Copper's Crashing Prices Cause Devastating Economic Ripples Around the World 

Generational Dynamics

Copper prices fell to $4920 per tonne on Monday, before recovering slightly. The price has been crashing, and is down 21% so far in 2015, after falling 16% in 2014. The current price is at a six-year low, just above the low of the financial crisis six years ago. The crash is expected to continue, with predicted prices at $4800 at the end of this year, and $4500 at the end of next year. 

Just as the 60% collapse in the price of oil has been disastrous for exporting countries around the world, including Russia, Iran, Saudi Arabia and Venezuela, the collapse in the price of copper is rippling throughout the world. 

               

The copper crash is being mostly blamed on the slowdown in China's economy, which is also causing drops in prices of coal, oil and metals. 

The copper crash is causing crashes in the prices of stocks for mining companies. Miners are some of the largest companies in the world, responsible for hundreds of thousands of jobs in many countries. The world's largest miner is Melbourne-based BHP Billiton, whose stock price has fallen 29% in the last three months. The second-largest miner, also Melbourne-based, is Rio Tinto, which is less dependent on copper, has limited it's stock declines this year to 30%. 

However, stock prices for Swiss-based Glencore Plc, the world's third-largest copper miner, fell 30% on Monday ALONE.  

Glencore Gloom Envelops Rivals as Asia Commodity Shares Drop

The company’s almost 30 percent plunge in London on Monday reverberated around Asia as Australian miners BHP Billiton Ltd. and Rio Tinto Group slumped with trading companies including Noble Group Ltd. PetroChina Co. was among Chinese oil explorers caught up in the selloff. While Glencore sank by a record in Hong Kong as trading resumed after a holiday, its stock was 6.7 percent higher at 8:50 a.m. in London.

The result is a disaster for the African country Zambia, whose economy is heavily dependent on the price of copper. Glencore has announced plans to suspend operations in the country, which will result in the loss of thousands of jobs. Zambia's currency, the kwacha, fell 13% against the dollar on Monday alone. Glencore is also suspending operations in the Democratic Republic of Congo. 

Stock prices for another copper mining company, Phoenix AZ based Freeport-McMoRan Inc., fell over 10% on Monday, with the stock price now down 61% since the beginning of the year. Freeport announced earlier this month that it's cutting in half its operations in Chile, and will be laying off hundreds of workers. 

As I've been saying for many years, the world is in a deflationary spiral in this generational Crisis era. Deflation has gripped economies in Europe, America, China and Japan. 

The deflationary spiral is affecting global stock prices, which fell to a two-year low on Tuesday, at the end of the worst quarter in years. 

Generational Dynamics predicts that there will be a global financial crisis and stock market crash, bringing the Dow Jones Industrial Average below 3000.

DYI Comments: As to Dow 3000 that is even a bit of a stretch for DYI, however the Dow between 8,000 to 6,000 is very doable for a secular bottom.  This may take more than one complete cycle to complete the downward spiral for valuations to bottom out.
 


I would not be surprised at the secular bottom the Dow Jones Industrials dividend yield trading in the 6% range.  Sentiment for all U.S. stocks will be their bottom.  Currently today stock prices are riding high and so are my sentiment indicators.

Market Sentiment

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

Smart Money buys the Dips!
Optimism
Media Attention
Enthusiasm

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

Smart Money Buys Aggressively!
Capitulation

DYI Continues:  Precious metals and mining companies is another matter as their share prices have been beaten down creating a buying opportunity for the long term investor.  Dollar cost average only how far and how long this deflationary smash will run is anyone's guess.  With prices off anywhere from 40% to 70% for many of these companies you are at an excellent starting point for accumulating shares at depressed prices.  DYI's favorite is Vanguard's Precious Metals and Mining Fund symbol VGPMX.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  9/1/15

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

85% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

    [See Disclaimer]

DYI 

It’s official: Every state in America is too fat

In 1990, the country would have been considered relatively healthy when it comes to weight. Sure, there were plenty of people who were overweight and obese. But the problem was relatively limited with not a single one of our 50 states having a prevalence equal to or greater than 15 percent. 

Today, all of them do -- and new numbers released this week show the problem has been getting worse, not better despite many millions spent on national campaigns by the likes of public health officials, the American Heart Association, and first lady Michelle Obama to get Americans to eat better and exercise more. 

