A. Gary Shilling is a must read for the Value Investor....

Dear Investors: China's Problems Are Your Problems

Investing for a China Crisis

Deflation Is About to Wallop Europe

Put Your Portfolio on the Defensive

Other warning signs include the high level of stock-market capitalization in relation to gross domestic product. At 141 percent, it’s almost back to the mid-2000s housing-bubble peak of 144 percent, which was only surpassed at the end of the dot-com bubble in early 2000, when it reached 174 percent. Furthermore, betting that the stock-market rally will persist, investors are shifting toward stocks with low price-earnings ratios. Sector rotation often occurs at market peaks.

 Later, I forecast a drop to a 3 percent yield; then, too, many forecasters thought I was crazy. And my prediction of declining Treasury bond yields has been continually challenged, even though yields have fallen on balance for more than three decades. Beginning in 1981, a 25-year, zero-coupon Treasury, rolled into another 25-year bond annually to maintain the maturity, beat the S&P 500 by 5.5 times on a total return basis.

DYI Comments:  Despite the sub atomic low interest rates bond investors have a high probability of out performing the stock market for monies invested today and held for the next ten years.  We are once again back in bubble territory.  This of course will not end well as DYI is forecasting a 45% to 60% decline for U.S. stocks from peak to bottom.

Our EYC Ratio continues to alert investors that over the long haul bonds are the better play.  Until valuations improve stocks are no bargain.

Ben Graham's Corner

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: 0.91

As of 06-1-14

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.

DYI

U.S. Economy Takes Another Sick Day

Last month, when the Bureau of Economic Analysis announced that gross domestic product had grown at a lead-footed rate of 0.1 percent in the first quarter, economic analysts could focus on two pillars of hope. The first was that the winter weather was unusually awful, and first-quarter growth probably reflected that. And the second? This was a very preliminary number, and it seemed reasonable to think that it might be revised upward. 

The operative word is "seemed." Now the BEA has provided its first revision, and things only get more dismal: The economy actually contracted in the first quarter instead of just lying down on the sofa and feeling all mopey and sad. Key areas of decline were exports, inventories and nonresidential fixed investment. In other words, whatever happened was happening on the business side.

DYI Comments: NONE 

Exit Strategy 
John P. Hussman, Ph.D.

The S&P 500 set a marginal new high on Friday, in the context of a broad rollover in momentum thus far this year that we view as likely – though of course not certain – to represent a broad cyclical peak of the sort that we observed in 2000 and 2007, as distinct from spike-peaks like 1987. Valuation measures remain extreme, with the market capitalization of nonfinancial stocks pushing 130% of GDP (relative to a pre-bubble norm of about 55%), the S&P 500 price/revenue ratio at 1.7, versus a pre-bubble norm of 0.8, and the Shiller P/E near 26 – which while lower than the 2000 extreme, exceeds every pre-bubble observation except for a few months approaching the 1929 peak. We presently estimate 10-year nominal total returns for the S&P 500 Index averaging just 2.3% annually, with zero or negative total returns on every horizon shorter than about 7 years. 

Low volatility and suppressed short-term interest rates are a breeding ground for yield-seeking speculation. This reach for yield has now driven junk bond yields to about 5%, which is interesting given that yields are now near or below typical historical default rates. Meanwhile, the majority of new debt issuance today is taking the form of leveraged loans to already highly-indebted borrowers, with “covenant lite” features that provide little recourse in the event of default. This is the sort of behavior that should wake investors up like a triple Espresso. It doesn’t because they have been conditioned to focus on yield alone, without considering the minimal amount of capital loss that would wipe that yield out. This is not a new dynamic, and precisely because it is not a new dynamic, one can always find solace from the same Broadway kick-line of dancing clowns that reassured investors that credit was sound, subprime was contained, and stocks were still cheap in 2000 and 2007.

