It’s not an easy thing to sell an asset that you still believe has legs. I needed to reduce exposure to Vanguard Extended Duration (EDV) for many of my clients, in spite of the reality that they were sitting on 14-plus months of remarkable capital appreciation and income gains.
What transpired? The exchange-traded tracker hit a stop-limit loss order as well as breached a critical trendline.
The fact that I have exceptional confidence in EDV as a hedge against a sharp correction and/or a bear market in the near future is irrelevant at this moment; value with comparable sovereign debt abroad does not matter either. Not at this minute. In essence, I subscribe to an offshoot of a Stephen Covey effectiveness rule. The bestselling author explained that “Effective management (in business) is discipline, carrying it out.” Likewise, effective asset management relies upon the execution of one’s discipline. And when it comes to insuring against a big loss – when it comes to guaranteeing a positive outcome (i.e., big gain, small gain, small loss) – I never deviate.
I can always revisit EDV. For now, though, the extra cash in accounts can serve as a buffer against further depreciation in stock, bond, REIT and commodity prices.
There is some irony in the rapid reversal of fortune for traditional safer haven assets, however. The world outside of the U.S. economy has been weakening dramatically. The saving grace? Foreign leaders are implementing the same type of rate manipulating, money-creating bailouts that reflated stocks, bonds and real estate in the United States.
Perhaps ironically, the majority of economic reports stateside have been atrocious year-to-date. New factory order have been collapsing, consumer spending has been sputtering and oil producers have been scaling back sharply. Even the heralded arrival of full employment at 5.5% is specious. If you account for labor force drop-outs, unemployment is closer to 10%. While the Bureau of Labor Statistics (BLS) would have us believe that those that have left the labor force all “retired,” the reality is that most of these folks were pushed out and/or when they return to the labor force, they will take lower-paying positions to get by. Hence, wage growth is non-existent and personal consumption expenditures (PCE) that excludes food/energy has declined to just 1.3%.