Saturday, November 28, 2015

Bargain Time for Commodities...Yes...Especially the Mining Companies!

If China Killed Commodity Super Cycle, Fed Is About to Bury It

The gauge tracking the performance of 22 natural resources has plunged two-thirds from its peak, to the lowest level since 1999. That shows it’s back to square one for the so-called commodity super cycle, a hunger for coal, oil and metals from Chinese manufacturers that powered a bull market for about a decade until 2011.
The first U.S. interest rate increase since 2006 is expected next month by a majority of investors, helping push the dollar up by about 9 percent against a basket of 10 major currencies this year. That only adds to the woes of commodities, mostly priced in dollars, by cutting the spending power of global raw-materials buyers and making other assets that generate yields such as bonds and equities more attractive for investors.
DYI Comments:  Is the cup half full or half empty?  This is the bottoming of commodity prices.  Be aware this bottoming will most likely be years in the making allowing the value player plenty of time to dollar cost average into your favorite natural resource fund.  DYI's favorite is Vanguard's Precious Metals and Mining Fund symbol VGPMX; their share prices have been decimated.

Vanguard Precious Metals and Mining Inv (VGPMX)

The drop for these mining companies has been far greater than the metals they produce.  A bargain in the making.  Our proxy for our formula is the Dow/Gold Ratio.  Currently gold is neither overvalued nor undervalued; at average valuation(at its mean).  Our formula has us at 17% only until gold(commodities) become an increasing better bargain by stocks rising or gold falling (or some combination of the two) will that percentage increase.  Our model portfolio has plenty of dry powder(cash).  Stocks and bonds valuations have left the planet earth.  Could they go higher?  Who knows?  At these levels a 45% to 60% decline in stocks is very much within the realm of reality. Bonds yields could very well rise(bond prices falling) but to a far lessor degree than stocks.  So while everyone else is losing their head don't go and lose yours.  Patience will be rewarded as greater valuation are ahead. 

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

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  11/1/15

Active Allocation Bands (excluding cash) 0% to 60%
79% - Cash -Short Term Bond Index - VBIRX
17% -Gold- Precious Metals & Mining - VGPMX
 4% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
[See Disclaimer]

 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

Wednesday, November 25, 2015

Turkey downed fighter jet within the rules of engagement: Erdoğan

“Despite all warnings, a fighter jet of unknown identity was interfered within the rules of engagement. The jet unfortunately insisted on its violation despite it had been warned ten times and our F-16’s downed one of the jets as a result of the intervention,” Erdoğan said.
 Russia's president Vladimir Putin called Turkey's downing of the fighter jet "a stab in the back" carried out by the accomplices of terrorists, alluding to previous accusations that Turkey's government were accomplices of the so-called Islamic State (IS or ISIS or ISIL or Daesh). Putin said that the incident would have serious consequences for the two countries' relations.
DYI Comments:  Vladimir is quite correct as Turkey has and continues to funnel money to ISIS and other radical groups who oppose the Kurds.  Nothing like paying others to do your own dirty work and when caught deny, deny, deny.  Unfortunately Turkey has let the genie out of the bottle unable to control these radical groups as happened in France and Lebanon.  The Crimean area has been a hot bed of many wars with the most note able war from 1853-1856 with multiple countries involved.  Let's hope that cool heads will prevail and failing that, it is my hope the U.S. sits this one out.  Some of our Presidential contenders have made statements that our fighter jets should take on the Russians.  Hopefully the Russians will only see this as Presidential posturing only; the more slimy side of politics.  Personally any politician making those comments is incredibly irresponsible and needs to shut up.
DYI        

‘Dr. Copper’ plunges to US$2 for first time since 2009: ‘Things are quite horrible and about to get worse’

 Copper goes by the nickname “Dr. Copper,” because the red metal is viewed as a barometer for the global economy. And unfortunately, it hasn’t been saying anything cheery of late.
 
Copper prices plunged back to US$2.00 a pound this week, the first time they have touched that level since the last gasps of the Great Recession in 2009. Prices are down nearly 60 per cent from their 2011 highs of more than US$4.60, and plenty of experts think they will keep going lower.
 
