Bubble

Economics

When will the Bear Return?

If the S&P 500 were currently on its long-term regression line, its value would be 2,439.  Let that sink in!  The S&P 500 as of 10-22-2026 is 7663 or simply put a decline (7663 – 2439) ÷ 7663 x 100 = 68% (rounded) only to return to its average!  WOW!  

Using the 2009 decline as a proxy this would place the S&P 500 at 1683 (rounded) or for a total decline (7663 – 1683) ÷ 7663 x 100 = 78% (rounded)!

My suspicion, my guess, or asking the magic 8 ball; this up and coming decline will be a multi-year along with many fast and furious soon to fail rises as the bear keeps as many participants in stocks riding all the way to the bottom.

The never ending mantra is to buy the S&P 500 index and let the market Gods produce their bake-in-the-cake 10% plus market returns forever!  We the people of mere mortals have (average individual) any where from two to four decades – to put it all together for retirement.  When the bear returned as it did from the year 2000 to 2009 many had to postpone retirement and had to return back to work or face running down their nest egg significantly.

After 50 plus years of investing and talking to individuals of different levels of financial expertise; I’ve come to this conclusion; for the vast majority, their core fund should be The Permanent Portfolio Fund (PRPFX).  The funds excellent downside protection through its fixed percentage of non-correlated assets and yet is able to capture three quarters of the long term return of the S&P 500.

To illustrate:  The biggest drawdown for the Permanent Portfolio (PRPFX) was 27.16%, which occurred from May 2008 to November 2008 (or peaking around November 20, 2008).  However it took only 1.4 years (or 221 trading sessions) to recover its previous high.

The S&P 500 greatest drawdown: -56.8% (peak-to-trough drop from October 9, 2007, to March 9, 2009) requiring 5 years and 5 months to regain its previous peak; highlighting the significant difference.

People talk the talk of being that “long term investor” but when the manure hits that rotating fan the vast majority will run to the hills locking in large percentage losses.

Just as Dave Ramsey and those before him especially Silvia Porter both have one thing in common – your income is your greatest wealth building tool.  Debt free and living significantly below your means, investing wisely you’ll achieve financial security (no matter what those bastards in Washington DC throw at us!).

Till Next Time!             

        

 DYI’s

Real Capitalism Checklist!

Why is everything so expensive??

It’s the LACK of CAPITALISM!

1.)  CRONIC budget deficits from Congress and Presidents of both parties. Pass a balanced budget amendment and debt reduction to the constitution.  

2.)  Federal Reserve (it’s private & has ZERO reserves) must end their ability to money print.  

3.)  Allow multiple currencies to be used within everyday transactions along with gold and silver.  End dollar monopoly!

4.)  Allow Banks to only loan out based on their deposit amount ending their ability to leverage (pyramiding).

5.)  Aggressively enforce the Sherman Anti-Trust Act and bust up these oligarchs END that portion of the GILDED AGE!

6.)  Aggressively enforce the Robinson-Patman Act and Clayton Act to reign in Medical Costs.

7.)  End student loans.  Ending Universities and Colleges monetary gravy train lowering costs SIGNIFICANTLY!

8.)  Vouchers for parents K through 12th grade to be used for their school of choice including home schoolers.

9.)  End property taxes! States use sales taxes.

10.) Strengthen Social Security by systematically and automatically (by law) lifting the caps and bending down retirement benefits to high earners.  Changing Social Security to a pay-as-you-go program if additional dollars are needed will be paid by general revenues.

11.)  DYI's mandatory national savings plan.  Click HERE.

 

Commercial

Mortgage-Backed Securities

Early Recession Indicator?

DYI:  The grind down continues within the K shaped economy this portion of the K is in the upper portion hitting those in the top 10%.  These delinquencies a precursor for a flat out recession?  So far the answer is no.  If long term rates continue to rise they’ll be more delinquency fireworks for sure!   

 

INFLATION

Yellow Highlighted

 Is where we are today! 

·       Severe Deflation: 15%+ annual price decline.  Implosion (bankruptcy) of debt causing massive downturn in the economy. 

A.    Wealthy and super rich bare the majority of the economic depression as their debts and assets are wiped out leaving many ex-wealthy becoming the new poor.

·       Mild Deflation:  From 0% to 3% price reductions from monetary decline and increased economic efficiency.