That's based on a definition of obesity as a body mass index or BMI of 30 or above which is calculated by dividing weight in pounds by height in inches squared and multiplying by a conversion factor of 703.  A 5-foot-9-inch man, for example, would have to be 203 pounds to be counted as obese. (If you want to want to calculate your own BMI check out this handy calculator from the Centers for Disease Control and Prevention.)

DYI Comments:  The reason for this post is that I've been on a very low carb diet for little over 3 years and the results have been amazing.  Dropped around 30 pounds, energy to burn, and at age 61 have four abs showing(if I stopped drinking wine it would be all six).  Plus off blood pressure medication, with BP coming in at 120/70.  I never go hungry and yet I ate myself thin.  After the weight loss exercise is a lot more fun and to brag a bit in a one hour time period I can do 500 push ups....Again, all at the age of 61.

I'm going to post about this from time to time along with geo-politics as there are are only so many ways I can tell folks that the U.S. stock market and bond market(junk) is horribly overvalued.

DYI

The Case For Gold: Shorting the Federal Reserve

Why Gold?

“Gold, unlike all other commodities is a currency… and the major thrust in the demand for gold is not for jewelry. It is not for anything other than an escape from what is perceived to be a fiat money system, paper money that seems to be deteriorating.”   -Alan Greenspan 2011

Gold is denominated in US dollars meaning it is quoted as the amount of dollars required to buy or sell one ounce of gold. The price of gold rises and falls with supply and demand for gold however a big determinant of its price is the value of the U.S. dollar. 

Commonly, the U.S. dollar is quoted as an index or ratio. For example, the closely followed Dollar Index (DXY) is currently trading at 96.00 and the dollar’s exchange rate versus the Euro is 1.12. These are valid price indicators, yet also misleading, as they solely describe the value of the U.S. dollar relative to other currencies.  

If another country debases their currency more aggressively than the U.S., the dollar may rise in price but has it truly gained value? The exchange quotes and pundits may say yes but the answer is clearly no. 

The only proper measure of the value of a dollar is its purchasing power. In the 1950s, $1 bought a couple a full meal at McDonalds including a burger, fries and a shake. Not only that, but the couple walked away with change. Today a similar meal at McDonalds would run the couple well over $10.

This article should not be mistaken as advice to increase your allocation to gold to 100% and sell all financial assets. What it does imply is that in periods of economic strength, central bank credibility and dollar strength that the need to hold gold for protective purposes is minimal. 

Conversely, in times, like today, when debasement of currency is the Fed’s last remaining policy tool of any significance, one should retain some protection. Holding gold is simply recognition that the Fed’s actions over the last 30 years have potentially severe consequences that pose threats to the value of most financial assets, the almighty dollar and ultimately your clients’ purchasing power. 

Owning gold is in effect not only a short on the dollar and on the credibility of the Federal Reserve, but most importantly a one of a kind asset that protects wealth.

DYI Comments:  Precious metals mining companies are in a gut wrenching bear market.  Prices from peak to trough are off on average 75%!  A great time to buy.  Please note the Dow/Gold Ratio is a bit pricey currently at 14 to 1.
  
DYI's averaging formula has our asset allocation at 15%.  There remains profit it is no longer shooting fish in a barrel when gold(and mining companies) during 1998-2003 time period.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  9/1/15

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

85% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

I know it is dismal to be holding 85% in cash, as we all know so well markets for stocks and long term bonds have been "Jack Up" beyond all reasonable bounds of historical and business valuation.  DYI is not a market timer but a market valuation player. I'm holding so much cash due to the absurd valuations.

DYI 

 

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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

Now is the Time to Dollar Cost Average into your Favorite Oil and Gas Mutual Fund.

Jeffrey Brown: To Understand The Oil Story, You Need To Understand Exports

Peak Oil is very much alive

Despite the attention-grabbing economic volatility that is grabbing headlines, it's important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead " are "manifestly false" according to this week's podcast guest, petroleum geologist Jeffrey Brown.  

"As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher," 

are Brown's forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time:

 

I started wondering in late 2005 what happens to oil exports from an exporting country, given a production decline and rising consumption. And, so I just started, I just constructed a simple little model. 

