DYI Comments: A video of Gary Shilling explaining the continuing conditions of deleveraging with its subsequent deflation. Here are his picks for cyclical and secular trades along with my take for each of them.
1.) Short commodities
Over the next 4 to 6 years deflation will rule the day as 1st world citizens (U.S. included) continue to work off their debt load. Since citizens are paying down debt to improve their balance sheets they are simply delaying or reducing their purchases. Less purchases equals less need for commodities. Add on the slow down in China commodity prices will go soft. However to achieve a commodity price smash that requires a world wide recession. China's massive debt bubble could very possibly trigger such a panic.
2.) Short oil stocks
Gary Shilling continues with his forecast of $10 to $20 dollar per barrel oil. This is due to the continuing effect of 1 to 2 million barrels per day over demand. Here at DYI a possible softening of prices, as with basic commodities, a world wide recession is needed to drive oil to such low prices. If it does happen and oil prices become a teenager(below $20)[I have no idea if it will] then lump sum into the Adams Natural Resource Fund symbol PEO. Will this happen? I don't know but it is a possibility of merit. Like a good Boy Scout BE PREPARED. If it does - oil/gas/service companies will be on the give - away - table - at once in a lifetime prices.
3.) Long dollar
I agree. When you look in depth at the other major countries currencies, despite what is said about the demise of the Dollar, it is the other currencies that are in big trouble.
Central Europe - Euro
The Euro unless you have been asleep like Rip Van Winkle Central Europe with its Union could very well fly apart. Massive debt due to retirement programs in vast need of reform due to demographic imbalances[birth rate significantly below replacement].
Japanese - Yen
Japan with its massive public and private debt load who's central bank invented the idea of QE. Now they are discussing the possibility of direct payments from their central bank to fund infrastructure/social programs. Once that money is digitally printed it is impossible to return to the central bank and retire those monies. As with QE the bonds that were purchased and in the case of Japan stocks as well sit on the central bank's balance sheet they can be sold retiring the digitally printed Yen. Not so with direct payments. A day will come for Japan they will have their lower Yen and inflation. The Yen will crash and inflation could easily hit 15% to 25% per year. When? Don't know. But the seeds of destruction are present.
British - Pound
England despite being in the EU has maintain their own currency the British Pound. Whether or not they stay in the EU they have a debt bubble and massive fraud in their commercial and investment banking plus a real estate bubble centered in London of biblical proportions. Reform is an understatement for a 1st world country of this magnitude. When the Pound crashes it will be one hell of a wake-up call for their citizens providing them with pitch forks aimed at their politicians back sides!
Russia - Ruble
Russia's problems are immense. Their birth rate is the same as Central Europe way below replacement for almost two decades possibly longer add on the fact that Russian men median mortality is age 54! Alcoholism, industrial accidents, car accidents [alcohol related] along with TB outbreaks. Massive corruption. The biggest thief is Putin his net worth is estimated at 200 billion U.S. dollars add on the Russian top brass plus the oligarchs they have stolen an estimated one to one point five trillion U.S. dollars. And the thievery continues. If Putin stays in power long enough will he retire as the 1st Trillionaire?
China - Yuan
China has a debt bubble that I've been forecasting for almost five years will blow sky high. Ghost cities have been build that can house 75,000 or more people dot the Chinese landscape. Fantastic levels of over production for manufacturing driving profits to razor thin levels only kept going by China's central bank shoveling out more and more cheap money. Add on a one child policy(only recently ended) they are now experiencing a demographic imbalance similar to Europe or Russia.
Anyone expecting China to displace the U.S. dollar as the reserve currency is living in a dream world.
Anyone expecting China to displace the U.S. dollar as the reserve currency is living in a dream world.
Switzerland - Franc
Great country with very few problems. Their central bank about a year or so ago stopped maintaining the Franc in lock step with the Euro. Thank God! The Swiss are once again Swiss.