A.   Best monetary environment lifting working poor, working class and development/maintaining a vibrant middle class.

B.    Reduced money for wealthy and super rich class; reduces monetary division between haves and have nots. 

·       Stable Prices:  Zero percent monetary growth prices stay flat with prices increases due to supply shocks only.

A.    2^nd best economic environment allowing the poor and middle class to increase their standard of living.

·       Creeping Inflation:  Less than 3% annually prices moving up slowly.

A.    The poor and working class is negatively affected due to ever subtle increases in costs.

·       Walking Inflation:  3% to 10% annually with noticeable price increases that begin to pressure consumers.

A.   New money benefits asset holders and early recipients first, while wages lag for working families.

B.    Growing wealth gaps increases relative financial deprivation and domestic tension (class envy).  

·       Galloping:  10%+ annually where money loses value too fast; disrupting normal economic contracts.

A.  Strains household resources, elevates stress, and alters the financial incentives surrounding marriage, cohabitation, and child-rearing.

·       Runaway inflation stage 1:  25%+ annually beginning of societal breakdown especially within inner cities.

·       Runaway inflation stage 2:  100%+ annually inner cities in total breakdown requiring military intervention. 

·       Hyperinflation:  Exceeding 500% annually as the currency is now worthless as citizens attempt to use other forms of money – barter, gold, silver, Swiss Francs (hard currencies) to conduct business.

 “The only way you’ll take my sub 3% mortgage is to pry it from my cold, dead fingers.”

Homeowners Are Clinging to their Below-3% Mortgages for Dear Life as Mortgage Rates Went over 7%

By Wolf Richter for WOLF STREET.

These ultra-low-rate mortgages have become a huge gift from the Fed. Homeowners might not move, when they would otherwise move, because they don’t want to replace that 3% mortgage with an over-7% mortgage, and so sales of existing homes have plunged by about 25% from pre-pandemic times and have remained at those levels for four years.

From early 2020 through Q1 2022, the Fed had purchased trillions of dollars of mortgage-backed securities and Treasury securities with newly created money, and it cut its policy rates to near-0% and kept them there, all of it to impose all-out interest rate repression on the economy.

20%

Of Residential Real Estate is Frozen!

These ultra-low-rate mortgages have become a huge gift from the Fed. Homeowners might not move, when they would otherwise move, because they don’t want to replace that 3% mortgage with an over-7% mortgage, and so sales of existing homes have plunged by about 25% from pre-pandemic times and have remained at those levels for four years.

This act pushed mortgage rates to historic lows, which created enormous demand for homes, which caused home prices to explode by about 50% in two years, and more in many markets. It caused other asset prices to explode as well, and it caused inflation to explode, eventually to over 8%, the worst inflation in 40 years, while mortgage rates were at 3% — massive negative “real” mortgage rates. It triggered a tsunami of refinancing into these low-rate mortgages. And now, very understandably, homeowners are clinging to their low-interest-rate mortgages for dear life and have thereby put the housing market on ice.

Life happens nevertheless – a job in a new city, death, divorce, more kids, nightmare neighbors, the need for a house without stairs, that sort of thing – and people sold their homes and paid off those mortgages since early 2022. But that process has come to a near-halt now, ensuring that the housing market will remain frozen.

Kinda reminds me of that old bumper sticker – “the only way you’ll take my gun is to pry it from my cold, dead fingers.” Substitute the sub-3% mortgages for the gun.

Who can blame the holders of those mortgages for keeping them? Anyone can use one of the online financial sites to calculate how much more they’d pay to switch to a current rate mortgage. A sobering difference – more than enough to make people tolerate a home that has some drawbacks for their current living situation.

People will part with those mortgages only when they absolutely must – the life change must be severe. Not an inconvenience, but a structural life change. Cosmetic life changes (like their son Billy wants his own bedroom instead of sharing one with his brother) won’t do it in this environment.

 Stocks

Massive Overvaluation!

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 10/1/26

Active Allocation Bands (excluding cash) 0% to 50%

38% - Cash -Short Term Bond Index - VBIRX****

32% -Gold- Global Capital Cycles Fund - VGPMX **

 30% -Lt. Bonds- Long Term Bond Index - VBLAX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.

****Many followers of DYI substitute the short term bond fund for the Permanent Portfolio Fund symbol PRPFX.  An excellent idea to add a bit of extra return when these asset categories drop into their respective undervaluation.   

 This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

 

FACTOID:

Never Normalize Debt!