Keep in mind also that stocks were priced for long-term returns in the mid-teens for decades prior to the mid-1950’s despite short-term interest rates that were close to zero. Absent a clear inflationary dynamic, the relationship between Treasury yields and prospective equity market returns is much weaker in the historical data than investors seem to believe. In my view, the fact that defensive investors are earning “next to nothing” in Treasury bills is not an objection that should make investors opt instead to risk a 40-60% portfolio loss. I know – that range sounds too extreme. For a reminder of how all of this works, see my April 2007 piece, Fair Value: 40% Off. 

This is a huge sign the markets aren't healthy

The market is making new highs on the backs of fewer and fewer stocks. The one-month daily average of stocks hitting 52-week highs is currently about 26. One year ago, that number was about 101. In other words, we've gone from 1 out 5 stocks in the S&P 500 hitting highs to just 1 out of every 19.

World shares hover near all-time high

LONDON (Reuters) - World shares hovered just off an all-time high and the euro was steady on Tuesday, as the European Central Bank made sure there was little doubt in investors minds that global liquidity will continue. 

Britain's FTSE 100 opened up 0.3 percent as it played catch-up after a holiday. The rest of Europe's main bourses, which saw mostly steady starts, had made gains on Monday following European election results. 

Asset markets around the world continue to be supported by record-low interest rates in most of the world's big economies.

DYI Comments:  A world wide stock and junk bond market bust is on it way soon.  The wait may seem long in real time but after it is over it will seem like a blink of eye for the long term value players.  

J. Paul Getty said it best:

  "For as long as I can remember, veteran businessmen and investors - I among them - have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips. 

The professional investor has no choice but to sit by quietly while the mob has its day, until enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. There are no safeguards that can protect the emotional investor from himself."

DYI

What they are actually doing [The Fed's], however, is driving the financial system to unsustainable extremes of valuation and speculation— and eventually to a crash landing.

Financial Storm Chasing With Blinders On: How The Fed Is Driving The Next Bust

As should be evident after six continuous years of frantic money pumping that old secret sauce doesn’t work any more because the American economy has reached a condition of peak debt.  During the Keynesian heyday between 1970 and 2007 the nation’s total leverage ratio—that is, total public and private credit market debt relative to national income—soared right off the historic charts, rising from a 100-year ratio of +/- 150% of national income to a 350% leverage ratio by 2007. 

Since the financial crisis, the components of national leverage have been shuffled from the household sector to the public sector, but the ratio has remained dead in the water at 3.5X. That means that contrary to all the ballyhoo about deleveraging, it has not happened in the aggregate, but where it has happened at the sector level actually proves that the Fed’s credit transmission channel is over and done. 

Monetary central planning at the zero bound embodies a destructive internal contradiction. It inherently generates rampant speculation in real estate and financial assets because ZIRP massively subsidizes the cost of carry. At the same time, its practitioners are institutionally disposed to bubble denial because they falsely believe that their policies are what is keeping the real economy advancing–even if currently it is at a sub-normal pace by historical standards. 

Without fail, therefore, monetary central planners keep their feet on the accelerator to the very end, boasting that the “in-coming data” shows the macro-economy approaching the nirvana of full-employment. What they are actually doing, however, is driving the financial system to unsustainable extremes of valuation and speculation— and eventually to a crash landing. We have had two of these processions of the lemmings—that is, Fed driven cycles of bubble inflation and bust—- already in this century. Now we are at the asymptote of the third.

DYI Comments: NONE 

Global Yields to 1%?

Global yields will be moving lower contrary to nearly every single pundit who has called for them to go higher since the 2008 Great Recession. What's truly amazing about today's yields, is that historically, say over the last 200 years, they are at or near historic lows. What's more, is that this seems to be the new normal. Just this past week, Ben Bernanke has indicated in comments to a group of investors that rates will be staying low for a considerable amount of time longer as economic conditions don't warrant tightening. The ECB has also hinted the same. With Japan's 10yr Bond now below 1.0% and pushing within 20 basis points of its 144 year history low, I would have to imagine we are heading very much in the same direction. 

