The Gibraltar Chronicle 175 Years Young and Still Going Strong.....

Finance Minister Albert Isola, right, representing Chief Minister Fabian Picardo, on Thursday evening presented Saccone and Speed chairman Jeremy Campbell-Lamerton with a framed copy of the Gibraltar Chronicle of 175 years ago. The occasion celebrated the formation of one of Gibraltar’s major suppliers of spirits, tobacco and general goods. In the background is Denis Lafferty, Group Managing Director. Mr Isola paid tribute to the hard team work that had kept institutions like Saccone and Speed going and contributing to the economy for such a long time. The event was held at the Rock Hotel.

DYI

The Future is Now 

John P. Hussman, Ph.D.

While the evidence may be alarming to some, make no mistake: The median price/revenue multiple for S&P 500 constituents is now significantly higher than at the 2000 market peak. The average price/revenue multiple across S&P 500 constituents is now above every point in that bubble except the first and third quarters of 2000. Only the capitalization-weighted price/revenue multiple – presently at about 1.7 – is materially below the price/revenue multiple of 2.2 reached at the 2000 peak. That’s largely because S&P 500 market capitalization was dominated by high price/revenue technology stocks in 2000. [Geek's Note: as a result, if one chooses a universe of stocks by first sorting by market capitalization, one will probably find that price/revenue multiples of those stocks are lower today than in 2000]. Regardless, the historical norm for the capitalization-weighted S&P 500 price/revenue ratio is only about 0.80, less than half of present levels. The fact is that unless current record-high profit margins turn out to be permanent, against all historical experience to the contrary, the overvaluation of the broad equity market is equal or more extreme today than it was at the 2000 bubble peak.

DYI Comments: The Fed's once again have engineered through their sub atomic low interest rates have blown another market bubble.  With interest rates so low when the market begins to collapse they will be out of ammo for all they will be able to do is watch the market drop. DYI's forecast remains the same for a 45% to 60% decline in the S&P 500.

Our portfolio remains the same:

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

Student debt holds back many would-be home buyers

Of the many factors holding back young home buyers — rising prices, tougher lending standards, a still-shaky job market — none looms larger than the recent explosion of college debt.

By Tim Logan

April 19, 2014, 6:33 p.m.

The amount owed on student loans has tripled in a decade, to nearly $1.1 trillion, according to the Federal Reserve Bank of New York. People in their 20s and 30s — often the best-educated and highest-earning among them — owe most of that tab. That is keeping a crucial segment of home buyers on the sidelines, deferring one of the traditional markers of adult success. 

The National Assn. of Realtors recently identified student debt as a key factor in soft demand for home-buying this spring. A recent study by the trade group identified student loans as the top reason many home buyers delayed their purchase. Many more didn't buy at all.

The share of buyers who are first-timers has dropped well below historical averages — 28% of California buyers last year, compared with 38% typically, according to CAR surveys. The absence of a new generation of customers could become a long-term problem for the industry, said Dustin Hobbs, spokesman for the California Mortgage Bankers Assn. 

"You have to have that swath of first-time buyers who will eventually be your move-up buyers," he said. "When you take that out, it damages the whole chain."

Dead-Cat Bounce Over for the Housing Market?

April 23rd, 2014

by Michael Lombardi

I have been saying this for a while: You can't have a housing recovery unless actual home buyers are involved. 

The bottom line with the housing market is that its rebound over the past couple of years has been sustained by institutional investors who have invested billions in buying homes at "cheap" prices, fixing them up, and then renting them for a return on investment. Actual participation by people who buy the homes to live in them -- especially first-time home buyers -- is very weak, as evidenced by the collapse in mortgage originations at the big banks.

