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]

EYC Ratio = [ (1/PE10) x 100] / Bond Rate

2.0 plus: Safe for large lump sums & DCA

1.5 plus: Safe for DCA

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

1.00 or less: Sell stocks - rebalance portfolio - Re-think stock/bond allocation.

Current EYC Ratio: 0.87

As of 02-1-14

PE10 as report by Multpl.com

Bond Rate is the Moody's Seasoned Aaa Corporate bond rate as reported by the St. Louis Federal Reserve.

DCA is Dollar Cost Averaging.

World risks deflationary shock as BRICS puncture credit bubbles

As matters stand, the next recession will push the Western economic system over the edge into deflation

Fresh turbulence drives down currencies, bonds again

DYI Comments:  It is very possible and probable that the U.S. will experience mild deflation in the range of -1% to -3% on the high side.  This could possibly be the pin that sends this overvalued and overbullish market southward to the likes of 45% to 60%.  However, those who are holding 30yr and 10yr Treasury Bonds will experience higher prices with yields falling below 3% and 2% respectfully.

 

When those low yields are achieved it will mark the end of the "bond rally of a lifetime."  Deflation will most likely be with us til the end of this decade so don't expect long term bonds to be toxic as low rates will endure for at least another 4 to 6 years.  Only the capital gain possibility will be missing due to the obvious low rates.

Has the Great Wait ended?  Maybe and that maybe is getting stronger.

DYI

If it moves vertically like a bubble...If it has complacency like a bubble....Then it's a bubble....

Source: Market-Ticker.org

DYI 

Complacency is the new speculation. The Great Wait Continues.

The Bear's Lair: Is Graham and Dodd obsolete?

For those who don't know it, "Security Analysis" is the Bible of value investing. It seeks to analyze companies by reference to their intrinsic value and to invest in those that appear especially cheap, in the expectation that at some future date their stock prices will correct to a more normal level in relation to their value. Warren Buffett was a pupil of Graham's at Columbia in 1950-51, completing a MSc in Economics. He worked for Graham for a few years and then in 1956, when Graham closed his partnership, Buffett opened his. He applied Graham's investment principles, albeit with a somewhat greater focus on the growth potential of the businesses in which he invested. 

Finally, there's the third possible explanation, that the outdatedness of Graham and Dodd, and its inapplicability to current markets, say something profound about today's economic position. Here I think there is a core of validity. We forget that a market that goes up by substantial amounts year after year, without any great surge in economic growth propelling it, is historically unprecedented and is causing unprecedented levels of distortion in the economic system. However, an elastic band distorted more than ever before will eventually break so in the same way an economic system distorted more than ever before will eventually collapse. The possibility of a soft landing, with a gradual wind-down of today's anomalies, is unlikely given the huge hidden stresses built up from the massive distortions. Hence, Graham and Dodd WILL eventually reassert itself, and is most unlikely to take a decade to do so. The timeframe is more likely 9-18 months.

DYI Comments:  I've been forecasting a peak to trough 45% to 60% decline for the S&P 500 which surprisingly will only have the market modestly undervalued.  It will take an additional market cycle before U.S. stocks bottom out on a secular basis with the Shiller PE10 under 10. However, for the completion of this cycle The Bear's Lair time frame of 9-18 months is along my line of thinking as well.  DYI's model portfolio with 45% short term bonds and 20% long term bonds provides lots of firepower to purchase stocks when panic is in full bloom.  For the long term investor this is only a transitory blink of an eye; the speculator it is eternity.  Complacency is the new speculation.  The Great Wait Continues.  

DYI 

The Wake-Up Call From China

The market declined significantly in the face of the unexpected drop in the Chinese Purchasing Managers Index, following closely on the heels of China’s declining GDP growth and potentially serious credit problems.  According to HSBC, China faces a cash shortage in its financial system, creating a dilemma for the Chinese leadership that is focused on rebalancing the economy and reining in credit.  The market’s decline was on target, as the disappointments cast doubt on the widespread consensus of recovering global growth.  Without the impetus from the Chinese growth engine, the global economy cannot recover and is likely to fall into recession.  This is particularly true since U.S. economic growth has still not reached “escape velocity” at a time when the Fed seems set to wind down Quantitative Easing (QE) by year-end.

