Sadly for all our futures, cheap money is here to stay. Just get used to it

Central banks have been struggling to normalise interest rate policy. Increasingly, there is reason to doubt they ever will be able to

When will interest rates rise again? Will they indeed ever rise again? According to the one-time American baseball player Yogi Berra, it is tough to make predictions, especially about the future. The idea that nominal rates will remain pegged at close to zero for all eternity is, of course, nonsense; nobody sensible would ever make such a forecast. 

Bond yields in G7 advanced economies point to inflation being well below 2pc target for at least the next 10 years, and even more in some countries. Switzerland, Germany, Denmark and Finland are able to borrow 30-year money at under 1pc. This is almost beyond free money, and into the topsy turvy world of having to pay to lend money to the government. It may be madness, condemning investors to almost certain future losses, but it is hard to see how central banks could meaningfully raise short-term rates as long as such a market view prevails.

Nobody can know when the next recession might be, but it could be quite soon if the cycle conforms to type. With rates already on the floor, there will be little central bankers can do to counter it when it comes, other than crank up the printing press anew. Fiscal policy too will struggle to deliver. For most governments, the fiscal cannon is already exhausted, with public sector debts approaching or in excess of 100pc of GDP. 

In the meantime debtors are accommodated at the detriment of creditors, borrowers are favoured at the expense of savers, and the holders of assets are further boosted to the growing exclusion of those who have none. It’s ever harder to believe in a happy ending.

The oil price crash and European QE will pop London’s property bubble

For example, at the height of the Japanese bubble in the 1980s, the land around the emperor’s palace in Tokyo was said to be worth more than the entire state of California. 

Now we’ve seen the British equivalent. The value of London property is now higher than Brazil’s GDP, according to research by estate agents Savills. 

But now, the party’s over. With the oil price in freefall, there’s a lot less money to go around. Moreover, in an effort to stop the Russian economy from collapsing, Putin is trying to get the Russian super-rich to bring their money back home, using a mix of sticks and carrots. Meanwhile, sanctions have also made Britain – like the rest of the West – less of a safe haven for money from wealthy Russians.Demographics expert Paul Hodges reckons that prices could (and perhaps even should) fall by a lot more – as much as 50%. If you missed Merryn’s interview with him, you really should watch it here now.

DYI 

 

Possible Negative Interest Rates, Copper Prices Crashing, Curtailed Consumer Spending, Global Economy Deflating and a Sky High Stock Market....Me Worry? You Bet!

Get ready for negative interest rates in the US

Mises Canada

I predict that the Fed will start charging negative interest rates on bank reserve accounts, which will ripple through the markets and result in negative interest rates on savings at banks. I make this prediction only because it is the logical action of the Keynesian managers of our economy and monetary policy. Our exporters will scream that they can’t sell goods overseas, due to the stronger dollar. So, what is the Fed’s option? Follow the lead of Switzerland and Denmark and impose negative interest rates in order to drive down the foreign exchange rate of the dollar. 

It is the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing “aggregate demand”. If savers won’t spend their money, the government will take it from them. 

Patrick Barron is a consultant to the banking industry. He teaches Austrian school economics at the University of Iowa and Bank Managemant Simulation for the Graduate School of Banking, University of Wisconsin. Visit his blog. Send him mail.

This Is Exactly How Markets Behave Right Before They Crash

Meanwhile, there are lots of other signs of trouble on the horizon as well. 

For example, the price of copper got absolutely hammered on Wednesday.  As I write this, it has fallen more than 5 percent and it has not been this low in more than five years. 

In financial circles, it is referred to as “Dr. Copper” because it is such a valuable indicator regarding where the global economy is heading next. 