The Average Middle Age American is a Banker’s Dream!

Overall, debt loads tend to peak during middle age (ages 45–60) before declining into the retirement years (carrying debts into retirement).

Americans in their 50s carry an average total debt of about $158,000 to $159,000, largely driven by mortgages, credit cards, and student loans.

Credit Cards:

Consumers in the 46–61 age range average roughly $9,560 in credit card debt, which often acts as a persistent revolving balance.

Student Loans:

Borrowers aged 50 to 61 hold an average of $48,203 in student loans, representing the largest average student loan balance of any demographic group (though fewer people in this age bracket still carry them).

Auto and Other Loans:

Non-mortgage monthly debt payments for this middle-aged group average around $594.

By not normalizing debt and moving as fast as possible to a debt free lifestyle you'll end up being a freeman instead of being a slave to the banker.  Along with the obvious financial safety with the debts paid off its impossible to default. 

 

Smart Money - Buys Aggressively!

Capitulation

Despondency

Max-Pessimism 

Depression 

Hope -  F

Relief *Market returns to Mean  - Short Term Notes & Bills or MMF

Smart Money - Buys the Dips!

Optimism - Swiss Treasury Securities and Silver  - Gold

Media Attention 

Enthusiasm 

Smart Money - Sells the Rallies!

Thrill

Greed Crude Oil

Delusional

Max-Optimism  Residential Real Estate   - Stocks 

Denial of Problem   -BitCoin 

Anxiety 

Fear

Desperation - Long Term Bonds

Current Economic Conditions

Prosperity - Moderate

Recession - Shallow

Deflation - None

Inflation - Moderate

Economic Choices

None

Shallow

Moderate

Prominent

Extreme 

Looking at what is overvalued and what is undervalued today’s name of the game is maintenance of your principal dollars and secondary how much money can be made. 

Short term bond funds such as Vanguard’s Short Term Bond Index – VBIRX along with stacking gold and silver or buying Vanguard’s Global Capital Cycles Fund – VGPMX that holds 25% in precious metals mining companies is DYI’s basic theme. 

I’ve been pounding the table for those folks with their 401k or Roth IRA etc. to dollar cost average into a long term investment grade bond fund as their yield is significantly greater than the yield from the S&P 500 index fund.

This massive bubble has lasted far and away greater than I would have ever imagined.  Massive government spending spewing out relentless deficits; pushing up the national debt to levels of gargantuan proportion; forcing the Federal Reserve to money print in order to keep interest rates from popping to the moon.

When will the bear return to stocks?  I don’t know.  However what I do know is the first shoe has dropped with the ending of sub atomically low interest rates.  The interest rate decline that began in 1981 ended in 2020. IMO interest rates are in a saw tooth manner of ever increasing rates.  In other words, during growth rates will propel to increasing highs and during recessions to ever higher lows.  That is why I only strongly advocate for those with 10+ years to dollar cost averaging into an investment grade long term bond fund capturing ever higher yields.

Till Next Time       

Special

Ben Graham’s Corner

Update!

EYC Ratio 0.42

It is becoming clearer and clearer long term investment grade bonds purchased today will outperform stocks over the next 10 to possibly 15 years as measured by the S&P 500.  Long term investment grade yields are now 501% (rounded) greater than the current yield for the S&P 500 index.  

Investors today whether realized or unrealized is not just expecting but demanding ever increasing stock prices to outperform bonds.  Launching a bull market for stocks starting Shiller PE of 41 has NEVER happened in U.S. stock market history!   

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........41.80
Bond Rate....6.25%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.42(rounded)

As of  10-7-2026
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham

 

U.S.

Stock Market

Remains Massively Overvalued!

Saying the U.S. stock market is in a bubble is a massive understatement!  This makes stock investment especially those indexing in the S&P 500 vulnerable to major declines.  Simply put the downside is far, far greater possibility than any remaining upside.

As of 10 – 7- 2026 Vanguard’s S&P 500 index ETF (VOO) dividend yield is a tiny 1.00% lower than the year 2000 low.  Interest rates have moved up significantly from their sub atomically lows with Vanguard’s Long Term Investment Grade Corporate bond ETF (VCLT) with a yield at 6.57% or a 557% greater yield.  IMO bonds will outperform stocks (especially the S&P 500 index) over the next 10 years and possibly as long as 15 years.

Till Next Time