 HSBC China Manufacturing PMI

January data signalled a deterioration of operating 

conditions in China’s manufacturing sector for the first 

time in six months. The deterioration of the headline 

PMI largely reflected weaker expansions of both output 

and new business over the month. Firms also cut their 

staffing levels at the quickest pace since March 2009. 

On the price front, average production costs declined at 

a marked rate, while firms lowered their output charges 

for the second successive month. 

DYI Comments: NONE

3 Signs Pointing To A Bottom In Gold

Sign 1: Gold vs the S&P500

Adam Hamilton explains that the Fed induced stock market buying frenzy in the S&P 500 stockindex (SPX) closed at new nominal record highs in 69 out of 252 trading days in 2013.  With the SPX melting up so relentlessly, stock investors aggressively dumped their gold in the form of GLD-ETF shares to shift that capital into general stocks.

 Sign 2: Gold vs the GLD

Adam Hamilton explains how the SPX melt-up drove investor away from gold, in particular the GLD ETF, which in turn drives gold prices lower through the physicalgold selling of the ETF.

 Sign 3: Gold futures

The pressure on the gold price, driven by GLD ETF selling, resulted in futures speculators dumping the precious metal aggressively.It became a vicious circle from which gold has not recovered yet.

DYI Comments:  No doubt gold and their mining companies share prices have taken a tumble.  The miners from peak to trough dropped 50% to 65% which has sucked out the speculators.  Gold and its mining companies continue to have room to run before this asset category has been played out with the Dow/Gold Index below 5 to 1 (or more).  However since the easy money is now over DYI's model portfolio has the miners at 25% and as the Dow/Gold Index continues to drop (higher gold prices) I will clip my exposure. It is a good time to dollar cost average into your favorite gold mining mutual fund.

Dow/Gold Index 12.41

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 01/1/14

Active Allocation Bands 10% to 60%

45% - Cash -Short Term Bond Index - VGPMX

25% -Gold- Precious Metals & Mining - VBIRX

20% -Lt. Bonds- Long Term Bond Index - VBLTX

10% -Stocks- Equity Income Fund - VEIPX

[See Disclaimer]

DYI

Here's why the Fed is trapped: Ron Paul

"We create money out of thin air to the tune of billions and billions of dollars," says Paul. "Then we spend it in places like China and they monetize that debt. It's a worldwide phenomenon. Everybody has mal-investments and overinvestments and all the problems built-in. The weakest economies are going to crack first. But, eventually, I think everybody's going to suffer from the massive monetary inflation that's been going on, not only for the last 10 years but probably 30 years." 

Paul believes the markets will eventually come under pressure. To see what Ron Paul has to say about Janet Yellen, Ben Bernanke, the Fed, emerging markets, and the US economy, watch the video above.

DYI Comments: NONE 

John Hussman of the Hussman Funds States: "At normal profit margins, the Shiller P/E would presently be 30" and " our actual estimates of S&P 500 total returns are negative at all horizons shorter than 7 years."

Increasing Concerns and Systemic Instability 

John P. Hussman, Ph.D.

There's really no need to focus on the Shiller P/E, as it doesn't particularly underlie our views. But it's broadly followed so I often discuss it as a useful "shorthand" for other valuation measures. As it happens, the Shiller P/E at 25, versus a pre-bubble norm of just 15, is among the more optimistic valuation measures we track (at least those that have reliable historical records). This is because even the Shiller P/E is moderately biased by variations in profit margins. Its explanatory relationship to subsequent returns can be significantly improved by taking that margin variation into account (See the final chart inDoes the CAPE Still Work?). Think of it this way. The ratio of Shiller earnings (the 10-year average of inflation adjusted earnings) to S&P 500 current revenues is 6.4% here, versus a historical norm of 5.3%. At normal profit margins, the Shiller P/E would presently be 30 – right in line with other more reliable measures at about double its pre-bubble norm. Even at 25, however, the Shiller P/E exceeds every pre-bubble observation since 1871, except for a few weeks leading up to the 1929 peak. 