DYI Comments:  Looming deflation, student loans, normalization of interest rates, slow growth economy does not bode well for higher prices for single family housing. Institutional investors (acting more like speculators) who have stampeded into the rental business may find a huge difference between single family homes that are labor and repair intensive as compared to apartment complexes with identical units and four major walls.  I would not be surprise to see the hedge fund boys look to sell as soon as possible by packaging up the homes and sell them to some naive pension or foreign investors.

It is anticipated that the momentum will slow and a very possible further price retreat.  If you are planning on selling your home do so yesterday.  Lower prices are a very possible future for single family homes.

DYI  

Yellen Still Mum on Bubbles....Dominoes Maybe???

In Chinese Property, Smart Players Are Selling

The Tycoon Li Ka-shing Unloads Projects in Shanghai, Guangzhou; Richard Li Sells in Beijing

Since September, Hong Kong tycoon Li Ka-shing, widely considered Asia's richest man, has sold office and shopping-mall projects in the cities of Shanghai and Guangzhou. His son, businessman Richard Li, sold a prime piece of real estate, a mixed-use complex in Beijing's Sanlitun shopping district, for US$928 million in early April.

Massive soybean defaults loom as China buyers play hard-ball: top buyer

(Reuters) - Chinese buyers may default on a further 1.2 million metric tons (1.32 million tons) of soybeans worth about $900 million being shipped from the United States and South America, to avoid incurring huge losses in a depressed local market, the country's top soy buyer said. 

The hard-line approach taken by Chinese buyers raises the possibility that more cargoes could be dumped into the market, after buyers walked away from at least 500,000 tonnes of shipments in recent weeks. 

"Most of the cargoes were delivered by the seller before receiving letters-of-credit and buyers are unwilling to pay now because they will suffer massive losses," said Shao, speaking from a hotel suite he uses when in Rizhao in this eastern province. 

"If buyers cannot resolve the issue, they may also cancel future shipments."

China Says One-Fifth of Its Farmland Is Polluted

Nearly one-fifth of China's farmland is polluted, mostly from yearslong accumulations of toxins from factories, mining and agriculture, the government said, raising sharp concerns about the country's food safety after years of unbridled industrialization. 

Results of a nationwide survey of soil samples taken from 2005 through last year, and announced late Thursday, showed contamination in 16.1 percent of the country's soil overall and 19.4 percent of its arable land. 

More than 80 percent of the pollution is the result of inorganic toxins, with the top three contaminants identified as cadmium, nickel and arsenic, according results of the investigation jointly announced by China's Environmental Protection Ministry and its Land and Resources Ministry.

 Einhorn Shorting Tech as ‘Cool Kid’ Stocks Show Bubble

“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” the New York-based firm said in a quarterly letter to clients today. 

Greenlight said that companies it’s betting against may fall by at least 90 percent “if and when the market reapplies traditional valuations,” according to the letter, a copy of which was obtained by Bloomberg News. 

The Nascent Junk Debt Bubble

One of the obvious effects of endless zero-percent interest rates and QE has been the chase for yield. This has allowed a great many borrowers to tap the credit markets and it has encouraged a a new boom of covenant-light lending (meaning lesser protections for hungry creditors) as well as a jump in junk bond issuance.

French company does biggest junk bond sale ever

A French telecommunications company just pulled off the largest sale of junk bonds in history. 

It's the latest indication of how strong the appetite for high-yield bonds is. 

Numericable (NUM.PA), which provides cable and internet service in France and other European markets, sold a record amount of high-yield bonds Wednesday with some priced in dollars and others in euros. 

It's sold $7.78 billon and €2.25 billion in notes that yield 5% or more, according to a statement from Altice, the multinational telecom group that owns Numericable.

At the same time, Altice issued $2.9 billion and €2.1 billion in bonds that yield more than 7%.

Yellen Still Mum on Bubbles

But as if to appease investors angered that the easy-money spigot is no longer flowing quite as freely, central bankers -- newly-installed Fed Chair Janet Yellen most prominently -- have taken pains to reassure markets that the Fed will remain accommodative long after the bond purchase program known as quantitative easing expires, probably later this year. 