And that, more than the uncertain global economy, is a key reason why experts think prices will fall further — entirely independently of the outlook for worldwide trade. Despite the steep decline in prices this year, the vast majority of copper producers are still making money at US$2.00 a pound. That is in stark contrast to some other commodities, such as nickel, where most of the global output is losing money at current prices.
DYI Comments:  As a contrarian value player the metals are unable to generate any positive news.  Our favorite Vanguards Precious Metals and Mining Fund (VGPMX) has been decimated.

This bodes well for the "real" long term investor, opposed to short term speculators, it is possible to build a position over the next couple of years(possibly more) in your favorite mining company mutual fund at very low prices.  Dollar cost averaging only as the possibility of a global downturn is growing (not a certainty), if that occurs, precious and industrial metals will drop further impacting mining companies profits negatively forcing share prices lower.

Our proxy to determine valuation level for metals is the Dow/Gold Ratio.  Currently today with the Dow at 17,807 and gold trading at $1070 the ratio is currently 17 to 1(rounded).  On a macro basis, depending on where you draw the regression line(green line), the ratio is at or near average valuation.
The physical metals are neither expensive nor cheap.  However, the mining companies share prices have sold off far beyond their actual physical metals that they mine.  In other words, a bargain for patience investors.  How much?  Our formula based investment process has us at 17%.

  Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  11/1/15

Active Allocation Bands (excluding cash) 0% to 60%
79% - Cash -Short Term Bond Index - VBIRX
17% -Gold- Precious Metals & Mining - VGPMX
 4% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
[See Disclaimer]

 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

Monday, November 23, 2015

Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in

In uncertain times, “cash is king,” but central bankers are systematically moving to eliminate that option. Is it really about stimulating the economy? Or is there some deeper, darker threat afoot? 
The stated justification for this move is to stimulate “demand” by forcing consumers to withdraw their money and go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive. This is supposed to boost spending and kick-start an economic recovery. 
Consumers today already have very little discretionary money. Imposing negative interest without first adding new money into the economy means they will have evenless money to spend. This would be more likely to prompt them to save their scarce funds than to go on a shopping spree. 
The promise of Dodd-Frank, however, was that there would be “no more taxpayer bailouts.” 
Instead, insolvent systemically-risky banks were supposed to “bail in” (confiscate) the money of their creditors, including their depositors (the largest class of creditor of any bank). 
That could explain the push to go cashless. By quietly eliminating the possibility of cash withdrawals, the central bank can make sure the deposits are there to be grabbed when disaster strikes.
DYI 
 

Like most folks we all like a happy ending to this downturn but please to insinuate that the economy is in full blown prosperity is preposterous.

ECONOMIST: 'Jobs market is literally on fire in most states in the union'

The Bank of Tokyo-Mitsubishi's chief financial economist, Chris Rupkey, circulated an email after the report with the title "Jobs market is literally on fire in most states in the union." The email maintains that optimistic tone and suggests that the geographically broad strength of the labor market could spur the Fed to tighten monetary policy at its December meeting:
DYI Comments:  Like most folks we all like a happy ending to this downturn but please to insinuate that the economy is in full blown prosperity is preposterous.
   
Until I see concrete upward movement in the labor participation rate all this happy talk is nothing more than "happy talk!"

The market and the economy have been in a complete disconnect since 1999 either the economy goes into full blown prosperity in order for sales, earnings, and dividends to catch up to valuation or the market takes a dive.
 

Current Copper Price Below Cost of Production

Dr. Copper is telling a different story of a world economy that is cooling off and very possibly moving into recession.  DYI will maintain our investment stance based upon long term valuation norms.  Currently today based on price to dividends the S&P 500 is 113% above its long term average(since 1871).  Our averaging formula has "kick us out" of the stock market and for good reason as valuation have long since left planet earth.
Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  11/1/15

Active Allocation Bands (excluding cash) 0% to 60%
79% - Cash -Short Term Bond Index - VBIRX
17% -Gold- Precious Metals & Mining - VGPMX
 4% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
[See Disclaimer]