Switzerland is the home of a hard currency and looks to stay that way for years to come. However they are far too small of an economy to displace the U.S. dollar as the reserve currency.
Central & South America Asia, Africa
Either too many problems or too small to displace the U.S. dollar as the reserve currency
United States - Dollar
The best looking horse in the glue factory
Problems? You bet the U.S. has problems. Medical, Military and Educational industrial complex along with (my favorite word) massive consolidation by the top 25 banks which hold 85% plus of deposits. A Federal Reserve that has lost its mind with insane monetary policies that have done nothing to help the economy but has driven stocks and bonds to bubble proportions. The list is long and I'm not going to turn this into a rant plus I've posted before about these problems and others.
There are of course many positives for the U.S. Fantastic geography access to both the Atlantic and Pacific. Port facilities second to none plus multiple super ports. Navigable river systems with the majority located by the richest farm land in the world. Excellent railroad and a reasonable freeway/airport system. A people with an independence streak and an entrepreneurial mind set as well. The government simply has to trust the people and get out of the way this economy will take off like a jack rabbit.
4.) Short emerging stocks and bonds
First world economies are in a bubble and when it bursts world bond and stock markets will drop significantly including and especially emerging countries. This will also produce a world wide recession these countries will devalue their currencies in an effort to export their way out of the recession. It will be a race to the bottom with one after another emerging currencies dropping like a rock. Stocks, bonds, and their respective currency will decline, a losers bet.
First world economies are in a bubble and when it bursts world bond and stock markets will drop significantly including and especially emerging countries. This will also produce a world wide recession these countries will devalue their currencies in an effort to export their way out of the recession. It will be a race to the bottom with one after another emerging currencies dropping like a rock. Stocks, bonds, and their respective currency will decline, a losers bet.
5.) Short Junk bonds
U.S. corporate low rated or junk bonds will get crushed when the bubble bursts. First we had high tech/dot.com stocks year 2000, then junk mortgages in 2008 and now corporate low rated junk bonds for 2016. When will the dam break producing a huge pool of defaults? Don't know. All I do know is the seeds for future misery are present.
U.S. corporate low rated or junk bonds will get crushed when the bubble bursts. First we had high tech/dot.com stocks year 2000, then junk mortgages in 2008 and now corporate low rated junk bonds for 2016. When will the dam break producing a huge pool of defaults? Don't know. All I do know is the seeds for future misery are present.
6.) Long 30 year Treasury bonds
Amazing how long the secular bull market for declining rates has lasted. Since February of 1982 at 14.56% today 30 year T-bonds are 2.50%! Could rates drop further? Anything is possible and very well probable. DYI is stopped out of the long term bond market as rates are now way below their historical average since 1871! DYI see's this as an interesting speculation. It is within the realm to have 10 year T-bonds under 1% and 30 year T-bonds below 2%.
Amazing how long the secular bull market for declining rates has lasted. Since February of 1982 at 14.56% today 30 year T-bonds are 2.50%! Could rates drop further? Anything is possible and very well probable. DYI is stopped out of the long term bond market as rates are now way below their historical average since 1871! DYI see's this as an interesting speculation. It is within the realm to have 10 year T-bonds under 1% and 30 year T-bonds below 2%.
7.) Short U.S. stocks
DYI model portfolio is long only. With low oil prices and world central banks hell bent on levitating stock prices, shorting, if the timing is off, remaining solvent is very difficult. The S&P 500 has been on multi month arch like top. When the market will break to the downside is anyone's guess. As value players just as with long term bonds stock values have moved into bubble land. DYI will leave the speculation to the speculators.
DYI model portfolio is long only. With low oil prices and world central banks hell bent on levitating stock prices, shorting, if the timing is off, remaining solvent is very difficult. The S&P 500 has been on multi month arch like top. When the market will break to the downside is anyone's guess. As value players just as with long term bonds stock values have moved into bubble land. DYI will leave the speculation to the speculators.
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