The danger is that those repeated reassurances will, unintentionally perhaps, encourage the sort of risky behavior among investors that led to past asset bubbles, ie., tech stocks in the late 1990s and housing in the mid-2000s.

 DYI Comments:  NONE

Why even $1M may not be enough for retirement

"Thirty years ago, $1 million was a huge amount of money," says Haitham "Hutch" Ashoo, CEO of Pillar Wealth Management, in Walnut Creek, Calif. "Today, given today's lifestyles and costs, it isn't so much money." 

Why not? "It translates into $40,000 to $50,000 (annually) in sustainable revenue," says Joe Heider, regional managing principal for Rehmann Financial Group in Westlake, Ohio. "That is not that much money on an annual basis." 

Heider says that 10 to 12 years ago, when people earned a lot more on their investments, $1 million could generate $70,000 to $80,000 a year in retirement income. But with interest rates as low as they are, that's not really feasible.

DYI Comments:  The Fed's sub atomic low interest are having a negative effect upon savers and investors alike.  In the example above those with a cool million are not as well off as they may have thought. Those with significantly less the Fed's ultra low interest rates are reducing the retirees principal at an alarming rate.  Many have felt compelled in their zeal for higher yield to move a significant percentage of the dollars they have left into stocks and in many cases junk bonds.  The majority of these people will not be able to absorb a 40% to 50% decline in principal.

The sub atomic low rates are not just effecting retirees but our non-banking financial companies as well.  Plus the ultra low rates have been exported along with the European Central bank low rate environment is now causing more problems than they have fixed.

German financial watchdog: Low interest rates could trouble bigger insurers

(Reuters) - Some bigger German life insurance companies could find themselves struggling if low interest rates persist, according to comments made by the country's top insurance regulator in an interview with a newspaper. 

Rock bottom capital market interest rates in Europe have slashed the income insurers can earn from their investments in bonds and other safe securities, making it increasingly difficult to fulfil obligations to policy holders.

DYI Continues:  For most of the Baby Boom generation it will continue to work for as long as possible full time then moving into part time as they become very aged.  Only the few will have the choice of work most will not.

Best retirement advice for many: Never retire

Sara Rix, senior strategic policy adviser with the economics team of the AARP Public Policy Institute, says the number of people who continue to work in their retirement years is growing, and that's good for them physically, mentally and financially. And it's good for the economy. She says the percentage of people in the 65- to 69-year-old age group who are still in the workforce has increased from 18.4% in 1985 to 32.2% last year. The number of people 70 to 75 in the workforce is also increasing. 

"People are pushing back the date of retirement, for a lot of reasons, including financial," she says. "People are living longer. While not everybody living longer is living healthy longer, many are. They want to remain active, and still feel young. They have contributions to make."

DYI

 

How much house can you afford based on salary?

Average Credit Card Interest Up To Shocking 21%

The average credit card interest rate for people with fair credit has hit a shocking 21 percent, up more than 2 percent from only a year ago, according to industry group CardHub. 

Credit card companies, which attract new customers with zero percent teaser rates and more rewards, have raised rates while their costs remain historically low, industry observers say. 

Another rising and unsettling trend: More strapped consumers are taking pricey cash advance deals, a CardHub official warns. 

These customers are forgetting the credit card woes of 2008, when delinquency rates rose because, as card companies stopped offering cheap deals, many consumers were stuck with high-interest card debts, he says.

Grieving borrowers told to repay student loan

WASHINGTON (AP) — Some student loan borrowers who had a parent or grandparent co-sign the note are finding that they must immediately pay the loan in full if the relative dies. 

The Consumer Financial Protection Bureau says lenders have clauses in their contract that explain this could happen, but many borrowers are not aware of them. 

The agency's ombudsman, Rohit Chopra, said complaints related to this issue are growing more common because the practice is catching so many consumers by surprise. Some borrowers told to pay back the loan in full have been making timely payments, Chopra said. 