For example, in 2008 the price of copper was close to $4.00 before plummeting to below $1.50 by the end of that year as the global financial system fell apart.Now the price of copper is plunging again, and many analysts are becoming extremely concerned…

3 red flags causing the market to panic

1. Americans are pulling back on spending. Retail sales dropped 0.9% in December, the critical holiday shopping month, compared to November. It was worst monthly plunge since the Polar Vortex halted much business activity last January. Consumer spending drives the U.S. economy, so any major pullback is alarming, especially around Christmas.
2. Keep an eye on copper's dramatic fall: One growing global worry is the steep decline in copper, which is used in many products and is often viewed as good gauge on how China is doing. The price of copper hit its lowest price since 2009 on Wednesday at $2.46. Copper is down nearly 7% this week alone.
3. The global economy looks even worse: Worries are growing that the global economy is deflating. The World Bank slashed its global growth projections this week for 2015 from 3.4% to 3%. The World Bank also cut its expectations for 2016. Plunging oil prices are hurting OPEC nations, while Japan and Europe continue to suffer from deflation.

 DYI

The 2020's will be Marked by High Taxes, High Inflation, and a Labor Shortage.

The Roaring 2020's!

During the remaining years of this decade preceding the 2020's will be marked by ultra low inflation or mild bouts of deflation.  For those of you who have a stable job, who are debt free (including the house) and have savings in the form of stocks, bonds, real estate, gold, deflation will be your friend. It is wonderful to be able to purchase goods or services at stable prices or better still at a reduced cost. God help those who are deeply in debt for that cost does not decline in deflation but stays solid as a rock until it is paid off or in worst case bankruptcy.  Add on job insecurity or outright unemployment things go from bad to worse in a nano second.

This change began to happen slowly when the market made its secular top in the year 2000 and then moved into high gear during the massive bear market of 2008 -09. Oil, stocks, high quality and junk bonds hit the skits.  Along with the middle class' biggest asset residential real estate took a deflationary smash not seen since the Great Depression.  But something far bigger happened internationally.  As they say "Something happened along the way to the forum!"

The 40% can no longer rely on the 14% to purchase their exports!

Russel Napier described this change:

Strange as it may seem, 2008 will not go down in history as the year of the financial crisis but rather as a time when something much more important happened.  It was in 2008 that 40% of the world's population realized that it could not continue to get richer by selling to 14% of the world's population(Europe and the USA).  Since the end of communism, the governments of 40% of the world's population (China, India and the former Eastern bloc countries) have been depressing their exchange rates to boost their exports to the US and Europe.  The resultant flood of capital into these jurisdictions, but particularly into the US, depressed interest rates and fueled the credit binge that financed the purchase of goods and led to higher asset prices. In 2008, it became clear that we had reached, or were close to, the limit of debt 14% of the world could sustain to maintain current levels of consumption. 

Governments beyond the US and Europe must now look for other ways to grow.  While it will take some time to engineer the solution, a move away from export-orientated growth to domestic-consumption-driven growth has been instigated.  As this form of growth becomes more dominant, the need to depress exchange rates by buying dollars and US Treasuries will come to an end.  This withdrawal of foreign support will be the catalyst for a significant hike in the US Treasuries yield which, after little initial impact, will bring down the price of equities.  The unwinding of the truly massive distortion of US Treasury prices will impact global financial markets for several decades. 

The really bad news is that the US Treasury market not only faces a structural demand problem but also a structural supply problem in the form of financing the retirement of the baby-boomer generation.  Reasonable estimates suggest that the government will have to find around US $50 trillion over the next two decades to cover Social Security and Medicare payments.  The US cannot afford such entitlements.  Part of the solution is to cut back these handouts, either through raising the retirement age or turning down wealthier applicants. However, the political process is not designed to withdraw benefits from electors and Treasury issuance is likely to be one the, seemingly, easier ways to deal with the problem. The first baby boomer to become eligible for a Social Security retirement pension received her first cheque on 12 Feburary 2008.  This is no longer a theoretical problem and the implications for the Treasury market are dire.  

 "The first baby boomer to become eligible for a Social Security retirement pension received her first cheque on 12 Feburary 2008."

SOCIAL SECURITY

Nation’s First Baby Boomer Receives
Her First Social Security Retirement Benefit

Kathleen Casey-Kirschling, the nation's first Baby Boomer, today made history as the first of her generation to receive a Social Security retirement benefit.  Having applied online for benefits atwww.socialsecurity.gov, Ms. Casey-Kirschling, who was born at one second after midnight on January 1, 1946, today received her first payment by direct deposit.

