I spent the day in Chicago where I’d been invited to debate the merits of my book, The Hedge Fund Mirage, with a pleasant fellow named Ed Butowsky who runs a fund of hedge funds. I’ll leave it to the audience to decide who won – it is the season of debates after all. I’ll simply say that I continue to much prefer taking my side of the debate than the other!

What I did find interesting though was the clear focus of so many financial advisers on alternatives in various forms of packaging. The tyranny of low interest rates is causing investors to look high and low for something that can generate a return greater than bonds while not blowing up in a collapsing equity market. There are “liquid alternatives”, which are mutual funds that do some hedging, business development companies that offer some very attractive yields, REITs and managed futures.

There probably are some interesting investments among some of these offerings. However, it’s still asset allocation that is the most important decision, and bond avoidance must surely be a cornerstone with negative real yields as far out as one can forecast. A barbell consisting of one part equities with four parts cash can provide the same return as the ten year treasury note as described in previous blogs (assuming 4% annual growth in S&P500 dividends) and bonds are unlikely to be much of a diversifier since rising bond yields (whenever that happens) will no doubt cause a sell off in equities.

I’ve noticed Intrade has seen a drop in Obama’s odds of winning, now down to 58% although he’s still the favorite. It does seem to me though that the likeliest outcome is a return of the status quo in two weeks at which point we’ll be looking to the same legislators who brought us to the brink of fiscal disaster with the debt ceiling crisis last year to resolve the fiscal cliff with only 12 days when Congress is in session. I don’t see how we can expect an agreement much before the very end of the year, timing which we ensure each side has extracted what it can in negotiations but will not be kind to any business that relies on capital spending or solid forecasts of consumer demand.

Most recently we sold a little of our natural gas E&P exposure since we continue to like the sector but valuations had made it somewhat less attractive. The New York Times ran a piece over the weekend warning investors that profits in natural gas are hard to find. However, it could also have been called “Don’t Invest with Aubrey McLendon, Chesapeake’s CEO” based on the examples the writer used. Less leveraged companies with lower production costs are still to be found, but overall we have about one third less direct exposure to this sector than was the case six months ago.

The biggest position in our Deep Value Equity Strategy remains the Gold Miners ETF (GDX) which we think is supported by efforts at central bank reflation on the downside and should rise with other commodities if equities resume their rally. We’re also awaiting news from Corrections Corp (CXW) on their possible conversion to a REIT. We expect the company to provide an update in the next few weeks.

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.