paper losses, make them real, and then what you thought was going to happen, happens.
RI: Yes, which is why just live, I mean, inverse ETFs are really any type of tail risk hedge. You kind of have to look at it the way you look at short positions as we discussed before, right? You're not buying it to hold it forever. You're buying it until you believe you're either sufficiently right and take a profit or you're wrong, and maybe you can't convince yourself 100% why you're wrong and you say, okay, I'm not going to just keep losing and fall on my sword, right?
MT: Well, right. And just as a guy who knows inverse ETFs real well, the one difference is you can't lose unlimited amounts of money. So in my Amazon ( AMZN ) example, yes, if you had shorted Amazon at the lowest in 2002 and held that short, you would have lost a lot money, versus a PSQ where you can only lose as much as you put in.
RI: Yes, completely a 1000% agree. Sorry, bad math there. Last item, when it comes to this kind of - don't hit - get hit by lightning round or thunder round or whatever, we'll figure that one out.
So just a couple of things I've covered on Seeking Alpha and couple of things that that I do own personally. I've mentioned this in the reports. So, one, and this goes back to what we're saying before about, well, you want to stay in that kind of three months to three-year, let's call it, kind of, maturity range when it comes to treasuries.
But what if rates go up? Well, a lot of ETFs will roll them over. But then there's ( TFLO ), which owns only floaters. And so that means that as rates go flying, you can benefit from that. It can work the other way on the downside, but it's yielding about 5.25% right now. So TFLO is one that I wrote about a while back.
And the other -- and this is, I don't know if you use this all by itself, but there's going to come a point where this Fed rate cycle is going to end, and the longer end of the yield curve, the 20-year to 30-year treasuries will finally reverse lower in yield higher in price. There's a trio of ETFs that came out last year. One that I own is ( TLTW ). This owns the 20-year to 30-year treasury ETF ( TLT ), but then it writes covered calls on it every month.
So it's giving a double-digit yield. And as I see it, if the battle between the bulls and the bears is in the long bond yield, which has lasted for a while now, that's okay. I'm getting the call premium. And when rates do eventually go down, keeping call premium and you're getting some pop from the TLT.
TLTW ETF has about 340 million in assets in it right now. I've been around for less than a year, but still what I would call under the radar and on the undiscovered ETF guy at least according to me.
MT: Yes.
RI: Any thoughts in that area or others before you finish off?
MT: So the cool thing about ETFs, I mean, most ETFs out there run strategies that you could do yourself, but they offer convenience. So, something like the TLTW, me being a trader, I would much prefer by the TLT myself and decide when, how, if I'm going to do covered calls on it.
RI: Yes.
MT: Maybe I'm going to do puts. Who knows what I'm going to do? If you're someone who doesn't have the time to be watching through that or the expertise, I think TLTW is a great product. It was an idea we were kicking around and we're beaten to it.
So I do think it is a really good idea. Right now, TLT to me is a trading vehicle. It's when we - I have not personally traded in a while because it's just all over the place. And being a chart guy, I like clean chart patterns.
RI: Yes. No, no, no. This is based on when I put a little position in and look, I mean, 59 years old, I start to think a lot more about income and I'm not one of these people. It's like, oh, show me a closed-end fund with 22% income, and I'll - even though I'll lose that much in principle, at least, I'll feel good. I mean, there's way too much of that going on, but…
MT: I'm way too much of that.
RI: Yes, yes. And, look, I mean, again, it's a little different because we've been doing this professionally for a long time. I put TLTW in there, put a stake in the ground. And just like you said, it could be put options at certain times. There's an inverse TLT ETF, symbol ( TBF ).
So there's all kinds of ways you can work around it, but it all comes down to what is happening in this case with TLT. And I see TLT as range bound, which means I like being able to keep the call premium coming in. And the only thing it can backfire is that the rates go flying higher.
And if they do, guess what? There's TBF, which, again, is why hopefully we'll talk about this on future episodes. Investing today whether you do it yourself, you have somebody else do it for you is it's a matter of, okay, you have to do some digging. And then once you dug really deep, keep digging. And I think that the wide variety of vehicles and combated by the wide variety of media hype that surrounds us, like, we talked about at the top of this, those are the two things that have changed. And I think that's why we are out here trying to be educators through whatever it is, combined 60 something years of experience.
So anything else from you, Matthew? I really enjoyed this. Thank you.
MT: Yes. No, I mean, I think we covered a lot of ground. Just be careful out there right now.
RI: All right. Well, for Matthew Tuttle, this is Rob Isbitts, and thanks for listening to the Seeking Alpha Investing Experts Podcast.
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Busting Today's Market Myths With Matthew Tuttle And Rob Isbitts