What is driving yields lower is up for debate as there really is no clear consensus on why. Coming out of the recession of 2008, my knee jerk reaction was that rates had to rise as things gradually returned to a historic norm. What I mean by historical norm is 6.2%. That being said, the US 10yr Bond in its nearly 250 year existence has an average yield of 6.24% over that time span -- hence my knee jerk reaction that things can and should move back close to its historical average after dropping to historic lows. Today, I really believe we are establishing a new normal. Not to sound so cliché, but things truly are very much different, and I am almost certain that we will follow in Japan's path to yields closer to 1%.

DYI Comments:  Not until the early 2020's will inflation be back with us as government liabilities pile up due to the costs of Social Security and Medicare.  The remaining years of this decade it is a high probable event that deflation will be imported from Europe dropping U.S. interest rates.  It will be very possible that 10 year Treasuries will yield under 1%.  That will mark the end of "the bond bull market of a lifetime" as DYI's model portfolio at that time will move from 20% to 10% the lowest level by model.  Bonds will not be toxic at that time however the capital gains portion will end.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 05/25/14

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]

*******************

60 ways to wipe out your student debt

(MoneyWatch) Indebted college graduates may be able to make their student loans disappear, without paying them and without ruining their credit, according to American Student Assistance, a non-profit that aims to educate young people about money and publisher of an eBook called 60 Ways to Get Rid of Your Student Loans (Without Paying Them).  

Consider, for example, if you aspired to become a district attorney after accumulating a ton of debt in law school. If you become a DA or a public defender, you could apply for the John R. Justice student loan repayment program. This program pays off up to $4,000 a year of an eligible applicant's debt to a maximum of $60,000 per graduate. 

For health professionals, the National Health Service Corps offers an even more generous program that repays up to $60,000 in debt in just two years for those working in medicine, dentistry or mental health in underserved communities. The National Institutes of Health also has a loan forgiveness program that could eliminate up to $35,000 in debt per year for those willing to work part-time on medical research.

7 Easy Steps to Pay Off Debt

The road to a debt-free life doesn’t have to be long – or painful.

OR

The Seven Baby Steps

Begin your journey to financial peace

DYI

Fed's Kocherlakota floats overshooting U.S. inflation in future

(Reuters) - U.S. inflation may not climb back to 2 percent until 2018, so the Federal Reserve should consider overshooting that target for a few years afterward to make up for the current period of low prices, a top Fed policymaker said on Wednesday. 

Under price level targeting, the Fed would let inflation run above its 2-percent goal in the years ahead to make up for the currently low prices for goods in the economy. As it stands, the Fed practices "inflation targeting" in which it aims for the goal at all times irrespective of past trends.

DYI Comments:  With all of the upcoming government liabilities for Social Security and Medicare during the 2020's the Fed's know that pressure will come to bear to monetize a portion of the debt.  As Boomer's exit the work force (at least full time) the 2020's will be seen as the roaring twenties with high inflation, high taxes, and a labor shortage.  As Boomer's exit full time employment (but still consuming [at a lessor pace]) this will create a decade long labor shortage.  It will end as the this huge generation (76 million) begin to pass on in significant numbers during the 2030's.

DYI  

Ben Graham's Corner

The Journeys of Sisyphus 
John P. Hussman, Ph.D.

After little more than a year of legitimate revaluation of equities following the 2007-2009 credit crisis, and more than three years of what will likely turn out to be wholly impermanent – if dazzling – Fed-induced speculation, investors have again pushed the stone to the top of the mountain. Despite the devastating losses of half the market’s value in 2000-2002 and 2007-2009, investors experience no fear – no suffering as a result of present market extremes. There is no suffering because at every step, as Camus might have observed, “the hope of succeeding” upholds them. 