The Baby Boom Generation 1946 to 1964 

 

Currently today (December 2014) the Bureau of Labor Statistics unemployment for the 55 and older crowd is a scant 3.7%!  Many of course are holding onto their jobs for dear life as they have very little in the way of retirement savings and many have no savings along with a negative net worth due the housing downturn.  So its off to work in order to have a semblance of a middle class life style as those who took early Social Security need to work to make up the difference or those postponing retirement in order to receive the larger pension at age 66 or even age 70!  However, as with all trends this will change.  Beginning around the year 2018 (2018 -1946) -1 = AGE 71 Boomers will begin to retire or move into part time position but due to our aging society will continue to consume (granted at a lessor rate).  As we move into the 2020's jobs will begin to open up as there will be a need to support the Boomer's with goods/services(and other generations plus exports) a LABOR SHORTAGE will prevail.  Along with a pro-labor movement by the Millennial generation the U.S. will experience wage pushed inflation not seen since the 1960's.

The 2020's will be marked by high taxes, high inflation, and a LABOR SHORTAGE!

High taxes will be the result of the government's attempt to fully fund Social Security and Medicare. Costs that cannot be soaked up by increased taxes the government will borrow.  The Federal Reserve will attempt to suppress interest rates to lessen the cost of these massive borrowings as China/India move their economies to internal consumption their need to purchase Treasury securities will abate. At the end of 2020's China will most likely be a net seller of Treasuries.

High inflation will ensue due to wage push and the Federal Reserve's attempt to hold down borrowing costs for the funding of Social Security and Medicare.  However, over time yields will creep up as the world will know that America will not be able to fully fund our social programs (along with the rest of government) pushing yields higher.  My best guess that in the mid 2020's politicians will be forced to make benefit reductions, at first will be a trickle and by the 2030's a torrid of changes.  The 20's will be known as the decade of inflation possibly peaking at low double digits.

A labor shortage will also mark the 2020's plus a portion of the 2030's as well.  Increased immigration will be sought as a solution but will be fought bitterly by the Millennial's who are very pro-labor not wanting the increased competition for jobs or income suppression.  In the end due to our low birth rate the government will prevail by recruiting the best and brightest from around the world to immigrate to the U.S.

Fertility Rate  

Country	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012
United States	2.06	2.06	2.07	2.07	2.07	2.08	2.09	2.09	2.1	2.05	2.06	2.06	2.06

Russell Napier continues:

As I said in 2005, this bear market will not be over until equities trade at a 70% discount to the replacement value of their assets.  That return to record-low valuations would see the S&P 500 around 400, a decline of close to 70% from the November 2005 level and within the 60%-80% range projected in the first edition of this book.  As forecast in 2005, the long bear market in US equities is unlikely to be truly over until we have a bear market in US Treasuries.  So investors have to beware. The initial rise in Treasury yields will be greeted as a sign of "normalization" in the US as it was from 2003-07.  However, as yields return to 2007 levels and the structural deterioration of the market continues, a terrible realization will dawn. 

Washington has extended the US credit supercycle by transforming a great deal of US commercial risk into sovereign risk.  While this will initially seem acceptable, the cycle will end when the world realizes that the US government is a terrible credit risk because of the huge amount of debt it is trying to support.  The US commercial system almost went bust in 2008-09 but the price of saving it will be the growing realization, sometime before 2014, that the government is de facto bust.  This is the most likely catalyst to reduce equities to a 70% discount to the replacement value of their assets.  It will be then that you should re-read this book, as great fortunes will be made by investing in very cheap US equities. Until then you should be wary of equities, unless you feel comfortable investing in bear market rallies, and you should be terrified of Treasuries.

The early to mid 2020's gold will peak with the Dow to Gold Ratio at less than 3 to 1 and stocks at a rock bottom price of 30% of their replacement value.  10 year Treasuries yields will be significantly above their long term average(since 1871) of 4.62% very possibly double the average rate.  A buying opportunity that only comes around once or twice in a lifetime.  Be prepared for the roaring 20's.

