A Buy-and-Rotate Approach to Investing in Equities and U.S. Treasuries: A Wall Street Transcript Interview with Edward M. Dempsey, Founder and Chief Investment Officer of Pension Partners, LLC

Wall Street Transcript

67 WALL STREET, New York - November 4, 2013 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Global Economy - Value Oriented Strategy - Value Investing - Exposure to Emerging Markets - Long-Term Investing - Investment Strategies - Large-Cap, Deep-Value - Large Cap Investing

Companies include: SPDR S&P 500 (SPY), iShares 20+ Year Treasury Bond ETF (TLT), and many others.

In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his investing philosophy and trading methodology:

TWST: You have some core beliefs that drive your investment philosophy. Can you talk about that a little bit?

Mr. Dempsey: We don't believe in buy and hold. The world has changed from when that was a good idea. Now things move too fast. Also looking at it from the perspective of investors, buy and hold really works when you have an unlimited time horizon. As Warren Buffett likes to say, my favorite holding period is forever. It works even better when, like Buffett, you have the ability to buy more as a stock goes down.

Going back to investors now, I think it worked nicely in the past because, of course, the period of the 1980s all the way up to 2000 was a bull market, and also all these Baby Boomers were younger and could withstand the ups and downs. Now where you have two generational clashes in 10 years - 2000 to 2008, where in 2008 and including the first quarter of 2009 you had almost a 60% decline in the S&P alone. I don't think that buy and hold is any longer the right strategy for people. We believe actually in something called buy and rotate, in that the short term is actually much more observable and in some ways a surer way to invest.

TWST: When you buy and rotate, what exactly do you rotate? Do you mean you rotate equities, or do you rotate between types of instruments?

Mr. Dempsey: Everything about our strategy is built around the direction of inflationary expectations. We emphasize "expectations," not actual inflation. We say that you and I live in the world of the news, what's in the paper and what's on TV. Markets live in the world of what might happen, therefore markets price off of what might happen, like using current events, will we get a government debt default, how long will the shutdown go on, that kind of thing. That's what markets price on.

So you have to use this direction of inflationary expectations to determine what are the conditions to take risk and decide if those conditions are favorable or not. If they are favorable, then we go to equities. If they are not favorable, we go to U.S. Treasuries. We analyze risk-on, risk-off, trying to capture being in the right asset class at the right time as opposed to holding all risk or all assets all the time.

TWST: Why is inflation such an important barometer?

Mr. Dempsey: Because inflationary expectations are what really the market's priced off of. This comes from our own work, from other studies, building on Michael E.S. Gayed's books. Inflation may be where markets are pricing in inflation expectations - that means rising income, rising prices, which all translates ultimately into rising earnings for companies, which of course in the end is what over time will drive stocks. We happen to be in a strange environment where there is a lot of Fed manipulation, but in the end the company has to have earnings.

Likewise, when you have markets pricing in deflationary expectations, it is believing that growth will slow, that perhaps there are exogenous events on the horizon as the market begins to price. None of that is good for growth, which means none of it is good for equities. It is generally always going to be good for bonds and good for credit bonds, specifically U.S. Treasuries.

TWST: Tell us even more about the ATAC approach. What exactly is involved there?

Mr. Dempsey: We are looking at our own proprietary way using a pure math model without any subjective judgment.

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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