Friday, November 14, 2025

 How to Use this Blog


Four Uncorrelated Assets
1.)  Stocks
2.)  Long Term High Grade Corporate/Government Bonds
3.)  Short Term Notes (Cash)
4.)  Gold – Precious Metals Mining Companies

Four Assets Correlated to Four Economic Conditions
1.)  Prosperity
2.)  Deflation
3.)  Recession
4.)  Inflation

1.)  Prosperity: Stocks become a clear winner during conditions of increasing employment, rising wages tied to increasing productivity along with rising profits.  Junk bonds (they trade like stocks) are also winners in this environment despite their low quality; the economy is so good interest and principal payments are made – defaults are minimum – and a positive climate for refinancing.  High quality corporate/ government bonds are secondary winners as prosperity is noted for stable or slowly declining rates.  Gold is generally a loser in prosperity as inflation is minimized and investors seek higher returns in more traditional investments.


2.)  Deflation:  Deflation is the decease in the general price level of goods and services.  The Great Depression is a standout example of deflation.  The general cause is when excess debt is built up in the private sector that can no longer be increased and/or maintained resulting in massive bankruptcies.  This creates an environment of panic as businesses scramble to become profitable by firing employees and cutting hours of remaining workers.  In this deflationary episode interest rates decline, prices decline, and the almighty buck rises in value against softer currencies.

Long term high quality corporate bonds and long term U.S. government bonds are winners in this type of economy.  Stocks, gold, and junk bonds generally will fall in price along with interest rates on short term notes.

3.)  Recession:  For DYI's purposes recessions are a period of increasing interest rates engineered by the Federal Reserve in order to quell inflation by slowing down an over heating economy.  This condition is temporary as the economy will either adjust to the new economic environment bringing back prosperity or a deflationary period will begin.

High quality corporate/government bonds, stocks, gold, and junk bonds are all losers in this scenario. Short term notes and money market funds are clear winner as their principal value remains steady plus the interest income improves with increasing interest rates.

4.)  Inflation:  Too much money chasing too few goods.  When Federal government liabilities become onerous from financing of war(s) and/or social programs that are too great to be paid by taxation governments will resort to money creation to pay the remaining costs.  After WWII, Korea, Vietnam and the war on Poverty inflation began slowly prices increased relentlessly (despite high taxes) as government liabilities expanded.  When President Richard Nixon closed the gold window (1971) the last vestige of inflationary controls were removed with inflation peaking in the high teens only until Paul Volker was appointed as Fed Chairman (August 79) who crushed inflation with high interest rates.

Stocks, high quality long term corporate/government bonds, junk bonds are all losers as inflation soars along with interest rate increases (despite the Fed's efforts to suppress them).  Cash (money market funds) or short term notes are neutral or slightly lag inflation rolling up to the higher interest rate quickly.

Gold is a winner when inflation breaks above 5%.  When inflation goes double digit gold is marked up in price to reflect the debasement of the currency.  Gold will also rise in price based upon fear of massive defaults as gold has no counter party risk.

 VALUATIONS DO MATTER

This investment approach is an offshoot of Harry Browne's Permanent Portfolio that maintains a fixed 25% invested in the above four asset categories listed above.  Harry's uncorrelated assets at the time was ground breaking.  Today it is taken for granted.  As much as I was impressed with Harry's work it always made me uncomfortable to always own 25% in each asset. When valuations are at extreme lows a greater percentage is called for and conversely at historical nose bleed levels significantly less (or none).

DYI’s approach working through our four assets and determining with a measure of accuracy the percentage invested depending upon long term valuations.  This is done by calculating our averaging formula for each asset.

If all three assets - gold, stocks, long term bonds, cash is our default position - are at fair or average value then each of the categories will be at 25% of the portfolio just like Browne's Permanent Portfolio.  However as prices move up or down from their respective mean our averaging portfolio will make the adjustment enhancing the overall return.  

Will DYI outperform the market??

Our primary goal is to outperform the Permanent Portfolio first.  Outperform the market?  Maybe? DYI's intentions is a 6% real return - as opposed to Browne's 4% - into your pocket with low volatility as opposed to our fully invested stock market investor.  In closing each of these assets stocks, long term bonds, gold and cash, all have their their moment of fame or shame.  Value players reduce or eliminate the overvalued assets and increase the undervalued; simple as that!     
DYI

Wednesday, November 12, 2025

 Bubble

Trouble

1966 to 1978

Only those who experienced the heady euphoria of the late 1990s dot-com bubble in tech stocks know what the shift from “can’t lose” confidence to “can’t win” surrender feels like. The chart below illustrates this emotional cycle of confidence rising and fading as bubbles inflate and deflate.

The drift from “can’t lose” to “can’t win” is slow and painful. Our beliefs are stubborn, and we cling on to what worked in the past long after it stopped working. Even if an AI program advises selling everything and walking away from the market for five years, how many of us would take this advice? History says: very few.

The real losses were even bleaker the next time the DJIA again closed above 1,000 on October 12,1982. Investors who held their index portfolios from the peak in 1966 to 1982 lost two-thirds of the purchasing power of their investment. They would not be made whole until the DJIA rose well above 3,000.