It’s tempting to look at the 2000 valuation peak as if it’s some sort of goal to be achieved again, rather than a point that has already resulted in 14 years of 3% total returns with the likelihood of another 10 years of similar returns. One hastens to respond (and hastens for reasons below) that the success of the S&P 500 in reaching that pinnacle of valuation was followed by a decline that wiped out the entire total return of the S&P 500, in excess of Treasury bills, all the way back to May 1996, and yet another decline a few years later that wiped out the entire excess return all the way back to June 1995. Taking all of the instances for which data is available, even including the late-1990’s bubble, S&P 500 nominal total returns have averaged less than 1% annually in the 5-year period following Shiller multiples similar to the present. Taking a broader set of historically reliable measures into account, our actual estimates of S&P 500 total returns are negative at all horizons shorter than 7 years.

DYI Comments: John Hussman spells it out correctly that the U.S. stock market is at nose bleed levels.  This places the current market at levels similar to 1929 (except for its final weeks Shiller PE10 peaked at 32.51 Sept. 1, 1929) AND the Great Insanity of the year 2000 peak of 44.20 (Dec. 1, 1999).

As far as DYI is concerned this market is at or higher than THREE SECULAR TOPS; 1907, 1929, and 1966.  This can be easily seen by going to Multpl.com showing their wonderful chart of the Shiller PE10.  The U.S. stock market has been in a secular decline since the year 2000.  DYI's market sentiment chart has the stock market correctly placed just below the ultimate valuation top of the year 2000.  Needless to say it will be a long time before the market bottoms out with the Shiller P10 under 10 and our sentiment indicator at Max-Pessimism.

Market Sentiment

Smart Money buys aggressively!
Capitulation
Despondency--Short Term Bonds
Max-Pessimism *Market Bottoms*MMF
Depression
Hope
Relief *Market returns to Mean* 

Smart Money buys the Dips!
Optimism
Media Attention--Gold
Enthusiasm

Smart Money - Sells the Rallies!
Thrill
Greed
Delusional---Long Term Bonds
Max-Optimism *Market Tops*--REITs
Denial of Problem--U.S. Stocks
Anxiety
Fear
Desperation

Smart Money Buys Aggressively!

Capitulation

DYI    

Analysis: Transports' slump could be harbinger of market trouble

Transportation stocks are closely watched because of their role in facilitating economic activity, and one tenet of "Dow theory," where the transportation and industrials indexes are looked at in tandem, is that when both start to fall, more weakness could be in the offing. 

Friday's drop in the transportation average came right after a record high on the index on Thursday, marking only the eighth time since 1900 the index lost more than 3 percent a day after a hitting a 52-week high, according to Sentiment Trader.

DYI Comments:  NONE 

Quantum of No Solace: Stocks Slide Again as Emerging Markets, Weak Data Weighs

Still, with U.S investment sentiment having looked a bit frothy for the past few months, it’s no surprise that investors have decided to lighten up.

DYI Comments:  Has a market top been achieved?  Only time will tell.  What we do know is that stocks from this point on will achieve poor returns going forward in the range of 0% to 2% 10yr average annualized.  For those holding for less than 5 to 7 years returns will be negative.

DYI

Emerging Market's Stock, Bond, and Currency Markets are Dropping Simultaneously. A Big Worry for the Fully Invested!

Here's why emerging markets scare me, but here's what terrifies me: Gartman

 Brazil, Argentina, Turkey, Egypt… the list goes on and on of countries that are seeing their currencies and markets get hit all at once.