"While these acceleration options may have a legitimate business purposes, it seems that private student lenders and servicers may not always be acting in their own self-interest by accelerating balances and placing loans in default," the report said.

How much house can you afford based on salary?

Here’s the rule I use to determine how much house you can afford based on your income – let’s call it to the 2x income rule.  Simply, you should only spend two times your annual gross income on a house.  I’ll discuss some other financial rules for home buying below, but this is the most simple. 

This may seem low to some people, but if you want to control your money, this is a great way to do it.  It’s easy to get sucked into spending the bank pre-approved limit which is usually much higher, but they don’t have all of your best interests in mind. 

In addition to the 2x annual income rule, you should also try to pay 20% down and use a 15 year fixed loan.  Easy as that, right?  Of course not, but this will at least give you a guideline to think about.

DYI Comments:  NONE

Bonds shine again as Great Rotation gives way to Asset Reflation

Observers point to a combination of three drivers - stocks valued too highly, global growth failing to meet expectations and underlying investor behavior since the turn of the year - but curiously no single catalyst. 

Many stock markets around the world, including those in both developed and emerging countries, are at or near their highest levels ever thanks to central banks propping up the global economic recovery with their ultra-loose monetary policy. 

In the United States the S&P 500 .SPX has almost tripled its level since the post-crash trough in March 2009, while the Nasdaq Composite .IXIC index weighted more towards technology stocks has gained almost 250 percent in that time. 

This meant that at the end of March, U.S. stocks were the third most expensive in the world behind Japan and Mexico, analysts at Barclays estimate. 

Investors are now no longer selling bonds to buy stocks but are instead buying both stocks and bonds equally. The net effect is stronger bonds, and on a relative basis, weaker stocks.

 DYI Comments: NONE

The Federal Reserve's Two Legged Stool
 John P. Hussman, Ph.D.

Quick Valuation Study: 2104 

Let’s assume that despite the weak economic growth at present, nominal GDP picks back up to a nominal growth rate of 6.3% annually from here. Given the present market cap / GDP ratio of 1.25 and an S&P 500 dividend yield of just 2%, what might we then estimate for total returns over the coming decade? 

(1.063)(0.63/1.25)^(1/10) – 1.0 + .02 = 1.3% annually. 

Since we use a whole range of additional measures, including earnings-based methods, to estimate prospective returns, our actual estimates are somewhat higher here, at about 2.4% annually over the coming decade. Tomato. Tom-ah-to. Keep in mind that these estimates assume a significant acceleration in economic growth. One can certainly quibble that the long-term ratio of market capitalization to GDP will have a somewhat higher norm in the future. But the present ratio is still 100% above its pre-bubble norm. It’s unlikely that this situation will end well.

DYI Comments: Our Aggressive Portfolio remains the same with high levels (45%) of cash [short term bonds].  The Great Wait continues awaiting better values ahead.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 04/1/14

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

Who Can Afford the Average Car Price?
Only Folks in Washington D.C.

Americans are spending far too much money on new cars

The report by Interest.com shows that Washington, D.C. is the only American metropolitan area in which a family earning the city's median income can afford the average price of a new vehicle, which was $32,086 in 2013, according to Kelley Blue Book. That price equates to a monthly payment of $633, assuming the buyers put 20 percent down, financed for 48 months and principal, interest and insurance did not exceed ten percent of the household's gross income. 

Average-earning residents of Washington, D.C., can afford to pay $32,531, or $641 per month, for a vehicle. The rest of the nation can afford significantly less. Simply put, people are spending far too much money on their cars.

DYI Comments:  The ten percent level is at the maximum range and be considered reasonable.  In order to get ahead financially one must temper your three biggest costs; housing, cars, and education.  For this post I'll stick to cars.