Monday, November 10, 2025

 More

Bubble Trouble!

Commercial Mortgage-Backed Securities

The delinquency rate of office mortgages that have been securitized into commercial mortgage-backed securities (CMBS) spiked to 11.8% in October, the worst ever, and over a percentage point higher than at the peak of the Financial Crisis meltdown, according to data by Trepp , which tracks and analyzes CMBS.

DYI:  So far this meltdown is confined to the commercial real estate sector.  However this does give an insight into the ongoing or should I say the lack of ongoing economy.  This is far more than simply working from home, as the economy continues to deteriorate expect increase vacancies putting further pressure on mortgage payments.


 





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They must think we are stupid!



Saturday, November 8, 2025

 Bubble

Trouble!

Their value is now equal to 83% of the entire size of the US economy.


Top 10 companies: 

Alphabet 
Amazon 
Apple 
Berkshire Hathaway
Broadcom 
J.P. Morgan
Meta
Microsoft 
Nvidia 
Tesla

Thursday, November 6, 2025

 This Time is Different?

NOT A COLD DAYS CHANCE IN HELL!

The speculative imagination

As I’ve noted before, investors rediscover the idea of a ‘new era’ at every speculative peak. But the reality is that economic growth is nothing but the constant introduction of new eras. The danger occurs when the new era is so satisfying to the imagination that investors abandon any concern about valuation.


Even when an industry is eventually successful, early speculation can have devastating consequences in the interim. Several large technology companies from the tech bubble have gone on to prosper, but not without the Nasdaq 100 losing 83% between March 2000 and October 2002, with these same companies participating in the collapse. The S&P 500 itself lost half its value during that period, from a lower level of valuation than we observe at present.


Similarly, computer companies became a speculative theme in the late-1960’s, as investors abandoned any concern about valuations. Then that “Go-Go” bubble collapsed, resulting in profound losses even before the 1973-74 collapse took the overall S&P 500 down by 50%, from a lower level of valuation than we observe at present. As Benjamin Graham wrote at the time:

Many – if not most – investments in computer-industry companies other than IBM appear to have been unprofitable. Obvious prospects for physical growth in a business do not translate into obvious profits for investors. 

The habit of relating what is paid to what is being offered is an invaluable trait in investment. The really dreadful losses in the past few years (and on many similar occasions before) were realized in those common-stock issues where the buyer forgot to ask ‘How much?’

– Benjamin Graham, The Intelligent Investor, 1973

Wednesday, November 5, 2025


Shrinking

Middle Class

The latest numbers show that 57 percent of workers gained some purchasing power last year, but 43 percent still could not keep up with inflation. At the same time, the middle class has quietly thinned out. Back in 1971, about 61 percent of Americans were considered middle income. 

By 2023, that number had dropped to around 51 percent. 

It doesn’t sound dramatic until you realize what it means in everyday life. The middle ground that once felt stable is getting smaller, and more people are being pulled to the edges. For many, it feels harder to stay in place, even when they are doing everything right.

The Federal Reserve monetizes debt by purchasing Treasury bonds, from the open market. It pays for these securities by creating new money electronically, which increases the money supply. This process effectively finances the government's deficit by creating money instead of raising taxes.  When money creation is greater than improved efficiency in our economy rising prices – inflation – occurs.

Monday, November 3, 2025


11-1-2025
Updated Monthly

Secular Market Top* - Since January 2000
From High to Low - Since Year 2000

+1280.0%  Gold

+483.0%  NASDAQ

+433.7%  Transports

+365.6%  S&P 500

+313.7%  Dow

+292.3%  Utilities

+138.2%  Oil

+95.8%  Swiss Franc’s

+27.9%  30yr Treasury Bonds


December 1999 Shiller PE10 was 44.19               
August 2000 S&P 500 dividend yield was 1.11%  

Shiller PE10 11-1-25 is 40.88  136% above its mean (17.29) since 1871.

S&P 500 dividend yield 11-1-25 is 1.14%  73% below its mean (4.22%) since 1871.

[Shiller PE10 & dividend yield is reported using data from the beginning or end of the month when I update.  It may or may not exactly be the first or last trading day of the month.]

11-1-25
S&P 500 Stock-earnings yield 2.45%
Bond rate 5.08%
Stock-earnings yield/bond yield = 48% of  present bond yield.
Dividend yield/bond yield = 22% of the present bond yield.

*Measured by valuations.  
Year 2000 Shiller PE peaked at 44.19 with a scant S&P 500 dividend yield at 1.11%.  This high Shiller PE and low dividend yield has not been surpassed since 1871.

Stock-earnings yield (December 1999) was 2.26%.  High grade corporate bonds were in the 7% range in abundance.  This would push my EYC ratio - [see Ben Graham's Corner] - to 0.36!  Anything below 0.50 is in crash alert range.    
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It is easily seen in the year 2000 the Nasdaq was horribly overvalued and gold was on the give away table, such lopsided returns 25+ years later!