"If it were just Turkey, we could deal with it," says Dennis Gartman, editor and publisher of The Gartman Letter. "If it were just Venezuela, we could deal with it. If it were just China, we could deal with it. But, you throw them all in the pot at one time, you've got a problem everywhere… This is very real." 

"The real reason that we've gotten the stock markets to tumble as strongly as they have are these problems all coming in one fell swoop at one time. It's quite serious."

DYI Comments: NONE 

Low inflation and possible mild deflation for the next 5 to 7 years. Those who are anticipating inflation and higher interest rate will be sorely disappointed.

Silent misery: Actual US unemployment 37.2%, record number of households on food stamps in 2013

“Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent. This number obviously includes some people who are not or never plan to seek employment. But it does describe how many people are not able to, do not want to or cannot find a way to work,” he and colleague Megan Russell reveal in their client report, which was leaked to the Washington Examiner.

 The authors then take aim at the so-called Misery Index, which provides something of a pulse rate of American prosperity, based on unemployment and inflation. The Wall Street adviser said the Index, which he maintains is actually over 14, as opposed to the 8 advertised by Washington, fails to address how the US economy is being hugely subsidized by various schemes, including monthly bond purchases by the Federal Reserve.

DYI Comments: Very low inflation or possible mild deflation will be with us for the next 5 to 7 years.  As the Fed's begin their taper and move to more normalized interest rates it will be within the confines of low inflation/deflation environment.  Those who are anticipating a big jump in interest rates and inflation will sorely be disappointed.  More than likely in our anticipated market sell off of stocks there will be the flight to quality especially the U.S. Treasury 30 year Bond.  I would not be surprised to see the 30 year Treasury under 3% and the 10 year Treasury under 2%. This would end the bull market in bonds that began in September of 1981 when interest rates peak at 15.32% (10yr Treasury).  When rates do bottom out they will not necessarily be toxic as deflation will most likely be with us for a few more years. However, once the 2020's approaches and the massive amount of government liabilities come due (S.S & Medicare) the pressure will be on the Federal Reserve to monetize a portion of those upcoming debts.  That will finalize and end DYI's long term bond holdings love affair.  If REIT's are a bargain historically that is where I will shift to.

DYI    

U.S. Stock Market Now Significantly above its 15 Year Moving Average and Now above the 2007 Top as well.

Source: Yes you can time the market.com

As the U.S. stock market has gone galloping off, the sunset will set on this aging bull cycle. The time is now [and has been for many months] to rebalance your portfolio locking in those gains. Our forecast of 45% to 60% decline will decimate a fully invested stock portfolio.  It is time to rethink your asset allocation between stock and bonds to determine how much of a portfolio decline one can endure.

Historical portfolio decline based upon a 50% stock market decline.
% Loss                % in Stocks
35%                         80%
30%                         70%
25%                         60%
20%                         50%
15%                         40%
10%                         30%
  5%                         20%
  0%                         10%

The average investor, which is most of us if we are to be truthful, cannot tolerate a decline greater than 20%.  This 20% threshold has been determined by surveys and focus groups going all the way back to the 1950's.  Human nature has not changed in over 60 years [most likely never] when it comes to that 20% threshold of pain.

One of the ideas that I purpose is a 40% stock and 60% bond allocation for an individual 401k. This creates a "set it and forget it" type of portfolio; for moneys outside of a pension follow DYI's aggressive portfolio for higher gains.

DYI  

US oil demand grows faster than China first time in 15 years - IEA

For the first time since 1999 oil demand in the US overtook that of China, the International Energy Agency (IEA) says. The US “shale revolution” has largely contributed, and analysts agree higher fuel consumption means the American economy is recovering. 

According the IEA US oil demand grew by 390,000 barrels a day, showing a 2 percent increase after years of decline. In contrast, Chinese demand growth was the weakest in 6 years having added only 295,000 barrels per day.

DYI Comments: A marginal improvement in the U.S. economy is at play here.  The Chinese demand for oil is the bigger story with the possibility of a sagging economy or the long awaited debt blow off.  Only time will tell.  I'll be watching closely.

