Everything is starting to crash
Despite a $486 billion fund to prop up the Chinese market, China's stocks sunk another 8.5% on Monday — the biggest one-day drop since 2007.
This is following a 35% crash into early July. Now, after bouncing back up to 4,200, the Shanghai Composite is down to 3,750. If it falls another 10% to below its recent low of 3,374, that will be the decisive blow — for us and them.
I say this because China is my No. 1 indicator for a global market crash.
If — not, when! — its stock bubble continues to burst, real estate will be on its heels. Because China owns so damn much real estate, falling real-estate prices will be the single biggest trigger for the global markets.
The DAX in Germany just started to crash again down 2.56% to below 11,100 on Tuesday — down over 10% from the top! It is showing little sign of reaching a new high.
Overall the broader European markets are nowhere near their 2007 highs. Measured by the Stoxx 50 (FEZ ETF), they are down 41% — even with the recent bounce!
As for US stocks, they seem to be imploding from within!
Even though the Nasdaq hit new highs recently, the advance/decline line didn't. That means more stocks went down than up, even though the most aggressive market hit a high!DYI Comments: Is this the pause that refreshes OR corporate profits are rolling over? No doubt they have gone a bit soft when I ran the number this month for Ben Graham Corner II. This will give you the "OH WOW!" feeling as the intrinsic value dropped significantly.
8-1-15
Value = [10yr-AVG.-IA-EPS] x (8.5 + 2 x G) x (4.4 / Aaa)
Current Fair Value 869 to 794
Market Overvalued 142% to 165%
S&P 500 calculated from 2104 to 794 is a 62% drop! This is not out of the realm of possibilities as I've been saying for months a decline of 45% to 60% is very real. World wide central bankers have been printing like mad men along with their policies of sub atomic low interest rates plus world wide Baby Boomer's (for those who can) are saving for retirement creating a saving glut. The money had to go somewhere and that somewhere ended up in the securities markets creating a third bubble within 15 years. Here is what John Hussman had to say during his weekly updates:
"From our perspective, the fundamental reason for economic stagnation and growing income disparity is straightforward: Our current set of economic policies supports and encourages a low level equilibrium by encouraging debt-financed consumption and discouraging saving and productive investment.
We permit an insular group of professors and bankers to fling trillions of dollars about like Frisbees in the simplistic, misguided, and repeatedly destructive attempt to buy prosperity by maximally distorting the financial markets.
We offer cheap capital and safety nets to too-big-to-fail banks by allowing them to speculate with the same balance sheets that we protect with deposit insurance.
We pursue easy monetary fixes aimed at making people “feel” wealthier on paper, far beyond the fundamental value that has historically backed up that wealth.
We view saving as dangerous and consumption as desirable, failing to recognize a basic accounting identity: there can only be a "savings glut" in countries that fail to stimulate investment.
We leave central bankers in charge of our economic future because we're too timid to directly initiate or encourage productive investment through fiscal policy.
When zero interest rates don't do the trick, we begin to imagine that maybe negative interest rates and penalties on saving might coerce people to spend now."
Look around the world, and that same basic policy set is the hallmark of economic failure on every continent.
DYI Continues: As long as these policies continue to exist especially sub atomic low rates or the possibility of negative rates (Most likely coming to Canada) will continue to devastate old style pensions (mostly State employees) along with IRA's, 401k's and basic savers. This will not end well.
When everyone is losing their heads chasing yield don't go and lose yours. The patient value player wins.
Dick Russel's Dow Theory Letters with his rule #3:
RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.
The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.
The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds.
When stocks are on the bargain table and stock yields are attractive, he buys stocks.
When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "give away" table, he buys art or diamonds or gold.
In other words, the wealthy investor puts his money where the great values are.
And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).
But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).
And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn't understand values so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money. He's never heard the adage, "He who understands interest -- earns it. He who doesn't understand interest -- pays it."The little guy is the typical American, and he's deeply in debt.
The little guy is in hock up to his ears. As a result, he's always sweating -- sweating to make payments on his house, his refrigerator, his car or his lawn mower. He's impatient, and he feels perpetually put upon. He tells himself that he has to make money -- fast. And he dreams of those "big, juicy mega-bucks." In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this "money-nerd" spends his life dashing up the financial down-escalator.
But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.DYI Continues: With my latest updates our small 2% bond positions is now gone since our proxy for rates 10 year Treasury bonds yields have now dropped once again. So here we are once again with 15% in gold mining companies and the remainder in short term bonds.
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 8/1/15
[See Disclaimer]
Or
8-1-15
Maximum Aggressive Portfolio
(Super Max)
76% Cash - Hussman Strategic Total Return Fund - HSTRX
15% Gold - Tocqueville Gold Fund - TGDLX
0% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX
9% Stocks - Federated Prudent Bear Fund - BEARX
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.
DYI
No comments:
Post a Comment