The first thing to do is to stop thinking in the terms of monthly payment but what is the total cost of the car or truck in relation to your income.  To put it bluntly when folks come into a dealership they don't sell you vehicle they sell a monthly payment.  Their job (as they see it) is to put the public into the largest payment the individual can afford.

How much car can you afford? The 20% Rule

Buy a new car only if you can afford it with cash!  That’s right.  Cold, hard, cash.  We’ve been duped into spending our hard earned money on expensive cars for way too long.  Your car is not a status symbol that lets the world know you’re successful.  In fact, if you’re trying to use your car as a status symbol, you’ll probably never be rich!

How much car can you afford based on salary?

The math is simple.  How much money do you make in a year?  Take 20% of your gross annual income (before taxes, social security, etc) and that’s how much car you can afford.  Preferably, you should purchase with cash as well.

Quick example:  one person makes $40,000 and the other makes $30,000.  The combined salary of $70k means $14k worth of cars can be purchased.  If you need to buy two cars in one year, you can split up the $14k however you’d like – keeping in mind the majority will probably go to the wife!

DYI Continues:  That's right if you have a $50,000 dollar a year job the most you should spend is $10,000 bucks.  This changes one's thought process completely and most will reject it.  Those who embrace this direction end up with a life without financial drama.  Those who breaking this rule substantially end up being broke.  Those who overspend on housing, cars, and education are what financial planners title "looking good and going no where fast (financially)."

Here is a link to a list price of cars and the average income to owner.  It is a bit dated going back to 1997 however it is interesting to say the least.  If I come across an up to date stats I'll certainly post it.  Back then the most frugal was Saab 9000 owners who had a $225,000 income purchasing a $36,695 car.  That computes to a 6.1 income to car cost.  At 20% of income they can spend $45,000 or in this case 16.3%.  That's frugal.  Ever wonder why so many millionaires drive used cars?  I think you now know the answer.

DYI

On the road to riches and diamond rings…

Historically speaking, a portfolio comprised of all US stocks is the surest way to build wealth. Unfortunately, this portfolio carries with it the highest volatility imaginable and is almost impossible for most people to maintain. There have been zero rolling 20-year periods between 1926 and 2013 during which stocks have had a negative return. This period includes both World Wars, Vietnam and Korea, multiple conflicts in the Middle East, the lost aught’s decade between dot com and credit busts, the stagflation seventies, the crash of ’29 and the Great Depression. 

Through all of that, US equities have produced positive returns during 100 percent of all rolling 20-year periods – starting at any month and any year you’d like – for the last ninety years or so. 

But who can really tolerate the volatility of a 100 percent stocks portfolio with no mitigating diversification over the course of two decades? Not many people. Nor do they need to, quite frankly.

DYI Comments:  Below are historical average annual returns calculated by Vanguard Group of Funds.

 100% stocks

Historical Risk/Return (1926–2013)
Average annual return	10.2%
Best year (1933)	54.2%
Worst year (1931)	–43.1%
Years with a loss	25 of 88

80% stocks / 20% bonds

Historical Risk/Return (1926–2013)
Average annual return	9.6%
Best year (1933)	45.4%
Worst year (1931)	–34.9%
Years with a loss	23 of 88

60% stocks / 40% bonds

Historical Risk/Return (1926–2013)
Average annual return	8.9%
Best year (1933)	36.7%
Worst year (1931)	–26.6%
Years with a loss	21 of 88

40% stocks / 60% bonds

Historical Risk/Return (1926–2013)
Average annual return	7.8%
Best year (1933)	27.9%
Worst year (1931)	–18.4%
Years with a loss	16 of 88

DYI Continues:

How much tolerance for market drops are you able to endure when seeking higher returns?  Have you ever really experienced a loss of 30% to 40%?  Thinking about it is one thing but actually living through it is quite different.  Stats have shown that the average investor (and most of us are really average) will not tolerate a peak to trough decline greater than 20%.  The majority will abandon their aggressive allocation for a stock/bond mix that is far more conservative.  Unfortunately most will make the change when the market is bottoming instead of becoming aggressive to take advantage of the lessor prices.  However, it is not that terrible as long as they stay at that allocation.