As we discussed several months ago, that hope of succeeding rests on what economist J.K. Galbraith called “the extreme brevity of the financial memory.” Part of that brevity rests on ignoring the forest for the trees, and failing to consider movements further up the mountain in the context of how far the stone typically falls once it gets loose. It bears repeating that the average, run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance, making the April 2010 S&P 500 level in the 1200’s a fairly pedestrian expectation for the index over the completion of the current market cycle. A decline of that extent wouldn’t bring valuations close to historical norms, and certainly not to levels that would historically represent “undervaluation.” But consider that a baseline expectation, and don’t be particularly surprised if the market loses closer to 38% - which is the average cyclical bear market loss during a secular bear market period. A market loss of about 50% would put historically reliable valuation metrics at their historical norms, though short-term rates near zero would seem inconsistent with a move to historically normal valuations with typical (~10% annual) expected total returns, absent other disruptions.

DYI Comments:  Whatever the decline whether it is 40% or 50% (or possible more) it is NOT the time to be buying U.S. stocks.  DYI's Earning Yield Coverage Ratio is below 1.00 letting investor know that despite the Fed's sub atomic low interest rates long term investment grade corporate bonds over the next ten years will out perform stocks.

Ben Graham's Corner

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: 0.90

As of 05-1-14

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.

Cash [short term bonds], long term bonds, gold are currently a buy.  Stocks are a sell and for those with the temperament a modest short position of 5% or 10% is warranted.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 05/19/14

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

*************************

*************************

Social Security at 62? Let’s Run the Numbers

DYI Comments:  Excellent article from the New York Times regarding to take or not to take early Social Security.  A must read for anyone nearing retirement age and for the younger crowd to have a working knowledge of Social Security.

DYI  

Treasury may change inflation target to include housing costs

Top Bank of England policymaker Andy Haldane says inflation measure that includes housing costs would be “conceptually and practically more useful"

Andy Haldane, the Bank’s incoming chief economist, told MPs on Wednesday that Bank staff had held technical discussions with the Treasury to assess whether it would be appropriate to switch the Bank's 2pc target from the consumer prices index (CPI) to the new CPIH measure, which was introduced in March 2013. CPIH includes housing costs such as mortgage interest payments, which represent about 10pc of consumer spending. 

Meanwhile, Spencer Dale, another Bank policymaker, said the Bank remained vigilant about developments in the housing market. "We know we should be nervous about what is going on in the housing market. The housing market we know from experience has the ability to turn from relatively comfortable warmth in terms of supporting the economy to overheating very quickly," he said.

DYI Comments:  One can only hope this idea of moving away from rents to the cost of housing to determine inflation catches on in the U.S.  Housing is a consumption item that keeps us warm during the winter and cool in the summer for it is not an investment (unless it is a rental property). The majority of the rise in housing prices is simply inflation.  If the inflation price rise was stopped homes would become less costly due more efficient building techniques and labor saving tools.

Hopefully this will catch on with the Fed's; I'm not holding my breath.

DYI

Expect Low Returns Over The Next 10-Years

May 8, 2014

by Lance Roberts

DYI Comments:  Excellent charts and graphs depicting a very low return environment going forward.  Well worth the time and effort.

DYI 

U.S. investor Jim Rogers pegs junk bonds as a short-sell candidate

The Bank of America Merrill Lynch junk bond index shows the difference, or spread, between junk bonds and benchmark Treasuries has shrunk dramatically this year, though not quite down to the record tight levels seen in 2013. The BAML index showed junk bonds are holding about 200 basis points spread over Treasuries, down from 298 basis points since the start of the year.

DYI Comments:  The only reason to purchase junk bonds with this small of a spread is for speculation.  For investors will want to wait until a market smash arrives providing a 700 to 1,000 basis point spread above treasuries.  At that time you will have a margin of safety and a competitive yield shielding you from possible defaults.  Vanguard's High-Yield Corporate Fund is our first choice for investors.

DYI 

"Major market peaks, even those like 2000 and 2007 that were followed by 50% losses, have never felt dangerous at the time." John P. Hussman Ph.D.

