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Posted by on Nov 19, 2014 in Ranger Alternative Management

Nowhere to Hide

Nowhere to Hide

By John Del Vecchio, CFA, portfolio manager of Ranger Alternative Management and AdvisorShares Ranger Equity Bear ETF (HDGE)   The price / sales ratio is often used as a valuation metric in the place of earnings because of the common belief that revenues are harder to manipulate than earnings. In my book, What’s Behind the Numbers? (McGraw-Hill, 2012), I debunk that theory and outline many ways that management teams can aggressively manage the top-line. Nevertheless, the price / sales ratio is useful because there are fewer inputs, such as reserves, tax issues, share buybacks, and recurring charges, than earnings that can be used to manage the reported results. Not only is the price / sales ratio useful for individual stocks, but also for the market as a whole. At the end of the third quarter of 2014, the price / sales ratio on the S&P 500 stood at 1.70x. This is exceedingly high and is flashing a bright red warning sign for the broader market. As you can see...

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Posted by on Nov 7, 2014 in Ranger Alternative Management

Jobs? WHAT Jobs?!

By John Del Vecchio, CFA, portfolio manager of Ranger Alternative Management and AdvisorShares Ranger Equity Bear ETF (HDGE)   While many market observers debate whether quantitative easing (QE) “worked” the general consensus appears to be that the lower unemployment rate is a positive result of the Federal Reserve’s policies. Recently the unemployment rate hit 5.9%, the lowest since 2008. However, in our view, that is highly misleading with respect to the effectiveness of QE. The chart below shows the labor force participation rate as well as the percentage of people employed relative to the population. As one can see, the results since the inception of QE are dubious at best. Currently, the labor force participation rate is 62.7%. This is a generational low and below the levels of the 1980’s recessions. Meanwhile, the percentage employed relative to the population broke its trend-line as QE was implemented and stands at just 59%. Other statistics paint and even more troublesome picture. For example, according to the Census Bureau, real median household...

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Posted by on Oct 31, 2014 in Ranger Alternative Management

Buyer Beware: A Notable Divergence

Buyer Beware: A Notable Divergence

By John Del Vecchio, CFA, portfolio manager of Ranger Alternative Management and AdvisorShares Ranger Equity Bear ETF (HDGE)   As a short selling portfolio manager, we constantly monitor market relationships for positive or negative divergences in the broad equity market indexes. One of the most important relationships is that between price and volume. In a bullish scenario, one would want to see volume expand as price rises. This typically means that large institutions are increasing their bets to equity markets as indexes and individual stocks strengthen and prices are rising. Conversely, rising prices coupled with weak volume expansion often indicates that shares are being transferred from strong institutions to weak retail investors. The chart below, which illustrates the relationship between the index value of the S&P 500 and the volume of all equities, is an important indicator to measure the strength of the market, especially considering we are near all-time nominal highs. Notice that in the early 1980’s, the index bottomed out and began a large secular bull run....

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