I assumed a production of about two million barrels a day or so at peak, consumption of one, and assumed production falls about 5% per year, basically what the North Sea did, and assumed consumption increases to 2.5% per year. 

What the model showed was that exports, net exports would go to zero in only nine years, even though a roughly modest production decline. 

So, the easy way to state it is giving an ongoing, inevitable decline in production, unless an exporting country cuts their domestic oil consumption at the same rate as the rate of decline in production, or at a faster rate, it’s a mathematical certainty that the net export decline rate, what they actually ship out to consumers will exceed the rate of decline in production. And, furthermore, it accelerates.

DYI Comments:  Time to buy the oil's!  Dollar cost averaging ONLY for we don't know how low this geo - political soap opera is going to play out.  The Saudis desire to increase market share by pumping to max capacity along with punishing their arch enemy Iran.  The U.S. wants Iran & Saudis Arabia pumping oil to lower the price further to put a big hurt on Russia(and boost our economy). The war on Islamic terror has always been a side show for the State Department their goal from day one after the fall of the Soviets is to finish off Russia.  Their hope is for Russia to lose the Caucasus, the Laplands, and parts of Siberia including their prize Pacific port of Vladivostok. This would also bring the Ukraine into NATO and a slim possibility of Belarus as well.





IT'S ALL ABOUT OIL!  This would give an opportunity for American and European oil companies to move into these areas to secure oil and gas to continue to propel our economies.  This is a temporary dip in price that may last a few years providing an excellent time to dollar cost average into your favorite energy fund.  DYI's favorite is Vanguard's Energy Fund symbol VGENX with a great track record plus no load fund and their expense ratio of only 0.37%.

Oil and gas prices will recover as world production has plateaued(peaking process).  With China and India modernizing their economies they will need oil and gas; hence the price will increase.

Don't let fear keep you from setting up future profits.  The best time to buy is when prices are in the doldrums.

DYI  

ALBERT EDWARDS WARNS: The next US recession will surprise investors, and a desperate Fed's next move will be unprecedented

We have another call for negative interest rates in the US. 

Societe Generale's Albert Edwards believes that the Federal Reserve should lower its benchmark rate below zero during the next economic downturn. 

Negative rates are a last-resort monetary policy tool that central banks use to crush deflation and encourage consumer spending. 

In a note to clients on Thursday, Edwards wrote (emphasis added): 

The next US recession will probably arrive a lot sooner than most investors expect and will likely see more desperate monetary experimentation from the Fed. Bob [Janjuah of Nomura] and I thought that this time we would see deeply negative interest rates in the US (and Europe). Sweden has led the way, dipping their toe below the water line with their current -0.35% policy rates but there will be more, much more along these lines. For if -0.35% is possible, why not - 3.5% or less? It goes without saying that deeply negative interest rates would be accompanied by a massively expanded QE4 in the US. The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come.

 

DYI

Dennis Gartman

Friday, September 25, 2015 

Gold is higher because of Mario Draghi comments. 

Gold has been in a phenomenal, unending, malevolent bear market since November 2011. If you have owned gold in dollar terms it has been a terrifyingly bad trade. 

There's a real strength in the gold market when you look at it in non-U.S. dollar terms. The difference is enormous.

Why Gold is rallying higher. 

I think what we are seeing is that the monetary authorities have no choice. They're fighting a deflationary trend. Draghi's comments yesterday saying again he would do everything he could to fight the deflationary tendencies .... to me was the precursor for the rally in Gold. 

DYI 

Generational
Dynamics

Japan's Economy Returns To Deflation

Japan's Consumer Price Index (CPI) for August was -0.1%, the negative value indicating that Japan is returning to deflation. The last time that Japan's core inflation was negative was April 2013. Since then, the Bank of Japan has been easing monetary policy significantly in the hope of stimulating inflation, but to no avail. 

Japan began going into deflation after 1990, when there was a crash on the Tokyo Stock Exchange, and a crash in Tokyo's real estate bubble. At the peak of the bubble, Tokyo's real estate had a nominal value greater than all the real estate in the United States. It's amazing that after 25 years, deflation is continuing. Japan's prime minister Shinzo Abe said on Thursday that Japan's economy was no longer in deflation, so he must have been disappointed to wake up on Friday morning to the news that Japan was indeed still in deflation. 