 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

Friday, November 20, 2015

Why the Muslim and Western Cultures Will Continue to Clash

The Muslims consider the American culture as having become totally depraved. The best indication of this to a traditional Muslim is the collapse of the traditional American family. 
Qutb had written, “If free sexual relationships and illegitimate children become the basis of a society; and if the relationship between man and woman is based on lust, passion and impulse, and the division of work is not based on family responsibility and natural gifts; and if the woman is freed from her basic responsibility of bringing up children; and if, on her own or under social demand, she prefers to spend her ability working for material productivity rather than in the training of human beings, because material production is considered more important, more valuable and more honorable than the development of human character, then such a civilization…cannot be considered civilized, no matter how much progress it makes in history or science.” 
From the Muslim point of view, to quote Muhammad Husayn Fadlallah, the spiritual leader of Hezbollah, “The enemies are after Islam. Not the official Islam that moves freely in the royal palaces, but the Koranic Islam. These are the committed Muslims that the enemy seeks to destroy. (And the enemy) calls us extremists, radicals and terrorists.” 
From the Muslim point of view, any culture that threatens the truly devout Muslim’s religious commitment is considered the “enemy”. Therefore, Western culture is the obvious enemy of Islam and America is the leader of all the Western countries.
 Muslim revulsion reaches its apex on the subject of homosexuality. The Koran describes homosexuals as “people of the wrath of Allah”. Most Muslims find the legitimizing of what they perceive as sinful conduct to be disgusting and unspeakable. One can only imagine the Muslim reaction to the CNN televised scenes of homosexual men and lesbian women exchanging marriage vows in San Francisco and Boston. 
They are appalled when people from the West defend these couples on the basis of “human rights”. From a lecture at Cairo’s Al Azhar University: ”We must caution our children against this accursed disease. If these perverts proliferate, the honor of the entire Muslim society will be violated.” One Saudi businessman stated to the author; “You have no idea what goes on in the desert, but this does not mean that Muslims endorse this perversion in our society. If we accept homosexual marriage, what comes next? Are we then to legalize marriage between a man and his camel?”
DYI Comments:  The differences between western cultures and the Islamic nations at its core is women and their connection to family.  When Osama bin Landen was alive he ranted how the west abused our women by being in the work place; that we took advantage of them simply to increase our profit margins; exploiting them to serve strangers(customers) treating women as if they nothing more than consumer products.  American and Western European women along with their men hold a totally different view.  An Islamic household would see this as abuse as opposed to liberation by American/Western European women.

BACK IN TIME

There was a time that we held these similar views of the more traditional household.  Today you will have to find very traditional Catholics, fundamental Protestants or orthodox Jews holding these views regarding women and the family.  During the 1980's and 1990's there was vigorous discussion regarding our "culture wars" in its redefining of family and women.  Of course this change moved though western Europe and the U.S. without violence except for isolated cases regarding abortion.

Technology transformed the family

There was a time having a large family was out of necessity to insure its survival.  More hands the better for doing all of the dawn to dusk farm work. Surplus foods to sell in order to purchase finished products enhancing the family's standard of living.  As farm technology progressed fewer children were needed and larger food surpluses.  All of the excess labor moved into the cities as they spawned the factory jobs.  Advances in medicine, farm equipment, lowering of child mortality large families began their decline.  As we move through time more and more automation are doing away with low skilled work.  As an example for every one assembly line job that went to China 1.7 jobs were automated out of existence.   Education in this high tech age is not just necessary but crucial if you desire to be in the middle class.

"Education in this high tech age is not just necessary but crucial if you desire to be in the middle class."

Children today are a large expense.  Many will not be out of the house with their first "real job" until the age of 23 or possibly 25!  That's a quarter of century!  Hence smaller families.  You have to have fewer child in order to afford putting them through all of the rigors of growing up and becoming educated.

Middle Eastern Countries

Syria
Economically the majority of these countries to be blunt, are backward.  No doubt Europe today along with the U.S. are having political and economic problems, however, nothing compares in scope as exampled Syria (before the civil war). Syria has 25% percentage of their population is/was employed in agriculture.  Only until recently due to drought conditions has pushed that number down to 17%.  Compare that to the U.S. or Canada which employs around 2%.  As western technology arrives in the middle east along with Syria their traditional way of life centered on women and traditional family life is under attack.  Hence the need to strike back at the American/Europeans who are exporting their immorality.  What they are really fighting is technology.  Syria's birth rate was already dropping changing women/family landscape to a more western direction.
 Fertility rate
Country200020012002200320042005200620072008200920102011201220132014
Syria4.063.953.843.723.613.53.43.313.213.123.022.942.852.772.68

These groups such as al Qaeda or ISIS and others who will follow are able to strike fear; however, they will be unable to turn back the direction of smaller families.  As that occurs women will simply have more time for other pursuits.  Simply stated if a women has two children she will only be pregnant for 2 percent of her life, assuming 3 years between births, entering school at age 7, she will be involved in core motherhood for 10 years.  Assuming a life expectancy of 80 years or 12.5% of her life in direct motherhood.