DYI 

Many Baby Boomers Reluctant to Retire

Engaged, financially struggling boomers more likely to work longer

WASHINGTON, D.C. -- True to their "live to work" reputation, some baby boomers are digging in their heels at the workplace as they approach the traditional retirement age of 65. While the average age at which U.S. retirees saythey retired has risen steadily from 57 to 61 in the past two decades, boomers -- the youngest of whom will turn 50 this year -- will likely extend it even further. Nearly half (49%) of boomers still working say they don't expect to retire until they are 66 or older, including one in 10 who predict they will never retire.

DYI Comments:  The reason is simple for the majority of Boomer's who are pushing out retirement [for those who have a job] further and further; 1/3 of all BOOMER'S ARE BROKE. Only a small microcosm enjoy their work so much so that retiring is unthinkable.  Except for the upper tier Boomer's the rest will muddle through extending their target date for retirement and many if possible will pick up part time work out of necessity.

DYI'S forecast from peak to trough decline for the S&P 500 of 45% to 60% will hit Boomer's hard forcing many to work well into their very late 60's and early 70's (and possibly longer).  The morale of the story for younger people especially the Mellennial's is to live below your means significantly, work on your career [or work on getting one], avoid student loans and other personal debt and save, save and save.

DYI           

Robert Shiller, Nobel economist, alert to stock market bubble

'I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets,' Shiller told Der Spiegel. 'That could end badly.' 

"I am most worried about the boom in the US stock market. Also because our economy is still weak and vulnerable," he added, saying he believed the technology and financial sectors were valued too high.

DYI Comments:  The Great Wait Continues as this over blown stock market plays itself out.  For the truly long term investor this is nothing more than a blink of an eye.  For the speculator it will seem like eternity.  For those of you who crave simplicity or you know of folks who need that approach to investing here is my two fund approach.

Tactical Asset Allocation for the Defensive Investor!

The Wellesley Income Fund and Wellington Fund: the tactical asset solution for the defensive investor.

The term defensive investor was coined by Benjamin Graham in his book, The Intelligent Investor. His premise was based on his idea that the enterprising [aggressive] investor would change his allocation between 75% - 25% stocks and 25% - 75% bonds depending on his outlook for the markets. the simple implication for the defensive investor would be 50% cash and bonds or higher allocation; with stocks being in a supporting role of 50% or less. This will hone in on the emotional stance of the conservative investor - investing is not a "macho" sport but a state of mind.

What if the defensive investor wanted to move away from his chosen locked in asset allocation when markets where driven to historical highs or lows. The first practical solution to determining what is high or low is the average dividend yield. When the dividend yield of the S&P500 is below the average then the market is expensive and with the yield above, it would be considered cheap. Currently [as of 1-21-14], the average yield since 1881 as reported by Multpl.com is 4.43%. Clearly the U.S. stock market is still in the clouds with a dividend yield of 1.90%. Our standard at DYI for making a change in the asset allocation is when the dividend yield is 25% greater than or less than the historical average yield.

What is the best method to deploy this strategy? John C. Bogle, and his wonderful book Bogle on Mutual Funds [soft cover] on page 245, do the talking.

Another sort of tactical allocation strategy involves changing the stock/bond ratio based on the relative outlooks for the respective financial markets. But since no one can ever be sure of the future path of the financial markets, the tactics I recommend would place severe restrictions on the extent of the allocation changes. Specifically, I would vary the desired strategic balance by no more than 15 percentage points on either side. A portfolio targeted at 50/50 would never have less than 35% in stocks nor more than 65%.

The Wellesley Income Fund is mandated to have 35% in stocks. The Wellington Fund is mandated to have 65%. This could not be more fitting for the defensive investor desiring a modification in allocation due to markets making a significant change in value.

DYI

Superstition Ain't the Way 
John P. Hussman, Ph.D.