Setting the Record Straight 
John P. Hussman, Ph.D.

With advisory sentiment running at 56% bulls and fewer than 20% bears, with most historically reliable valuation metrics about twice their pre-bubble norms (and presently associated with negative expected S&P 500 nominal total returns on every horizon of 7 years and less), with capitalization-weighted indices near record highs but smaller stocks and speculative momentum stocks diverging badly, and with a Federal Reserve clearly intent on winding down the policy of quantitative easing that has brought these distortions about, we continue to view the present market environment as among the most dangerous instances in history. 

Over the years, we’ve repeatedly emphasized that the very best investment opportunities are associated with a significant retreat in valuations that is then coupled with early improvement in market internals across a broad range of stocks, industries, and security types. Conversely, the very worst market outcomes are associated with overvalued, overbought, overbullish conditions that are then coupled with divergences in market internals and a loss of uniformity (as we observe today). As I wrote in October 2000, “when the market loses that uniformity, valuations often matter suddenly and with a vengeance. This is a lesson best learned before a crash rather than after one.” 

Make no mistake, reliable valuation measures for the median stock are actually more extreme today than in 2000. On a capitalization-weighted basis, valuations are beyond every pre-bubble point in history except for a few months in 1929. In the bubble that ended in 2000, final valuations were higher owing to the extremes in large-capitalization technology stocks at that peak. Many observers seem to believe that valuations are of no concern unless they match that singular extreme. Good luck on that. The novelty, imagination, and extrapolation born of the late-1990’s internet and technology revolution is unlikely to be matched by an economy that can’t post growth beyond the threshold between expansion and recession despite the largest monetary intervention in history. The Fed is already retreating from that intervention, and for good reason, because while the Fed's extraordinary actions are not actually linked to real economic outcomes, they encourage very risky speculative side-effects.

DYI Comments:  Once again the Federal Reserve has blown another bubble along with the central banks of England, Central Europe (EU), China, and to a lesser extent Japan.  This will end badly for those holding stocks on a world wide basis along with yield seeker's [Junk Bonds].  Here in the U.S. we will be lucky if this 2nd half down cycle is ONLY 40% to 50% decline.  However, DYI is forecasting a 45% to 60% market smash relating to the extreme over valuation of the market.

If the speculative juices push this market far higher and faster than sales, earning, and dividends can justify them DYI will have to move our sentiment indicator for stocks back to Max Optimism creating a DOUBLE SECULAR TOP!  Will this happen??  Who knows?  So far with the divergences as noted by John Hussman this will not be the case.  As with markets they can and do fool us in the short term; so anything can happen.

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

THE GREAT WAIT CONTINUES.....For the long term investors as opposed to the short term trader this waiting game in the grand design is nothing more than a "blink of an eye!"  The speculator who is a bear, the wait for will be more than they can handle and throw in the towel by going long at the top.

Long term returns for any asset is NOT BAKED INTO THE CAKE but is a function of price. Over pay returns will be dismal over pay significantly then losses will be baked into the cake mathematically.

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.

For monies invested in stocks today and held for the next ten years here is our estimated average annual return.  Please note this return is BEFORE Fees, inflation, and taxes.  This will reduce the returns by 1% to 2% (possibly more) for the average investor using mutual funds.  This is why DYI advocates when ever possible the use of low cost index funds such as Vanguard.

DYI
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John Bogle: The “Train Wreck” Awaiting American Retirement

DYI Comment:  A top notch article from FRONTLINE it is well worth the read.  There are so many smoking gun paragraphs it would be impossible to post all of them without getting into copy write problems. A great read.

Also here is a link to the PBS documentary called "The Retirement Gamble."