As I wrote earlier this year in "11-Mar-15 World View -- Europe, America, China economies all continue in deflationary spiral", the global economy is in a deflationary spiral. 

Ever since 2003, when I started writing regularly about Generational Dynamics, 

I've repeatedly written that in this generational Crisis era, Generational Dynamics is predicting a deflationary spiral. 

Mainstream economists, on the other hand, have been predicting that inflation or even hyperinflation would begin "next year" every year since then. Mainstream economists have been dead wrong, and continue to be wrong, while Generational Dynamics is right. Barrons and Reuters

DYI Comment:  For the next 5 to 7 years as this debt bubble is worked off either through pay downs or debt defaults very low inflation or deflation will reign supreme.  Once that has occurred with all of the money printing that has transpired inflation will be the rule.  The 2020's will be known as the roaring 20's with high taxes, high inflation, and a labor shortage as Boomer's finally exit the work force in significant numbers.  Between now and the early 2020's a deflationary smash can't be ruled out.  As stocks and bonds(especially junk) are grossly over priced.  Real estate may not be smashed but a down turn in prices most likely will occur.

Now is not the time to be buying stocks and long bonds on a whole sale basis as the return of your principal is far more important than the return on your principal.  So when everyone else is losing their heads don't go and lose yours.  Better values lie ahead.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  9/1/15

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

85% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

DYI 

DYI Comment:  The above chart is equity allocation based on surveys for institutions and individuals as to their holdings of common versus competing asset categories(primarily bonds) then overlaid with the Shiller PE10.  All an investor would need to do in order profit from the great rises and falls of the market is to subtract the current allocation from 65 to obtain the contrarian equity allocation.  65% - 30% = 35%.  A very simple yet effective management tool placing one's monies in the opposite direction of the crowd.

DYI's averaging formula using the Shiller PE10 is along those very line with the chart above.

 % Allocation Formula

9-1-15
Updated Monthly

% Allocation = 100 – [100 x (Current PE10 – Avg. PE10 / 2)]  /  (Avg.PE10 x 2 – Avg. PE10 / 2)

Current PE10.....25.01

Avg. PE10.........16.62

% Stock Allocation 33% 

DYI

DYI Comment:  Inventory led recession is beginning to take shape combined with an overvalued stock market and that spells trouble.  If this continues to decline buckle up for were in for a very bumpy ride.

DYI

How subprime loans keep the bubble going: Subprime auto loans continue to grow as credit worthy customers drop out of the market.

Subprime debt is back in a big way

Over the last seven years courtesy of the Fed’s low rate policies, auto and student debt has surged in dramatic fashion.  While the shrinking middle class is unable to purchase homes with inflated values, many are still chasing the dream by going into debt for cars and college. 

The debt growth in these markets is nothing short of fantastic:

What is scarier about this sudden growth is that much of the debt is being made to people that are having a difficult time paying it back.  Take a look at subprime auto debt:

The results of prolonged artificially low rates is that the market is now fully addicted to this environment.  The Fed is backed into a corner and they really have very little ammo left.  Speculative lending is already dominating the market.  You can see the subprime booms very clearly:

I would argue that many college loans are subprime especially if they are made to students going to for-profit paper mills.  At least with subprime auto debt, you are getting a tangible item in a car.  With a for-profit, you are getting nothing, not even an education.  The only education you are getting is the shady under belly of subprime student loans for a subprime degree. 

The economy is clearly slowing down.  Recessions happen.  And once again we have saddled a large enough group of Americans with debt where the pain will be deeply felt when the correction hits again.

DYI Comment:  Keep your powder dry America is being set up for another round of debt blow off that will hit stocks and junk bonds hard.  Better values lie ahead so don't lose your head while everyone else is losing theirs.  Patience will be rewarded for this has been a long and tortured, twisted, manipulated economy.  Mr. Market will have his day as he will reset stock and bond prices to more accurately display valuation.  A 45% to 60% decline cannot be ruled out; it is a very real possibility.