We currently estimate a negative prospective return of the S&P 500 for all horizons of less than 7 years, with prospective nominal total returns most probably within the range of 0-3% over the coming decade. Notably, these estimates draw from the same valuation methods that – in real time – correctly warned of negative 10-year returns in 2000, helped us avoid the devastating market losses of the 2007-2009 collapse, and estimated positive 10-year prospective returns in the 10-14% range in early 2009 (our stress-testing response at the time was emphatically not driven by valuation concerns). At an index level, the S&P 500 is richer than it was in 1937, 1972 and 1987. Valuations are similar to those at the 2007 peak and all but the final weeks of the 1929 peak. Index valuations are clearly less extreme than in 2000, but even so, the present valuation of the median stock has never been higher.

DYI Comments: NONE 

Wall St. Week Ahead: Stocks may be vulnerable in earnings blitz

(Reuters) - The initial reads on earnings have been mixed, and yet U.S. stocks are hovering near all-time highs. Next week, investors will see whether the first companies out of the gate were a harbinger of what's to come. 

More than 60 S&P 500 companies are scheduled to release results next week, including more than half a dozen Dow components. The reports will give the fullest picture yet of how corporations are faring and whether the market can advance further as Fed stimulus begins to recede. 

"Given that equities are fully valued and arguably overvalued, we need earnings and revenue to come through to support the gains we've already made," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago. "There's a reasonable chance we could see a 10 percent correction in the event we get some high-profile disappointments."

Only a ten percent correction?  That is nothing more than noise of the ups and downs of security prices.  From peak to trough DYI  is forecasting a 45% to 60% decline.  Stock prices are so high that dismal returns are now bake into the cake.  All of the classic symptoms are present, Shiller PE10 at a nose bleed level of 25.63 and an absurd low dividend yield of 1.90% future returns will be dismal.

Estimated 10yr return on Stocks

Using 5.4% as the historical growth rate of dividends and 4.0% as the ending yield.

Starting Yield*---------return**
1.0%-----------------------(-5.7%)
1.5%-----------------------(-1.7%) 
2.0%------------------------1.3% ---YOU ARE HERE!
2.5%------------------------3.8%

3.0%------------------------5.9%
3.5%------------------------7.8%
4.0%------------------------9.4%
4.5%-----------------------10.9%

5.0%-----------------------12.3%
5.5%-----------------------13.6%
6.0%-----------------------14.8%
6.5%-----------------------15.9%

7.0%-----------------------17.0%
7.5%-----------------------18.0%
8.0%-----------------------19.0%

*Starting dividend yield of the S&P500-**10yr estimated average annual rate of return.

DYI 

China experiences worst economic growth in 14 years

The majority of experts see a further slowdown of the Chinese economy in 2014, down to 7.4-7.5 percent, as the country takes steps to move away from an investment-led growth model to one driven by domestic consumption. 

"We expect the trend will continue in 2014 as the policymakers are determined to push forward the reforms to maintain stable economic growth,” said Mr. Huiyong, "We maintain our 2014 GDP growth forecast of 7.5% as we still need to be on guard for the risks from debt problems in the economy." 

China faces debt risk as the major lenders, especially the big four state-owned banks, in order to maintain the high country’s growth rate, have lent a record sum in the years after the financial crisis. Some of the investments seems dubious and may turn into bad debt.

DYI Comments:  Possible bad debts?  China ever since the death of Mao they moved into their version of capitalism.  This version has been the piling on an ever increasing amount of debt to fuel the Chinese economic miracle.  There are similarities of the Japanese debt blow off with a two lost decades of growth.  When will China's debt "blow up??"  I've been saying this will occur for the past 5 years along with many others with far greater academic credentials.  Our high flying stock and junk bond market is looking for a pin to pop this bubble.  Will China go into a tail spin of bad debt in 2014 causing an economic ripple effect (and drop world markets)?  I don't know.  The potential is there I'll be watching China closely.

DYI     

Don’t Hate the Asset, Hate the Price!

