Saturday, May 21, 2016

If one dates the beginning of a depression from the time when the benefits of debt are, in the aggregate, outweighed by its burdens, the depression began in 2000,["spot on DYI"] with the implosion of the fiat-credit fueled, high-tech and Internet stock market bubble. Unsustainable debt and artificially low interest rates lower the rate of return on productive investment and saving, increasing the relative attractiveness of speculation. Central bankers and their minions refer to this as “forcing investors out on the risk curve,” crawling way out on a limb for fruitful returns. They have no term for when markets saw off the branch, as they did in 2000 and again in 2008. 
Most people don’t see 2000 as the beginning of a depression, but Washington and Wall Street cloud their vision. Stock markets were once essential avenues for raising capital and valuing corporations. Since central bankers’ remit was broadened to their care and feeding, stock markets have become engines of obfuscation. The “wealth effect” supposedly justified solicitude for markets: a rising stock market would increase wealth, spending, and economic growth. For seven years a rising market has coexisted with an anemic rebound and one hears little about the wealth effect anymore. The stock market is the preeminent symbol of economic health, so keeping it afloat has become a political exercise. Sure, central bankers and governments know what they’re doing, just look at those stock indices. 
Let’s look at those stock indices. They are measured in fiat debt units, the entirely elastic quantity of which is in the hands of governments and central banks. What if stock indices are valued in a less ephemeral currency, say gold, aka “real money”? By that measure, the DJIA divided by the price of an ounce of gold reached its all-time high of about 41 ounces in May 1999, or just before the depression began. That ratio collapsed to under 7 ounces in September 2011, and currently stands at about 14. If you paid for the Dow in 1999 with gold, you’ve lost 65 percent on your original investment.

 5-1-15
Updated Monthly

Secular Market Top - Since January 2000

+  54.6% Dow       
+164.4% Transports 
+131.0% Utilities

+40.6%  S&P 500
+17.4%  Nasdaq

+58.8%  30yr Treasury Bond

+345.6% Gold
  +79.9% Oil
  +64.6% Swiss Franc's
    
From High to Low

+345.6% Gold
+164.4% Transports
+131.0% Utilities 
+  79.4% Oil
+  64.6% Swiss Franc's
+  58.8% 30 year Treasury bond
+  54.6%  Dow
+  40.6% S&P 500
+  17.4% Nasdaq
They see a bleak future and they’re not wrong. The global economy hit stall speed with the commodities crash in 2014 and another rendezvous with terra firma looms. Never has the world been more in debt. True recovery won’t happen until most of it has been repudiated and written off. The current depression is already longer than the Great Depression. By the time it’s over, economic historians will be calling it the Humongous Depression.
DYI Comments:  Will it be fire or ice?  Fire is devaluation causing inflation thereby shafting the debt holders who will be paid in depreciating dollars or a icy deflationary smash causing massive defaults. My guess, and it is only a guess(hopefully more informed than the average person) we will first experience an icy deflationary smash pushing the political class into a devaluation.  In other words a repeat of the 1930's.  This is why countries are scrambling to build up their gold reserves so they we have a seat at the table when the world has its monetary reset. So far the countries who will be seated is the U.S., Germany, China, Japan, and Russia.  England will be in the room but will be relegated to a participating spectator allowing to speak from time to time but will not be at the table. Canada who just recently sold off all of their gold will remain at home.

With the U.S. England, EU countries, and Japan massively in debt it is very likely most if not all of these countries will inflate to lower their debts relative to their GDP's.  With interest rates at sub atomic levels long term bonds are now a speculation betting on continued low inflation or deflation.
Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 5/1/16

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]

 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