DYI

You Can Tell when a City is on the Move for the Silence is Deafing...No Talk, No Grand Standing, Just Get it Done!

Does multimillion dollar Chinese investment signal Detroit’s rebirth?

 
 The 302,000-square-foot Detroit Free Press building, abandoned since 1998, has fallen into an advanced state of disrepair. Photograph: Jonathan Kaiman

Last autumn, a group of Chinese real estate developers arrived in downtown Detroit for a city tour. As they walked through its small central cluster of high-rises – some in use, many long-ago abandoned – they were impressed by what they saw. Amid the urban decay, they were shown art spaces, colourful tech startup offices, and other testaments to reinvention. “Rebirth of Detroit” read one elaborately-stencilled mural. Wedged into an empty window frame of a crumbling mid-rise, a wood block carving depicted an Atlas-like figure hoisting a giant ‘D’ on his shoulders. “Rising from the ashes,” it said. 

In September, the Shanghai-based developer Dongdu International (DDI) made its first move. In an online auction, it snapped up three iconic downtown properties, all built during the city’s early 20th-century heyday as an industrial powerhouse. DDI purchased the David Stott building, a 38-storey art-deco skyscraper built in 1929, and the former Detroit Free Press newspaper headquarters, a T-shaped edifice adorned with bas-relief sculptures of biplanes and locomotives. Later, it acquired the 10-storey Clark Lofts, an inconspicuous residential building with a manual, pre-second world war elevator – the oldest in Detroit. 

Altogether, DDI spent $16.4m (£9.6m) on the properties, slightly more than a top-market apartment in Shanghai. 

The company plans to transform the buildings into vibrant offices and upscale apartments, according to the CEO of DDI’s leisure branch, Peter Wood. “Once we’ve shown to the locals in Detroit that we’re deadly serious, then other things will happen,” Wood says, sitting in his corner office on the 10th floor of a Shanghai skyscraper, a dozen or so Chinese employees typing diligently in cubicles outside. “Detroit is planning for this area to come back. It’s all about rejuvenation.”

Detroit demolishes its ruins: 'The capitalists will take care of the rest'

Detroit is knocking down 200 houses a week, with 40,000 to go and $1bn in the program. The city’s controversial plan aims to bring more wealthy investors but critics say will drive out black residents. 

 That would hardly excite most city dwellers, but Colvin doesn’t live in just any city. She lives in Detroit, where municipal neglect has become customary. Detroit has been the unwitting star of a photo subgenre christened “ruin porn”, with fans in all corners of the world – except in its native hometown. Two years ago – the same year Forbes named Detroit the most dangerous city in America – local media reported that abandoned homes had become dumping grounds for dead bodies. 

Good riddance to that, say residents.

Reclaim Detroit finds city's treasures in abandoned homes

James Cadariu was planning construction of his hip, new coffee bar, Great Lakes Coffee Roasting Company, in 2011 when he first heard about Reclaim Detroit, a nonprofit agency retrieving old and valuable wood and other treasures from Detroit homes set for demolition. 

It sounded like material he could use at the coffeehouse he was fashioning on Woodward Avenue in Midtown Detroit. 

When he eventually made his way to Reclaim Detroit's warehouse, then located at Focus: HOPE, he was delighted with what he found, stacks of rare, old-forest lumber, hand-carved mahogany doors and antique fixtures, some of it more than a hundred years old. 

And something more personal — wood taken from a home on Grayton Street on the city's east side, two doors down from his uncle's house, where he used to visit as a child.

Majestic Building - Demolition photos

Billionaire Wants To Demolish Detroit

Dan Gilbert, the 51-year-old billionaire who made national headlines for his work transforming downtown Detroit, has a lofty new goal: to tear down the nearly 80,000 abandoned buildings that plague Motor City. All at once. 

According to Gilbert, ridding Detroit of run-down structures is an all or nothin’ job. “Getting down all these homes that are blighted and commercial, what we need to do is just stop incrementalizing it,” the Quicken Loans chairman told reporters. “The problem is if you incrementalize this stuff then other people are willing to leave their homes and create more and more blight.” 