Those are the seeds of feminism as women spend far less time nurturing children they become less and less dependent on men.  This is why some Islamic cultures have banned women learning how to read or write in their attempt to maintain their dependency.  Unfortunately it is human nature to blame others for the changes in their societies. And those few who become radicalized violence becomes their only solution.  As long as they are unable to obtain weapons of mass destruction (chemical/biological/nuclear) these violent episodes will be a mere pimple in history.  Of course for the families who lost loved one's it never will be small event in history.

Iran

Iran will soon be a pro western style country with many attributes similar to Europe.  Why?
Fertility rate
Country200020012002200320042005200620072008200920102011201220132014
Iran2.22.022.011.991.931.821.81.711.711.711.891.881.871.861.85

DYI


  

Wednesday, November 18, 2015

A Trip Down Memory Lane

The year 2000 stocks were all the rage especially the dot.com companies listed on the NASDAQ. Everyone knew that by buying these stocks you were going to get rich or so they hoped.  As we all know hope turned into despair with high tech stocks dropping as much as 85%.  Would have a value player known better?  What would have our formula based investing told us?  Let's take a look!

STOCKS 

The average dividend yield for the year 2000 according to multpl.com was 1.22%.  What would our formula told us then.  PD stands for Price to Dividends it is the inverse of the interest rate.  ( 1 /1.22 ) x 100 = 82 (rounded).  Average PD is 23 today, I'm using that number as it will be very close to what it was in 2000.

100 -[ 100 x ( Curr. PD - Avg. PD / 2 ) ]
_______________________________
(Avg. PD x 2 - Avg. PD / 2 )

Negative 104%

Stocks were so massively overvalued at that time our averaging formula had you at a negative 104% invested.  In other words, nothing in stocks.  Stocks would have to drop so precipitously to cut through the negative 104% just to get to 0% invested level.  Monies including dividends reinvested at that time til today would have returned on a nominal basis a scant 3.92%.
  SPY ETF

Bonds
There was hope back in those crazy days of 2000 as the average yield for 10 year Treasury debt was 6.66%(PI 15) as reported by multpl.com. Once again using our averaging formula.

100 - [100 x ( Curr. PI - Avg. PI / 2 ) ]
________________________________
(Avg. PI x 2 - Avg. PI/2)

The average yield since 1871 for 10 year Treasury bonds is 4.61% which will be very close to what it was in the year 2000.  The PI stands for Price to Interest calculated ( 1 / 4.61 ) x 100 = 22 (rounded). Working our formula with our grocery store scientific calculator we arrive at 36%.  DYI uses the 60% number as our governor keeping you invested in all four categories except during times (this example) of extreme under or over valuation.  Simply 36%(rounded) x .60 = 22%(rounded) invested in bonds.


Gold
In the late 1990's or the early 2000's if you had mentioned that you were interested in gold as an investment people would have look at you with a puzzled look on their faces.  Except value players or gold bugs (the few that were left) would have had a much different story to tell.


The average price for gold (year 2000) as reported by http://www.kitco.com was $279 per ounce and January the Dow was at it lofty price of 10,940 for a Dow/Gold Ratio at 39 to 1 (rounded).  Let me plug in the numbers using our average Dow/Gold Ratio of 16 and see what we get!

  [100 x ( Curr. DG - Avg. DG / 2 ) ]
________________________________
(Avg. DG x 2 - Avg. DG /2)

Gold at that time was on the give-away table as opposed to bubble land stocks.  At that time our formula would have you at 129%.  Of course we need to apply to our 60% governor or 129 x .60 = 77% invested.
Year 2000 Portfolio
 Active Allocation Bands (excluding cash) 0% to 60%
1% - Cash -Short Term Bond Index - VBIRX
77% -Gold- Precious Metals & Mining - VGPMX
 22% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
[See Disclaimer]

Interest rates dropped as the economy and stock market went into a tailspin pushing long term bond prices skyward and once stocks had bottomed out gold mining companies went on a multi year bull market.  All we simply have done is play the averages. Proportionally more undervalued or proportionally less overvalued.  Each of our four asset categories slowly moving up or down through the years as determined by the valuation formula.

DYI