DYI  

  

Follow these three rules, and retire comfortably

Opinion: They boil down to: Monthly income is the ultimate goal

The three big factors to consider when planning for retirement are income, mortgage financing and a tax-deferred retirement plan, such as a 401(k). Other issues are important too, but if you can get those three right, you’ll probably be living well in retirement.
Your goal must be to generate sufficient income with the retirement nest egg so you can cover your expenses, and even save money by spending less than you earn. Invest as if you are going to live forever. Why not? There will probably be at least one other person in your family counting on you not to burn through a lifetime’s hard work. With sufficient income, you will face the wonderful “problem,” when retired, of cash piling up. 

Mortgage finance 

The mortgage mess is behind us and most of the silliest loan types are no longer available. But for most people, there’s still a very dangerous financial vehicle out there, which is the 30-year mortgage.  

That might be a controversial statement, because 30-year loans account for most of U.S. mortgage financing. But if you take a real hard look at the numbers, you may find that if you buy “a little less house,” you can afford a 15-year loan. In your favor are lower interest rates and 180 fewer payments.  

I once heard a banker say, “You might as well get used to always having a car payment and always having a mortgage payment.” That is terrible advice. If you can afford a 15-year loan, do it. After it’s paid off, you may be able to leave behind the world of borrowing. 

401(k) 

If your employer provides a 401(k) or other tax-deferred retirement savings plan, take advantage of it. Most employers offer a matching contribution, up to a certain percentage of your salary. That means a pretty hefty return on your investment during the first year. You also defer taxes on the amount you contribute, lowering your tax bill. Plus, you avoid the temptation of having the money pass through your hands on the way to the retirement account. 

One of the saddest trends is that only about four out of 10 workers under age 25 contribute to retirement plans, while only six out of 10 workers ages 25-34 make contributions. For more on this phenomenon and on the remarkable advantages of starting your retirement savings early, see major retirement savings mistakes — by millennials.

Major retirement savings mistakes — by millennials

If you knew then what you know now...

Unfortunately 401(k) plan participants in their 20s and 30s are making a number of mistakes with their savings and investments — and what seem like small mistakes when you’re young can have big consequences later in life. 

Not saving 

The first big mistake is that some young workers aren’t contributing to their 401(k) plan at all. According to a Vanguard Group report, How America Saves 2013: A report on Vanguard 2012 defined contribution plan data , only four in 10 workers under the age of 25 and just six in 10 workers ages 25-34 contribute to their employer-sponsored retirement plan. By contrast, 74% of those ages 55–64 contribute to their 401(k). 

The second mistake is this: young workers who do defer a portion of their compensation into their employer-sponsored retirement plan aren’t saving enough to get their company match. 

Others share this opinion about the biggest mistakes that young workers make when saving and investing for retirement. “The biggest mistake I see young investors make is not keeping a long-term perspective,” said Troy Redstone, president of retirement services at PHD Retirement Consultants, an Overland Park, Kan. consulting firm. “They have trouble picturing themselves in the future and they minimize the importance of saving for that unknown future. They mistakenly believe they have all the time in the world and they just don’t take savings seriously.”

Early 401(k) withdrawal replaces homes as American piggy bank

Premature withdrawals from retirement accounts have become America's new piggy bank, cracked open in record amounts during lean times by people like Cindy Cromie, who needed the money to rent a U-Haul and start a new life. 

So, last year, at age 56, she moved about 90 miles from her home in Edinboro, Pennsylvania, into her mother's basement. To make ends meet as she moved and then quit the job, Cromie pulled out $2,767 from her retirement savings. 

The median size of a 401(k) is $24,400 as of March 31, with people older than 55 having $65,300, according to Fidelity Investments. Those funds can disappear quickly in retirement, and the early withdrawals indicate that the coming retirement crisis could be even more acute than expected. 

For decades, Americans' homes were their piggy banks. As values rose, they refinanced or took out second mortgages. Since the housing collapse of 2008, that's often no longer an option. Taking money from a 401(k) -- and worrying about the consequences later -- became a more attractive alternative and a record number of Americans made early withdrawals in 2010. 

Costco Wholesale (COST) Corp. tells workers about the dangers of dipping into their accounts and urges them not to, said Patrick Callans, senior vice president of human resources at the Issaquah, Washington-based retailer. Costco has about 103,000 employees. 

