Noted financial writer, Jeff Miller, talks about his Felix ETF Model and “A Dash Of Insight”
John Nyaradi: I’m John Nyaradi, Publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds, global markets and economic analysis. Today, I am really pleased to welcome our special guest, Jeff Miller who is the author of A Dash Of Insight, a widely read market commentary. Jeff, welcome to Wall Street Sector Selector.
Jeff Miller: Thank you. Nice to be with you, John.
John Nyaradi: Jeff is the author of A Dash of Insight, a widely read blog and market commentary. He’s a former university professor at the University of Wisconsin, has worked at the Chicago Board Options Exchange and he is the founder of NewArc Investments, a registered investment advisory in Illinois that manages both institutional and individual accounts. He’s also #1 in the Economy Section of Seeking Alpha.
So, Jeff, let’s start with A Dash of Insight. It’s one of my favorites. On a weekly basis, you focus on a couple of things that are not widely followed, the first being the St. Louis Financial Stress Index. Can you just talk about that a little bit?
Jeff Miller: Sure, I would be happy to. I started Dash about six years ago and what I tried to do was write as if I were speaking to one of my clients right in the room with me and so that’s how I write. And it turned out that quite a number of people have liked it, including other financial advisers.
What the team at the St. Louis Fed did was study 18 different indicators ranging from financial markets to credit spreads. They’re all measurable things for markets. They’re not government estimates or revised data of the sort that we sometimes worry about. And if you look at the chart on their site, you can see how well this has captured the peak moments of financial stress in the past. So, this is a way, I think, of staying well-grounded and not being carried away by the headlines and I actively use this as a way of monitoring the real risk that my portfolio has faced.
John Nyaradi: Another thing that’s really intriguing in your work is the Felix ETF Model. Tell us what Felix is about.
Jeff Miller: The Felix Program basically asks what is the best ETF to be in over the next three weeks. But we don’t buy that ETF and hold it for three weeks. We ask the question everyday. So, the answer to the question of the best ETFs for the next three weeks changes, it’s slightly different each day and we usually buy the top three.
So, we might make 35 trades a year in that approach. Now, there is a companion approach called Oscar and so Oscar and Felix both approach the questions of what’s the best for the next three weeks but Oscar is a little bit more exuberant, shall we say, and Felix is a little more cautious. So, at the moment most people seem to prefer the Felix approach and that’s the one that I generally feature.
John Nyaradi: The third thing I really like is the C-Score recession indicator that is another kind of unique look at things. Can you just brief us on that?
Jeff Miller: You know, this is one of the joys of being involved in the internet and being a blogger and doing commentaries, you wind up meeting people you would never meet otherwise. You know, I’ve gotten to go to the Kaufman Conference of leading economic bloggers. It’s been a good experience. And a couple of years ago I also was on an online panel with several other internet commentators. One of them was economist Bob Dieli and we enjoyed each other’s contribution.
So, we started talking and I realized that he had a tremendous record of forecasting recessions in real time, okay? I saw that Bob had succeeded in doing this really very well over a period of about 37 years. But the problem is the indicator only updated once a month or so.
And I wanted a closer feel to it. So I worked with Bob on creating what we called the C-Score for the Cycle Score that would sort of give us an early read on what Bob’s indicator was going to say at the end of the month. And so I’d feel that that is an excellent way of getting a good grip on the probability of a recession and it has been really excellent.
John Nyaradi: Jeff, we’re talking here in November, 2012. Let’s look ahead through November, December, January and what’s at the top of your mind right now, what should a retail investor be watching out for, what are the dangers and opportunities ahead?
Jeff Miller: Well, we’ve gone through a period of at least six months with many things on hold. We know that many individuals have been frightened out of stocks and so they’ve rushed into anything that seems to have yield. So yield assets have been bid up, whether they be dividend stocks or bonds and the fear assets like gold are bid up. Businesses have built up a lot of cash and they’ve sort of been holding back on making decisions.
So, we’ve had this pause in business activity. Now we need to find some certainty, we need to watch carefully to see if compromise is reached on Fiscal Cliff issues and we need to watch to see if there is still continued progress towards the solution in Europe, so those are the main things right now.
John Nyaradi: Well, folks, we’ve been talking with Jeff Miller, author of A Dash of Insight, the widely read market commentary that’s at Seeking Alpha and other places on the internet. He’s a former college professor at the University of Wisconsin and the founder of NewArc Investments, a registered investment advisory.
You can learn more about Jeff and his work and A Dash of Insight just by following the link at the bottom of this interview. It’s very interesting commentary, and Jeff, it has been wonderful chatting with you today. Thanks for joining us. I know we’re all looking forward to talking to you again really soon.
Jeff Miller: Thank you, John.
(recorded interview, edited for length and clarity)