Major Stock Market Peak to Trough Declines. 

Loss                      % in Stocks

35%                            80%

30%                            70%

25%                            60%

20%                            50%

15%                            40%

10%                            30%

  5%                            20%

  0%                            10%

Pensions such as 401k's, Roth IRA etc. I advocate a 40% stock to 60% bond allocation for these pensions which are by their very nature conservative.  This ends the roller coaster however it will require addition money invested to make their goal for the return will be less.

Outside of a pension those seeking higher returns may want to use our Max Aggressive portfolio.

DYI       

Slash holidays? Close govt agencies? Ailing Puerto Rico looks for ways out of deep slump

SAN JUAN, Puerto Rico (AP) — Slash the number of public holidays by two-thirds. Eliminate dozens of government agencies. Legalize marijuana and prostitution. 

From the intriguing to the impossible, there is no shortage of ideas for fixing Puerto Rico's ailing economy as the government tries to dig out from a whopping $70 billion in public debt and bring back economic growth. 

Puerto Rico, in dire straits following eight years of recession, has remained receptive as it debates hundreds of ideas: "We are studying all alternatives and all possibilities," said Sen. Maria Teresa Gonzalez, a member of the governor's party who has come under fire for submitting a bill that would reduce the number of holidays for public employees to six. 

Many suggestions have come as Gov. Alejandro Garcia Padilla prepares to submit the first balanced budget in decades, having promised U.S. investors and credit agencies that he will eliminate an $820 million deficit. The governor has not detailed his cutbacks, prompting fears of layoffs, tax increases and cuts to public service.

Big Hedge Funds Roll Dice on Puerto Rico Debt

Nontraditional Buyers Accounted for About 70% of Deal

Yields on Puerto Rico Debt Hit High

Puerto Rico's New Bonds Plummet To A Record Closing Low

Published April 15, 2014

Fox News Latino

The Puerto Rican bonds, which mature in 2035 and carry a coupon of 8 percent, were last traded at 87.75 cents on the dollar, pushing the yield up to 9.33 percent. On the market, bond prices and yields move in opposite directions.

DYI Comments:  Puerto Rico is the new Detroit when it comes to their finances.  Will there be a bailout by the  Fed's?  No talk in the media so it appears that Puerto Rico is on its own.  Tax increases and massive spending cuts are in store for the island along with more tough times ahead.

DYI 

Fred's Intelligent Bear Site brought to you by Fred Filskov. Public, private, and commercial distribution of this material is permitted as long as a link to this site is attached


Fred's Intelligent Bear Site brought to you by Fred Filskov. Public, private, and commercial distribution of this material is permitted as long as a link to this site is attached


Fred's Intelligent Bear Site brought to you by Fred Filskov. Public, private, and commercial distribution of this material is permitted as long as a link to this site is attached

DYI Comments:   The secular bear market continues for stocks as gold continues its journey to a secular top many years in the future.

DYI 

ECB set to cut key rate to less than zero, Mario Draghi signals

By CLAIRE JONES

The comment suggests that the ECB’s next move will take it where no big central bank has gone before: cutting one of its key interest rates below zero. 

Mr Draghi’s words came after he was pressurised all weekend over the dangers of allowing inflation to slide lower – by the IMF, finance ministers and central bank governors from all over the world.

 Central Banks See What They Want in Ignoring Deflation

Federal Reserve Chair Janet Yellen and her international counterparts are suffering from a case of what psychologists call confirmation bias: They keep insisting inflation will accelerate even as it continues to ebb. 

While declining prices can be good news for consumers, disinflation makes it harder for borrowers to pay off debts and businesses to boost profits. The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up.