Detroit hosts an estimated 78,000 commercial and residential buildings, a decades-long problem due to people fleeing the city for the suburbs. City officials were so desperate to fix the problem in 2012 that they offered homes that didn’t sell at auction for $500. Sounds like they need to think of more creative ways to keep people around. There’s not much anyone can do with $500 windowless crack house.

To put Detroit’s population drop into perspective, there were 1,849,546 people living in the city in 1950 compared to a little over 700,000 today.

DYI

 

World Bank warns of ‘extremely rare’ decline in all 9 commodity sectors this year

Here’s the summary of the World Bank’s Outlook:In oil markets, a “perfect storm” of conditions has led to a plunge in prices since mid-2014: growth in unconventional oil production, decline in demand, appreciation of the U.S. dollar, receding geopolitical risks, and a major redirection toward maintaining market share rather than targeting prices by the world’s oil cartel, Organization of the Petroleum Exporting Countries (OPEC). Oil prices have dropped 55 percent in seven months, from the most recent high of $108 per barrel in mid-June 2014 to $47 two days ago. Should the current slide continue, it could surpass the previous records of a 7-month decline of 67 percent, set in 1985/86, and a 75 percent drop in 2008. 

In addition, the World Bank’s three industrial commodity price indices – energy, metals and minerals, and agricultural raw materials – experienced near identical declines between early 2011 and the end of 2014, of more than 35 percent each, and will continue to contract this year. Prices of precious metals are also expected to decline by 3 percent in 2015, on top of the 12 percent decline seen in 2014. Again, ample supplies, weak demand, and a strengthening U.S. dollar have weighed on prices of these commodities as well. 

Food commodity prices, which have declined by 20 percent since 2011, are projected to drop by a further 4 percent in 2015, given that current good crop prospects for grains, edible oils and meals, and beverages (led by coffee) in the 2014/15 season.

Is Q-ECB a Favorable Development? 

John P. Hussman, Ph.D.

It’s not entirely clear what will happen in the near term, but the financial markets are already pushed to extremes by central-bank induced speculation. With speculators massively short the now steeply-depressed euro and yen, with equity margin debt still near record levels in a market valued at more than double its pre-bubble norms on historically reliable measures, and with several major European banks running at gross leverage ratios comparable to those of Bear Stearns and Lehman before the 2008 crisis, we're seeing an abundance of what we call "leveraged mismatches" - a preponderance one-way bets, using borrowed money, that permeates the entire financial system. With market internals and credit spreads behaving badly, while Treasury yields, oil and industrial commodity prices slide in a manner consistent with abrupt weakening in global economic activity, we can hardly bear to watch..

DYI Comments:  The U.S. market measured in price to dividends is now 126%  greater than its average price to dividend ratio going back to 1871.  The market would have to drop 63% to simply go back to its average price to dividend ratio of 23 or dividend yield of 4.41%.  This market has "lost it's mind" due to Central Banks massive QE programs. First it was the Bank of England, then the U.S. Federal Reserve; the very day QE ended the Bank of Japan took over and now the European Central Bank begins. Normalization of asset prices will occur the easy way or the hard way and it has become self evident that it will be the hard road with a deflationary smash of asset prices.  A soft landing is out of the question.  King copper has been sliding in price since the 1st quarter of 2011.

This signifies the slowing of the world economy and eventually the U.S. as well.  The probability of world wide recession is increasing by the day.

DYI's model portfolio still stands with a modest investment in precious metals mining companies and the remainder in short term bonds.  All other asset categories (except oil/gas/service companies) have been "jacked up" due to the Fed's sub atomic low interest rates and QE.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 1/1/15

Active Allocation Bands (excluding cash) 0% to 60%

83% - Cash -Short Term Bond Index - VBIRX

17% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX
 0%-REIT's- REIT Index Fund - VGSLX

[See Disclaimer]

THE GREAT WAIT CONTINUES!
DYI

Yager: Oil prices will rebound by this summer

First, there are very few accurate forecasters prognosticating about the future price of oil. Most are simply extrapolators. The default behaviour is to take whatever happened yesterday and extend it out forever. If prices are high, they’ll stay high. If they are low, they’ll never rise. 

