Investors have forsaken all reason, logic and wisdom by rushing into the biggest stock and financial bubble in history. Even some precious metals investors are selling their gold and jumping into the markets hoping to make big profits as President Trump takes over the White house in six weeks.
Unfortunately, the worst time to jump into a market is when everyone else is doing the same thing. Of course, this doesn’t mean the Dow Jones Index won’t continue higher for some time, but the fundamentals of the economy continue to rot from the inside out.
No one really notices this as automobile dealers are now selling cars with zero interest rates, nothing down and no payment for 6 months.
If this is the sort of business model the automobile industry has to resort to in order to continue sales, we are in big trouble.
Trumponomics Will Collapse Under a Mountain of Debt
DAVID STOCKMAN
What is going to stop Trumponomics cold is debt — roughly $64 trillion of it. That’s what is crushing the American economy, and until the mechanics of its relentless growth are stopped and reversed, the odds of achieving and sustaining the 3–4% real economic growth that Trump’s economics team is yapping about is somewhere between slim and none.
Here’s the newsflash. The nation’s monumental debt problem wasn’t newly created by the Obama Administration or the fact that Nancy Pelosi never met a spending program she couldn’t embrace. The last eight years have surely made the problem far worse and the Democrats are culpable without question.
But quite frankly the debt problem is a thoroughly bipartisan creation that is completely immune to the fact that the White House and both sides of Capitol Hill are now under GOP control.
In fact:
the nation’s debt affliction actually goes back to August 1971 when Nixon closed the gold window and launched the world on the current destructive experiment with massive central bank driven credit expansion.
Since then, total debt has exploded to nearly $64 trillion or 13X. It now stands at 350% of GDP, meaning that these two extra turns of debt (3.5X vs. 1.5X) amount to $35 trillion and constitute a giant economic millstone on the American economy.
There is no chance whatsoever of a clean, immediate fiscal shock to the moribund U.S. economy fantasized by the Wall Street bulls.
DYI: I'm surprised through out the entire article[David Stockman] no mention of the Medical Industrial Complex(MIC) bleeding this country dry with their monopolies(or soon to be there!). This industry is consuming 20% of GDP put back under existing law - Robinson-Patman, Clayton, and Sherman antitrust act along with legislation allowing for re-importation of pharmaceuticals health care cost would drop by 75%! That is NOT a typo - 75%. This would drop the MIC back to 5% of GDP - a significant savings - especially for Medicare, Medicaid, VA, and the American populous.
This savings would give the Trump Administration maneuvering room for a infrastructure build out and paying down 2% to 3% per year of our national debt. This would increase the purchasing power of all holders of U.S. Dollars - especially helpful for the middle class and poor.
No doubt the economy since President Richard Nixon ended the last vestige of the gold standard that provided a governor on Federal spending and debt; since then it has been off to the races in a debt explosion. Not just within government Federal - State - and Local corporate America is in a swamp of debt. Unless significant reductions in cost are made to the Medical - Military -Banking Industrial Complex - Trade Deals - Rules and Regulations - and Tax Relief - America will be toast.
As it stands now the U.S. stock market is horribly overvalued. Only third in comparison to 1929 and 2000 market tops. If this enthusiasm continues surpassing 1929 would be not be surprising as valuations are very close to that top. Bond prices are sagging pushing up the current yield providing future bond returns competitive to stocks. Below is an update for DYI's EYC Ratio as it declines closer to dropping below 1.0 - under 1.0 a bull horn telling stock holders time to re-think a reduction for stocks in your overall asset allocation.
Ben Graham's Corner
Margin of Safety!
Central Concept of Investment for the purchase of Common Stocks.
"The danger to investors lies in concentrating their purchases in the upper levels of the market..."
Stocks compared to bonds:
Earnings Yield Coverage Ratio - [EYC Ratio]
EYC Ratio = [ (1/PE10) x 100] x 1.1] / Bond Rate
1.75 plus: Safe for large lump sums & DCA
1.30 plus: Safe for DCA
1.29 or less: Mid-Point - Hold stocks and purchase bonds.
1.00 or less: Sell stocks - rebalance portfolio - Re-think stock/bond allocation.
Current EYC Ratio: 1.01
As of 12-09-16
Updated Monthly
Updated Monthly
PE10 as report by Multpl.com
Bond Rate is the rate as reported by
Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)
DCA is Dollar Cost Averaging.
Lump Sum any amount greater than yearly salary.
PE10 .........27.94
Bond Rate...3.90%
Lump Sum any amount greater than yearly salary.
PE10 .........27.94
Bond Rate...3.90%
Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss......If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety. The danger to investors lies in concentrating their purchases in the upper levels of the market.....
Benjamin Graham
DYI
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