DYI Comments:  Will the consumers dry up their spending as demand for products dry up?  No!  They may postpone purchases as they anticipate lower prices but not dry up.  Cars and trucks will be held onto for 2 or 3 additional years before being replaced or something as mundane as shirts or blouse will be worn a bit longer as well.  This conversation is about banker's who made bad loans who are scared they will not be paid back.  It is as simple as that!

DYI  

Report: 85% of pensions could fail in 30 years

by Matt Krantz

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades. 

Many pension observers make the claim pensions will achieve 7% to 8% returns. But even if that assumption is correct, which is unlikely, public pensions are looking at a 20% shortfall, Bridgewater says. A 4% return is much more likely, the firm says.

DYI Comments:  Are the Fed's stepping away from QE because the economy is on the mends? The mega banks that the Federal Reserve works for have now been recapitalize to a point to where they can end the money printing.  What has happened they are now recognizing their sub atomic low interest rates have dropped long duration bond portfolios the main stay investment for pension.  This due to their mathematical certainty to pay pension recipient's.  A normal portfolio (or should be) in a defined benefit plan is 40% stock and 60% bonds.  The bonds being the certainty and the stocks as the kicker for the higher return.  Not only are the old style pensions affected this underpins every entity that relies on insurance type of products (life insurance, hazard insurance [fire, theft etc.].  I can only imagine the Fed's through back channels are receiving, and deservedly so, holly hell!  Plus the Social Security trust fund (Yes I know they are IOU's) use four year notes that are rolled over to a lower and lower yield.  This moves up the day of reckoning politically to place this program back into balance [without a bailout or increase FICA taxes benefits will have to drop 25%].

All in all QE is going to end.

DYI  

Margins, Multiples, and the Iron Law of Valuation 
John P. Hussman, Ph.D.

The equity market remains valued at nearly double its historical norms on reliable measures of valuation (though numerous unreliable alternatives can be sought if one seeks comfort rather than reliability). The same measures that indicated that the S&P 500 was priced in 2009 to achieve 10-14% annual total returns over the next decade presently indicate estimated 10-year nominal total returns of only about 2.7% annually. That’s up from about 2.3% annually last week, which is about the impact that a 4% market decline would be expected to have on 10-year expected returns. I should note that sentiment remains wildly bullish (55% bulls to 19% bears, record margin debt, heavy IPO issuance, record “covenant lite” debt issuance), and fear as measured by option volatilities is still quite contained, but “tail risk” as measured by option skew remains elevated. In all, the recent pullback is nowhere near the scale that should be considered material. What’s material is the extent of present market overvaluation, and the continuing breakdown in market internals we’re observing. Remember – most market tops are not a moment but a process. Plunges and spikes of several percent in either direction are typically forgettable and irrelevant in the context of the fluctuations that occur over the complete cycle. 

The Iron Law of Valuation is that every security is a claim on an expected stream of future cash flows, and given that expected stream of future cash flows, the current price of the security moves opposite to the expected future return on that security. Particularly at market peaks, investors seem to believe that regardless of the extent of the preceding advance, future returns remain entirely unaffected. The repeated eagerness of investors to extrapolate returns and ignore the Iron Law of Valuation has been the source of the deepest losses in history.

DYI Comments:  Once again John Hussman provides top notch insights into the gross overvaluation of the U.S. stock market.  The entire article is worth your time to read and study regarding security evaluation on the macro level.

No doubt as far as this writer is concerned poor equity returns will follow with a very possible deep draw down of 45% to 60%.  Interest rates are so low when the correction does occur the Fed's are out of bullets unless they decide to make direct purchases of stocks.  DYI  is NOT forecasting that, so far that idea has been rejected by the Federal Reserve (thank goodness).  Once the selling starts, along with margin liquidations, the floor will be long way down.  For those who have the temperament a modest short position of 5% to 10% using the Prudent Bear Fund is warranted.

DYI