J. Paul Getty Quote!

Stock Market - "For as long as I can remember, veteran businessmen and investors - I among them - have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips.

The professional investor has no choice but to sit by quietly while the mob has its day, until enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. There are no safeguards that can protect the emotional investor from himself."

January 23, 2017

Rare Signatures

John P. Hussman, Ph.D.

As I've detailed regularly, the emergence of an extreme “overvalued, overbought, overbullish” syndrome of market conditions has historically been a powerful warning against further speculation. In prior cycles across history, the emergence of this syndrome was regularly accompanied or closely followed by deteriorating market internals (an indication of subtle underlying risk-aversion among investors), and a steep market loss would typically follow. In the half-cycle since 2009, our reliance on that aspect of history proved costly, because Fed-induced yield-seeking (“there is no alternative!”) encouraged investors to speculate long after severe “overvalued, overbought, overbullish” syndromes emerged. In mid-2014, we adapted by imposing an additional constraint on our methods: in the presence of zero-interest rates, one had to wait for market internals to deteriorate explicitly before adopting a hard-negative market outlook.

DYI: DYI has been negative since 2014 going on year 4 leaving me with the feeling of the boy who cried wolf!  During this time dividend yields and long term bond yields were sub atomically low always a clear indication of an overblown market.  DYI are compounder's of money as dividend yield and bond yield is my first importance then capital gains.  Simply stated the greater the yield the larger my asset allocation for these two assets - stocks and bonds.  DYI's marker for precious metals mining companies is the Dow/Gold Ratio.  When it is flashing positively towards gold and the mining companies up goes our allocation.  Also for those mining companies that do pay dividends yields will be greater further expanding DYI's goal as compounder's.

Presently, Fed policy has achieved “liftoff” from the zero interest rate bound, and despite the recent post-election blowoff, our key measures of market internals remain unfavorable here. Given that environment, my expectation is that the overvalued, overbought, overbullish extremes we presently observe may have harsh consequences, as they have in prior cycles. We’ll defer our immediate concerns if market internals shift to a more uniformly favorable condition, but if anything, we’re seeing a sharp broadening in the number of red flags and warning signals we monitor. I’ve noted in recent weeks that our most extreme variant of “overvalued, overbought, overbullish” conditions has emerged; a secondary signal at a level on the S&P 500 about 4% higher than the syndrome we observed in July. Apart from a set of false signals in late-2013 and early-2014 at the height of zero interest rate enthusiasm, every other instance of this syndrome has been associated with a major market peak, including 1929, 1972, 1987, 2000, and 2007.

DYI:  That is exactly as I see this market associated with previous market peaks that Hussman just listed.  This is not a time to be enthusiastic regarding stocks and long term bonds[until just recently] gold as measured by the Dow/Gold Ratio has increased upping my allocation to mining companies and a small amount in long term bonds.

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 1/1/17

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

72% - Cash -Short Term Bond Index - VBIRX

23% -Gold- Precious Metals & Mining - VGPMX

 5% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

1-23-17 Dow/Gold Ratio is 16 to 1(rounded).

 

DYI:  Actual unemployment for men age group 25 to 64 is 15% significantly more than the headline numbers politicians love to espouse showing almost FULL employment.  Overall for men and women is around 23% unemployment; women only around 30% unemployment(ages 25 to 64).

What is very troubling men's employment peaked around 1953!  And has dropped 12 percentage points or so.  My best guess 1/4 of those men are on welfare of some kind. The rest is unemployment that has become systemic due to technology advancement dislocating workers, fraud(corporate - government) and mismanagement.

  DYI