DYI 

Marc Faber

Mining Companies Bankruptcies Could Lead to a Beginning of a Rally in Miners 

"Mining stocks are extremely depressed, I mean if someone says what is cheap in the market place then I would say the miners are incredibly low, next station is bankruptcy and maybe one of the big ones still goes bust and that would probably signal the end of the bear market in precious metals. Possible." 

Mining companies cheap but could get cheaper 

"I would say the miners are incredibly low, next station is bankruptcy and maybe one of the big ones still goes bust and that would probably signal the end of the bear market in precious metals. Possible."

DYI Comment:  Excellent time to dollar cost average into to favorite mining mutual fund.  DYI's stance remains with 15% in precious metals mining mutual funds.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION

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

85% - Cash -Short Term Bond Index - VBIRX

15% - Gold - Precious Metals & Mining - VGPMX

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

 0% - Stocks - Total Stock Market Index Fund - VTSAX

[See Disclaimer]

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

Maximum Aggressive Portfolio

(Super Max)

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

83% Cash - Hussman Strategic Total Return Fund - HSTRX

15% Gold - Tocqueville Gold Fund - TGDLX

  0% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX

  2% Stocks - Federated Prudent Bear Fund - BEARX

[See Disclaimer]

DYI

How Low Can Oil Go?

Goldman Says $20

a Barrel Is a Possibility 

“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view U.S. shale as the likely near-term source of supply adjustment.”

DYI Comments:  Fracking and horizontal drilling has no doubt increased the amount of oil being pumped out of the ground, however, the bigger picture is lack of demand as the world wide economy slows driving down oil prices further.  This has created a sell off, on average, of 40% for most oil stocks and energy sector mutual funds such as Vanguards Energy Fund symbol VGENX. The oil and gas industry is now trading at a discount to the general market....A great time to dollar cost average at these reduced prices.  If oil does go as low as $20 dollars per barrel lump summing would lower your cost basis further setting up an excellent return when oil prices rebound.

DYI

Recession Indicators on the Horizon! Overvalued Market and the Fed's who want to Raise Rates??

"The shocking weakness in August was no fluke as the Empire State index came in far below expectations for September, at minus 14.67." 

Next only to August's minus 14.92, September's reading is the weakest of the recovery, since April 2009. And, unfortunately, judging by new orders, activity in October may prove to be just as weak 

New orders are deeply negative this month, at minus 12.91 vs minus 15.70 in August and the fourth straight negative reading. And manufacturers in the New York region won't be able to turn to backlogs which are extending their long run of contraction at minus 8.25

DYI

Oil & gas and precious metals mining shares are there now or in the process of being put on the give-away-table. Don't let fear drive you away from buying into two industry groups that will be with us for many years to come.

From

Gary Shilling Blog

Global Recession Could Occur if Oil Price Drops Again

If oil prices take another dramatic slide, as I believe they will, who wins and who loses? And could plummeting oil prices sow the seeds of the next recession ? 

Oil-importing countries are obvious winners from falling crude prices. That includes the U.S., where -- despite a surge in domestic production -- imports still account for nearly 50 percent of petroleum consumption. The net oil-importing countries of western Europe and Asia also benefit from falling crude prices. India and Egypt, which subsidize domestic energy use, will surely benefit. Some of that, however, will be offset because crude oil is priced in U.S. dollars, and those countries' currencies have grown weaker against the greenback. 

"The windfall for U.S. consumers is considerable, with average gasoline prices down 24 percent to $2.47 a gallon from $3.77 in June 2014. No doubt, prices will fall even more when the summer driving season ends after Labor Day." 

Most forecasters believe consumers will spend the windfall, and thus boost the economy. 

"But almost all of the savings from lower pump prices so far have been used to rebuild household assets and reduce debt. Consumers tend to increase their savings in tough times;" 

 

they've been doing so during the six-year recovery, even as real wages and median household incomes remain flat. 

Lower oil prices, however, could come with a downside. As they work their way through the system, deflation could follow. Already, 10 of the 34 largest economies in the world have seen year-over-year declines in consumer prices. The risk is that deflationary expectations could follow, encouraging consumers to withhold purchases in anticipation of even lower prices. 

If that happens, excess capacity and inventories would build, forcing prices down more. When buyers' suspicions are confirmed, they further delay consumption, in a vicious downward cycle. The result is little if any economic growth, as deflation-prone Japan has seen over the last two decades. 