The only other consistent trend after studying this subject since 1979 is that the consensus view is invariably wrong. It never works out the way most believe it will or should. Direction doesn’t matter. After agonizing over forecasts and budgets for publicly traded oilfield service companies for 25 years, I finally realized the only sure thing is they were never right. The unknown was how much and which way. It’s a volatile business, Alberta’s oilpatch. 

Commodity reports say world oil markets are oversupplied to the tune of two million barrels per day. All the alleged geopolitical subplots involving Iran, Russia, Saudi Arabia and the United States are interesting, but don’t mean much. The low-cost Middle East producers aren’t supporting the price at or near $100 because they are losing market share to new supplies from North America like oil sands and shale oil. They’ll never get it back if prices stay high, so they will remain abnormally low until global markets change. 

Reversing the direction of oil prices from down to up will require a verifiable swing in the supply/demand equation of at least one million barrels per day. Half from demand and half from supply. This will occur this summer, perhaps sooner.

Currently, the world burns over 90 million barrels of crude daily. The price is down by $50 a barrel. If current prices hold (which they won’t) this would save the world’s oil consumers $4.5 billion per day, or $1.6 trillion per year. Big money. For the world to consume an extra 500,000 barrels per day, demand must only rise by 6/10 of one per cent. 

The other 500,000 barrels will come from high cost/high decline oil production. No matter how the North American shale oil boom came to be, production is unsustainable without continued intensive drilling. This won’t happen because of deep spending cuts. Production decline rates are huge. In south Texas, for example, an average well’s production falls over 60 per cent in the first year. Shale oil output will drop significantly as 2015 progresses. This is physics, not economics.

DYI Comments:  Whether these low oil prices will be finished by summer with oil back up to the $80 dollar range is to seen.  However there is no doubt in my mind that this is the time to dollar cost average into your favorite oil/gas/service sector fund.  Dividend yields have improved due to the lower prices of shares which favors those who are compounding their returns (reinvesting dividends).
DYI's favorite is Vanguard's Energy Fund symbol VGENX and don't forget the precious metals (especially gold miners) companies have gone through a gut wrenching bear market that has improved their future returns enormously.

Davos oil barons eye $150 crude as investment slump incubates future crunch

Roller coaster move in prices is destructive for the oil industry and is leading to investment cuts that may store up serious trouble for the future

Rampant speculation by hedge funds and a rare confluence of short-term shocks have driven the price of oil far below its natural clearing level, coiling the springs for a fresh spike this year that may catch markets badly off-guard once again. 

"The price will rebound and we will go back to normal very soon," said Abdullah Al-Badri, Opec's veteran secretary-general. "Yes, there is an over-supply, but fundamentals don't justify this 50pc fall in price." 

Mr Descalzi said the roller coaster move in prices is destructive for the oil industry and is leading to investment cuts that may store up serious trouble for the future. "What we need is stability: a central bank for oil. Prices could jump to $150 or even $200 over the next four or five years," he said.

DYI

 

Honda Warns Against ‘Stupid’ Loans Driving U.S. Sales Gains

Automakers are increasingly selling vehicles with 84-month loans that reduce monthly payments while making it tougher to repay faster than cars lose value, John Mendel, Honda’s U.S. sales chief, said in an interview. The Tokyo-based company will avoid longer-term loans even as Nissan Motor Co. (7201) tries to supplant it as the fifth-biggest automaker in the U.S., he said. 

“You’re ringing the bell on a new-car sale, but that customer is saddled -- they’re stretched so thin,” Mendel said at the North American International Auto Show last week. Extended-term loans are “stupid not just for us, but for the industry.” 

“We’ve seen this movie before, we know how it ends, and it’s not pretty,” Webb told reporters at an event before last week’s show. “But I say that it has longer to run, and we have already paid the price of admission. So we might as well stay to the end. You just keep your eyes on the exit door.” 