"Educating employees about the plan -- and the benefits of saving for retirement -- is good for employees and good for Costco," Callans wrote in a letter to the company's management teams in April, emphasizing that the company wants people to have enough saved when it comes time to retire.

DYI Comments:  NONE 

These states have no income tax

There are seven U.S. states with no income tax, while another two states have no income tax on wages but do tax interest and dividends -- an important consideration for retirees. The grass isn't always greener on the other side of the state line, though. These states still need money for government services, and they raise it through other means, namely sales taxes, property taxes, and other fees. Depending on your situation and your willingness to move, with some planning you could start paying less in taxes and keeping more of your income. Read on to find out more. 

States with no income tax:

• Alaska

• Florida

• Nevada

• South Dakota

• Texas

• Washington

• Wyoming

States with nearly no income tax:

• Tennessee

• New Hampshire

DYI Comments:  Everyone's situation is different but if you are planning on making a move you may want to investigate these States as a possibility.

DYI

Long-term value investors who "simply [have] no alternative to standing our ground and taking it on the chin when crazy markets get even crazier. THE GREAT WAIT CONTINUES....

Bull market will "end badly" but still has a long way to go: Jeremy Grantham

That GMO's Jeremy Grantham thinks U.S. stocks are approaching bubble territory and says the current bull market will "end badly" isn't at all surprising. Grantham is one of Wall Street's most notable and outspoken bears, and in recent years has warned about resource scarcity that could doom a lot more than your 401(k). 

So what's most notable about the hedge fund manager's latest quarter letter, published in Barron's, is that Grantham predicts the current bull run "will not end for at least a year or two and probably not before it reaches a level in excess of 2250 on the S&P 500" (that's a 20% rise for the S&P 500 based on Friday's close).

Grantham offers a specific roadmap for how it's likely to occur:

• 1) This year should continue to be difficult with the Feb. 1 to Oct. 1 period being just as likely to be down as up, perhaps a little more so.

• 2) But after Oct. 1, the market is likely to be strong, especially through April and by then or in the following 18 months up to the next election (or, horrible possibility, even longer) will have rallied past 2250, perhaps by a decent margin.

• 3) And then around the election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed can dig up. 

To be clear, Grantham's letter is aimed not at short-term traders but at long-term value investors who "simply [have] no alternative to standing our ground and taking it on the chin when crazy markets get even crazier."

DYI Comments:  For the value conscience long term term investor the waiting game for better values ahead is nothing more than a blink of an eye.  The short term trader who has turned bearish it will feel like eternity! The Great Wait Continues with our model portfolio with its 10% allocation to traditional stocks as opposed to our 25% commitment in gold mining companies.

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]

It is far better to appear stupid during market blow offs than to be really stuuu-pid(stupid) when the market declines substantially as your losses pile up.  Value always wins in the long run but in the short run it will test one's patience.

THE GREAT WAIT CONTINUES....

DYI  

"Investor's seem to have entirely forgotten that there’s quite a good chance from current valuations that they’ll lose about half of their money in the next few years!" John Hussman

Cahm Viss Me Eef You Vahn to Live 
John P. Hussman, Ph.D.

We’ve recently emphasized that our estimates for probable S&P 500 nominal total returns have now declined below zero on every horizon of 7 years and shorter. At longer horizons, the 6.3% growth rate that we’ve assumed for nominal GDP over the coming years will begin to bail investors out given enough time, and as a result, our projection for 10-year S&P 500 nominal total returns peeks its head up above zero, at about 2.4% annually from current levels. Looking out 15 years, the expected 15-year total return approaches 4.4% annually, and at that horizon, investors are unlikely to lose money even if actual returns are a standard deviation below our expectations. To the extent that 6.3% growth in nominal GDP seems too high (and there are certainly reasons to think so), just reduce those annual return projections accordingly. 