The losers from declining oil prices obviously include producers and oil-services companies, especially those that are highly leveraged.

DYI quick comment:  Excellent time to dollar cost average into your favorite oil & gas mutual fund, our favorite is Vanguards Energy Fund symbol VGENX.  If oil prices drop even lower this would only encourage me to buy more.  If oil prices go as low as Gary Shilling is predicting $10 to $20 range lump summing would be recommended.

At that level look into:

Adams Natural Resources Fund (NYSE: PEO), formerly known as Petroleum & Resources Corporation, is one of the nation’s oldest and most respected closed-end funds, and is the longest-tenured closed-end fund specializing in energy and natural resources stocks.

Buy When There's Blood In The Streets

      Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that "The time to buy is when there's blood in the streets." 

He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own." 

This is contrarian investing at its heart - the strongly-held belief that the worse things seem in the market, the better the opportunities are for profit.

Back to Gary Shilling: 

U.S. shale-oil frackers are taking a hit, and yet they stubbornly refuse to leave the business. One reason is that well-drilling costs are also declining. Another is that oil prices are still above frackers' marginal costs, which encourages them to increase output to make up for falling revenue. 

Employees in the U.S. oil- and gas-extraction industry make up just 0.14 percent of total payrolls, but they were paid an average of about $41 an hour in July -- almost twice what other U.S. workers are paid. Since late last year, jobs are down only 4 percent in the sector and weekly pay has declined just 3 percent. With another big leg down in oil prices, vacancy signs may soon appear in the once-booming North Dakota fracking fields. 

Further drops in oil prices will add to the woes of African exporters Ghana, Angola and Nigeria. Oil exports finance 70 percent of Nigeria's budget. Ditto for economic basket case Venezuela, where the bolivar has collapsed from 103 per U.S. dollar in November to 701 on the black market. (The official rate remains a fanciful 6.29 to the greenback.) 

Russia depends heavily on oil exports to finance imports and government spending. With Western sanctions over Ukraine squeezing the economy and Russian banks unable to borrow abroad to service their foreign debts, another drop in oil prices could precipitate a rerun of the country's 1998 default. The ruble has dropped to 66 per dollar from 49 per dollar in May, inflation is running at a 16 percent annual rate, and the economy contracted by 4.6 percent in the second quarter versus a year earlier. 

With no other meaningful source of foreign exchange, Russia no doubt will continue to produce and export oil even if prices fall below marginal costs. And who knows what President Vladimir Putin might do next to divert domestic attention from this miserable situation?

DYI QUICK COMMENT:  It appears that Vlad has his eyes set on Syria along with their allies Iran to ramp up the on going Muslim civil war.  To what end is unknown, except to extend Russia's reach, expensive and Russian blood, for only marginal gains in this war torn part of the world.
 
Back to Gary Shilling: 

According to Shakespeare, the dying King Henry advised his son, Prince Hal, to "busy giddy minds with foreign quarrels." 

"Energy stocks are already down substantially on oil price weakness, with stalwart Royal Dutch Shell off 35 percent over the past year. 

Expect more punishment for speculators and investors who hold oil and related securities if prices drop toward my $10- to $20-a-barrel target. "

Persian Gulf stock markets have been hurt and will probably nosedive with further oil-price weakness, especially since they're dominated by retail investors who have used cheap credit to rack up sizable margin debt. The Saudi bourse was the region's top performer this year, partly in anticipation of its opening to foreigners in June. Still, it's down 10 percent for the year so far. Oil provides 90 percent of the Saudi government's revenue and 40 percent of gross domestic product. 

The U.S. Federal Reserve has put off raising short-term interest rates until labor markets and inflation data are more to its liking, but it now seems to many that it will take action before the end of 2015. I believe the Fed will hold off on a rate hike until next year, at the earliest. But if it does move this year, and commodity prices tumble, China slumps and deflation sets in, it could soon wish it hadn't. 

"The combination of all these forces may be the shock that precipitates the next global recession."