More than one in four new-car loans in October and November were 73 to 84 months long, according to Experian Plc. The share of new-car loans at those term lengths was less then 10 percent in 2009 and 2010.

DYI Comment:  Subprime is back.  We all know how this will end.  It's just a question of when?

DYI 

Bargain Time!....Oil/Gas/Service companies and Precious Metals Mining Companies.

Oil falls again as IMF cuts forecast; Iran hints at $25 oil

NEW YORK (Reuters) - Oil fell as much as 5 percent on Tuesday after the International Monetary Fund cut its 2015 global economic forecast and key producer Iran hinted prices could drop to $25 a barrel without supportive OPEC action.
"Because we have record oil production now, the falling rig numbers are not creating an immediate positive impact in bolstering prices," said Phil Flynn, analyst at Price Futures Group in Chicago. "In fact, they may be creating just the opposite impact; reminding us how poor demand is."The IMF, in its latest World Economic Outlook report, reduced its global economic forecast by 0.3 percentage points for this year and next, projecting a 3.5 percent growth in 2015 and 3.7 percent for 2016.

DYI Comments:  For those of you looking for an uncorrelated assets to the general stock market (exampled: Vanguard S&P 500 index fund) here at DYI Vanguard is our top pick for most funds. Vanguard Energy Fund symbol VGENX is a low cost 0.38% expense ratio and well managed. The time is now to dollar cost average building up shares at a low and possibly lower cost.  This is why I advocate dollar cost averaging versus lump sum for we don't know when and at what price oil and its oil/gas/services companies will bottom out.  Oil at $25? Who knows?!  The Iranians have very little power to change the direction of oil as opposed to Saudi Arabia who can swing the price of oil up or down.  The Iranians are simply guessing and getting some free press.  And don't forget, its ditto for Vanguard's Precious Metals and Mining Fund symbol VGPMX (or your favorite fund) as the mining companies have gone through a severe bear market they are cheaper than physical gold.

DYI

US flirts with deflation as prices fall by largest since financial crisis

World's largest economy sees prices fall by 0.4pc in December, with yearly inflation crawling up after oil collapse

But, when measured on a monthly basis, consumer prices fell by 0.4pc compared to November, the biggest drop since December 2008. 

The decline can be largely attributed to the continued descent in world commodity prices, with the price of oil declining by more than $1 per gallon, according to the US Bureau of Labour Statistics. 

A measure of core inflation, which strips out the effect of energy and food, was also flat at 0pc. It is only the second time since November 2010 that the core reading has remained unchanged.

The Bond Market Is Warning of Huge Trouble Ahead

How else can you explain the fact that the yield on the U.S. 30-year bond hit a record low of 2.4 percent on Wednesday? Or that Japanese and German 10-year yields are plumbing record lows? Or that five-year yields of bonds issued by Eurozone safe havens Finland, Germany and Switzerland are in outright negative territory?

For the U.S. 30-year yield, current levels have dropped below the lows set during the 2008 financial panic and 2012 pre-QE3 slowdown. And this is down from the post-recession high of 4.85 percent set in 2010 and a recent high of nearly 4 percent set in late 2013. 

With stocks not far from late December's record highs, with job growth surging, investor confidence at extremes, consumer and small business confidence high, GDP growth strong and the Federal Reserve telling everyone it's preparing for its first interest rate hike since 2006, the bond market's message comes off as downright weird. 

And it's warning that we're in trouble. The problem is threefold: 

• The evidence is building that the global economy is slowing, led by weakness in Asia and Europe. The JP Morgan Global Manufacturing PMI, which measures factory activity, last month dropped to its lowest level since August 2013. Activity is declining outright on a month-over-month basis in China, Greece, Austria, Italy and France.

• This comes as the developed world governments, reacting to the blowup of private sector debts (mostly real estate), recession and the risk to the financial system in 2008-2009, have piled on public debt. China is in the mix here too, with local government and private credit exploding higher, fueling fixed-asset investment bubbles, overcapacity and now an unresolved bad debt problem that we got a quick taste of in early 2014. In Italy, the government debt-to-GDP ratio has grown from 104 percent in 2008 to 133 percent, with no signs of slowing. 