We very much agree with Grantham’s sentiment in that investors can only be expected to adhere to a given discipline if they fully understand the potential risks that might emerge over the course of the market cycle. The greatest discomfort for us is that in speculative, overvalued, overbought, overbullish markets, we’ll often look like idiots, lose credibility, and later recover a flood of followers who were bloodied in a completely predictable collapse that makes us look like evil geniuses. Years ago, Grantham noted the same tendency to “arrive at the winning post with good long-term results and less absolute volatility than most, but not necessarily the same clients that we started out with.” Having addressed our earlier stress-testing concerns, we certainly expect a much easier time in future cycles even if Fed-induced bubbles become the rule. 

We have the reverse concern about buy-and-hold investors in the major indices here – they seem to have entirely forgotten that there’s quite a good chance from current valuations that they’ll lose about half of their money in the next few years, even if stocks turn out to recover those losses with enough time (though probably more than about 7 years). As I noted in 2000 and 2007, the phrase “I’m a long-term investor” and the commitment to passive strategies often does not survive the full course of a bear market.

Money printing, search for yield and the mirage of financial stability

Unfortunately, the near free money environment has gone on for much longer than anyone anticipated, and we seem incapable of easing ourselves off the life support.

So when the BIS’s Claudio Borrio warns about the return of “search for yield”, everyone should sit up and take notice. 

The BIS’s latest quarterly review points out that yield compression is back with a vengeance, and in some respects is actually now worse than it was in the lead-up to the crisis. With interest rates at rock bottom, lenders are again throwing caution to the wind, and investing indiscriminately. There was a brief return to saner conditions last summer when the Fed suggested it might end quantitative easing, but the consequent widening of spreads was viewed as so alarming by policymakers that the threat was soon withdrawn, and now we are back to where we were. 

Remarkably, leveraged loans are now a higher proportion of new signings than they were before the crisis. Corporate credit spreads have sunk to record lows, debt funding for private equity takeovers is once more on a strongly rising trend, and mortgage real estate investment trusts, which fund long-term mortgage assets with short-term money, have come surging back. 

The search for yield is also evident in renewed investor appetite for “payment in kind notes”, a form of credit that gives the borrower the option to repay lenders by issuing additional debt. Roughly a third of those who issued such debt in the run-up to the crisis ended up defaulting, yet this has failed to act as a deterrent. New issuance of these instruments rose by a third in the first three quarters of this year. 

Every time central bankers try, the economy stalls anew and they are forced to backtrack. Capital misallocation and asset bubbles are just some of the side-effects. We inhabit an Alice Through the Looking Glass world in which – bizarrely, in view of the depth and length of the recession – ultra-low interest rates have helped to contain default rates at close to pre-crisis levels. In the eurozone, default rates have actually fallen during the recession of the past two years, the very reverse of what you would expect and indeed what is needed for the economy to reboot and start growing again. This in turn has encouraged investors to think of what is essentially junk as comparatively risk-free, and spray their money around accordingly. Policymakers find it progressively more difficult to re-establish normality monetary policy for fear of the en masse rise in defaults that would follow.

'Savings crisis’ wrecks pensions of the under-50s

Millions of people are facing financial insecurity in which they will retire poorer than their parents, new study says

Working people currently aged 45 will be the first generation to retire with lower pensions than their predecessors as a result of the UK’s “savings crisis”, a report by Britain’s leading banks, insurers and investment firms warns. 

According to the study, millions of people are facing a future of financial insecurity in which they will retire poorer than their parents because families are saving far less than they used to. 

Those aged 35 and under are likely to suffer the most as they are hit by rising house prices, less generous pensions and higher debts, the report says. 

In a highly unusual coordinated move, senior executives from 20 of Britain’s biggest financial services firms – including Lloyds, Nationwide, NatWest, BlackRock, and Axa – call on ministers and the industry to work together to replace the country’s debt-fuelled spending culture with a new ethos of saving.

DYI Comments: NONE