The idea of owning gold miners last year had become laughable by the time the final bell had rung. The sector was down more than 50% versus the S&P 500′s total return of 30%. This disparity in performance was incredibly extreme, it’s highly irregular to see any one industry group within the stock market behave in a way so contrary to the prevailing trend. 

But that was last year, and this year something new is already underway: Ladies and gentlemen, the gold miners are on fire.

DYI Comments: For those of you who need to rebalance or purchase gold mining companies for the first time prices are reasonable.  The secular bull market is still intact for gold and its mining stocks despite the Dow/Gold ratio being pricey.  At 13.12 to 1 gold has not made its ultimate top with the ratio below 5 or less to 1.  Since it is pricey my model portfolio is at 25% for the miners as opposed to the days of shooting fish of 10 years ago when I was at my maximum of 60%.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 01/1/14

Active Allocation Bands 10% to 60%

45% - Cash -Short Term Bond Index - VGPMX

25% -Gold- Precious Metals & Mining - VBIRX

20% -Lt. Bonds- Long Term Bond Index - VBLTX

10% -Stocks- Equity Income Fund - VEIPX

[See Disclaimer]

The Hottest Wall Street Movies Seem To Hit Theaters Right

Around The Time Of A Big Stock Market Crash

If history repeats — and history has a funny way of doing that — then the release of Martin Scorsese's "The Wolf of Wall Street" should warn investors of an impending market crash. 

Oliver Stone's iconic 1987 film "Wall Street"? Boom, 23% correction."Boiler Room" in 2000? Say goodbye to 46% on the S&P.

DYI Comments: There is an element of truth to the possibility of Wall street type movies coinciding with market tops.  Hollywood sensing a hot stock market that is drawing in the masses, will produce a movie that is far easier to promote.  This is classic example of art imitating life; Hollywood style.

The market is trading at a nose bleed level of 25.63 (Shiller PE10) with a dismal S&P 500 dividend yield of 1.90%, IPO's of dubious business value (Twitter) and a bond market selling new issues that have significantly less protection for the purchasers.  Add on Hollywood promoting a Wall Street movie a classic market top is forming.

DYI  

    

Has the Federal Reserve begun its taper? Look for short term interest rates to rise providing interest rate relief to pensions and insurance companies.

US homebuilding dips, but year best since '07

For the year, builders started 923,000 homes and apartments, up 18.3 percent from 2012. It was the fourth straight annual gain and the strongest since 2007, when 1.36 million homes were started. 

The housing market has been recovering steadily over the past year, helping to boost economic growth and create jobs. But a rise in mortgage rates from record lows reached a year ago have started to weigh on those gains.

DYI Comments:  Look for QE to begin its taper by having the Federal Reserve withdrawn liquidity.  This is turn will increase short term interest rates [and possibly long as well].  Why would they do such a thing with the economy in a fragile state?  Insurance companies and pension plans who are large owners and purchasers of bonds have seen their yield continually drop, so much so, their diminished cash flow would result in huge pension increases or premium payments.  It is speculation on my part these two very large industries would be screaming to the heavens and back.  After 5 years of sub atomic low interest rates they have had enough.  Interest rates will rise along with mortgage rates as well.  The normalization of rates may have begun.

DYI continues to anticipate a peak to trough decline for the U.S. stock market of 45% to 60%.  Will the Fed's cave and begin printing [QE] once it is obvious the market in decline? The fate of the market is already baked into the cake with its overvalued and overbullish condition.  No amount of printing [QE] will save it from its fate.  Its very possible that the Fed's will side with bond purchasers instead of attempting to mollify the stock market.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 01/1/14

Active Allocation Bands 10% to 60%

45% - Cash -Short Term Bond Index - VGPMX

25% -Gold- Precious Metals & Mining - VBIRX

20% -Lt. Bonds- Long Term Bond Index - VBLTX

10% -Stocks- Equity Income Fund - VEIPX

[See Disclaimer]

DYI