• All this is occurring at a time of low global inflation, tipping into outright deflation in some areas. Prices at Chinese factory gates have been dropping for months. The Eurozone is expected to have fallen into outright deflation in December. Capital Economics expects consumer price deflation in the United States for January.

DYI COMMENTS:  Deflation looming here, recession and depression in Central Europe, Russia blowing up financially, China with a massive debt bubble about to burst it is strange that all the talk is of the Fed's to rise short term interest rates, including the Fed's!  If long term rates continue to drift down will the Fed's by moving short rates higher risk an inverted yield curve throwing the U.S. back into recession?  Strange indeed!  What I do know is this is a very expensive stock market as compared to sales, earnings or dividends. It is historically overvalued so caution with a low stock to bond asset allocation is recommended.  How high is high?  Going back to 1871 the average price to dividend is 23 and today is trading at 51 times dividends.  (51 - 23) / 23 x 100 = 122% above the average price to dividends. That is simply above the average or fair value.  To obtain a bargain in the classic sense one would prefer to buy when the price to dividend ratio is BELOW the average.  That is a long way down; to nullify 122% requires a 61% drop just to get back to fair value.  With the monstrous and outright scandalous sub atomic low interest rates policies the Fed's have "jack up" this market in its extreme.  A 45% to 60% decline is possible and very well probable.  This time is NOT different nor has it been at any other market extremes including the 1907, 1929, 1968, 2000, 2007.

Caveat Emptor!

DYI    

Updated 1-20-15

THE DIVIDEND ROOM

Just as the name Dividend Yield Investor indicates is my affinity with dividends; for they have never gone out of style as far as I'm concerned.  In the end they are the real reason investors, as opposed to speculators, purchase quality companies with increasing dividends.  In my mind these are the true growth stocks.  As the dividend is increased over time so will the stock price. As the legendary Charles Dow has written:

"To know values is to know the meaning of the market.  And values, when applied to stocks, are determined in the end by the dividend yield."  

The Dividend Room is a new addition to my blog showing a list of high quality dividend paying stocks for your further study.  All picks are basic time tested value approach. All companies have a reasonable low level of debt for their respective industry and a low PE multiple. Of course a competitive dividend yield two times greater than the S&P 500 with a payout ratio less than 85% for utilities and all others less than 50%.  Also screened companies that have increased their dividends on a regular basis (the true growth stocks). Included is additional screens based upon the Benjamin Graham approach for the defensive investor.

Our attempt is to find ten high quality companies with a yield double that of the S&P 500.  Recommend selling when the dividend yield is less than the S&P 500.

Please note:  Companies that fall off the list are not necessarily companies gone bad they simply have risen in price and no longer represent the deepest value and/or highest dividend yield.

For diversification purposes recommend building up to 40 to 50 companies.

The price of oil is in the news which has pounded down the prices of many of the finest oil/gas/servicing companies in the world.  Let's start there and expand into other industries.

Yield     S&P 500 Dividend Yield 1.95%

               Oil/Gas/Service 

6.20%    Sasol Limited symbol SSL

4.60%    Helmerich & Payne symbol HP

4.20%    Spectra Energy Partners SEP   

4.10%    Chevron Corp.  symbol CVX

              Industrial Metals & Minerals
6.50%   Alliance Resource Partners LP symbol ARLP

               Utilities

4.70%    Companhia de Saneamento Basico symbol SBS

               Apparel Stores

4.50%    Guess' Inc.  symbol GES

               Tobacco Products

5.20%    Universal Corp. symbol UVV

              REIT - RETAIL

4.10%   HMG/Courtland Properties symbol HMG

             Financial Asset Management

4.60%  Calanos Asset Management symbol CLMS

DYI recommends that you use our stock allocation formula to arrive at your allocation of stocks to bonds.  Currently it is at 25% for stocks.  For your cash holdings Vanguard's Short Term Bond Index symbol VBIRX or for those in a high tax bracket Vanguard's Limited Term Tax Exempt VMLTX.

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

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

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

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

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.