DYI Comments:  The U.S. stock and bond(junk bonds) are at nose bleed levels.  Our favorite dividends as a unit of measurement the S&P 500 yield is 104% above its average.  Using 6% dividend yield(17 price to dividends) as a possible secular bottom; would require a 64% drop in market prices.  This could take more than one complete cyclical downward move to achieve this but it is still very doable in a one or two year crash.  I have no crystal ball.  All I do know is this market based on valuations and historical norms is way overvalued.

Not all is lost in this waiting game as oil & gas and precious metals mining shares are there now or in the process of being put on the give-away-table.  Don't let fear drive you away from buying into two industry groups that will be with us for many years to come.

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  9/1/15

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

85% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

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9-1-15
Maximum Aggressive Portfolio

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82% Cash - Hussman Strategic Total Return Fund - HSTRX

15% Gold - Tocqueville Gold Fund - TGDLX

  0% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX

  3% Stocks - Federated Prudent Bear Fund - BEARX

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DYI

Don't let fear hold you back....A great time to acquire shares of your favorite precious metals and mining fund mutual fund!

DYI Comment:  Gold and more importantly mining shares are a good purchase at this juncture; a bit pricey but very doable on a historical basis.  DYI's averaging formula is at the 15% level.  Just putting an eye ball on the above chart one can easily tell that level is just about right. With all of the money printing world wide we are being setup for large amounts of inflation in the 2020's. However, in the meantime a deflationary smash is very possible and probable for stocks and bonds and to a lesser amount real estate when this bubble bursts.

This is a the time to dollar cost average into your favorite precious metals and mining mutual fund.  Don't let fear hold you back.

DYI

Precious metals mining shares are on the give away table....Are YOU buying??

That Was Not a Crash 

John P. Hussman, Ph.D.

Actual market crashes involve a much larger and concerted shift toward investor risk-aversion, which doesn’t really happen right off of a market peak. 

"Historically, market crashes don’t even start until the market has first retreated by 10-14%, and then recovers about half of that loss," 

offering investors hope that things have stabilized (look for example at the 1929 and 1987 instances). The extensive vertical losses that characterize a crash follow only after the market breaks that apparent “support,” leading to a relentless free-fall that inflicts several times the loss that we’ve seen in recent weeks.

Hand-in-hand with the exaggeration of the recent decline as a “crash” and “panic” is the exaggeration of investor sentiment as being wildly bearish. The actual shift has been from outright bulls to the “correction” camp, but that’s a rather meaningless shift since anyone but the most ardent bull would characterize current conditions as being at least a market correction. 

Historically, durable intermediate and cyclical lows are characterized by a significant increase in the number of outright bears. That’s not yet apparent here. Indeed, Investors Intelligence still reports the percentage of bearish investment advisors at just 26.8%.

DYI Comment:  No doubt in this blogger's mind this was no crash; the real McCoy will come soon enough.  Central banks stimulus(world wide), tail end of world wide Boomers savings glut, and lower oil prices have kept this market levitated far longer than most would expect including me.  Highly volatile oil prices if they were to move back in a meaningful way would be one possibility to knock over this house cards stock and bond market(junk bonds).  Whatever the pin that pops this bubble is up for grabs. This is NOT the time be be purchasing stocks on a whole sale basis such as a large lump sum unless you can tolerate a 50% or more draw down and have two or more decades ahead before you need the money.  That is correct at least two decades.  This market is that overvalued.    

These Two Major Miners Are Giving Up On The Markets

How long will it take before metals prices start to rebound? 

No one knows for sure -- but one of the indicators to watch is when the world's biggest mines begin to shut down because of poor economics. 

And we got not one, but two, examples this week of mine closures from some of the world's largest metals producers. 

The first was base metal major Glencore. With the company saying Monday it will close two of its largest copper mines in Africa -- for at least 18 months.

 Major Peruvian silver-lead-zinc producer Volcan Minera also said that it is conducting a review of all of its mining operations. With management noting that "any operation that is unprofitable at current prices will be temporarily suspended."

DYI Continues:  Precious metals mining is the exception(plus oil &gas stocks) as they are in the mist of a major bear market bottom with stock prices down on average 75%.  With mine closings this signifies the bottoming process is in place for this beleaguered industry.  A wonderful time to dollar cost average into your favorite precious metals mining mutual fund.  DYI's favorite, of course, is Vanguards Precious Metals and Mining Fund symbol VGPMX.  Happy hunting!

DYI