Bubble

Trouble

Pension funds reel from falling yields

A once-unthinkable collapse in global bond yields is forcing pension funds to buy bonds that offer negative returns -- putting the financial security of future retirees in jeopardy. 

U.S. institutions managing trillions of dollars in retirement savings – including the California Public Employees' Retirement System – have been ratcheting down return expectations. Japan's Government Pension Investment Fund, the world's largest, has warned that money managers risk losses across asset classes. In Europe, pension funds may be forced to cut benefits in part thanks to the decline in rates. 

Investors were already taking on more credit risk to make up for dwindling income elsewhere, with some chasing less liquid markets like private debt. Now, negative yields on over a quarter of investment-grade bonds – with more monetary easing to come – are increasing the urgency for portfolio managers to find new sources of returns.

The Next Recession Will Destroy Millennials

The next recession—this year, next year, whenever it comes—will likely make that Millennial disadvantage even worse. Already, Millennials have put off saving and buying homes, as well as getting married and having babies, because of their crummy jobs and weighty student loans. A downturn that leads to higher unemployment and lower wages will force Millennials to wait even longer to start accumulating wealth, making it far harder for them to accumulate any wealth at all. (Compound interest is magic, after all.) Their trajectory, already terrible, might get even worse.

America's Debt Burden Will Fuel The Next Crisis

Opinion: Massive cuts to Social Security: This is the ‘wall’ Americans should worry about

DYI

%

Gold/Silver

Allocation

08-24-19

Updated Monthly

100 – [100 x (Current GS – Avg. GS / 4)

_______________________________________

(Avg.GS x 2 – Avg. GS / 2)

Current Gold/Silver Ratio 84

Average Gold/silver Ratio 50

Allocation:    

Gold      1%

Silver   99%

Average Gold/Silver Ratio since 1900

50 to 1

Gold and silver bullion buyers and traders use the fluctuating Gold Silver Ratio to better determine which precious metal may be poised to outperform the other.

The essence of trading the gold-silver ratio is to switch holdings when the ratio swings to historically determined extremes. So:

When a trader possesses one ounce of gold and the ratio rises to an unprecedented 100, the trader would sell their single gold ounce for 100 ounces of silver.

When the ratio then contracted to an opposite historical extreme of 50, for example, the trader would then sell his or her 100 ounces for two ounces of gold.

In this manner, the trader would continue to accumulate quantities of metal seeking extreme ratio numbers to trade and maximize holdings.

Note that no dollar value is considered when making the trade; the relative value of the metal is considered unimportant.

DYI’s averaging formula is best used when accumulating bullion.  Simply buy up to the stated allocation only selling/buying when necessary [lessen capital gains taxes].  For those in the distribution stage [retirees] of life sells off gold or silver to bring back in line with the current allocation.

DYI

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 - Purchase Bonds

Current EYC Ratio: 1.28(rounded)

As of  09-01-19
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  ..........29.31
Bond Rate....2.94%

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.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham

%
Stock & Bonds

Allocation Formula

09-01-19
Updated Monthly

% Allocation = 100 – [100 x (Current PE10 – Avg. PE10 / 4)  /  (Avg.PE10 x 2 – Avg. PE10 / 2)]

Current PE10.....29.31

Avg. PE10......... 16.65

% Stock Allocation    0% (rounded)
% Bond Allocation 100% (rounded) 

Logic behind this approach:

--As the stock market becomes more expensive, a conservative investor's stock allocation should go down. The rationale recognizes the reduced expected future returns for stocks, and the increasing risk. 

--The formula acknowledges the increased likelihood of the market falling from current levels based on historical valuation levels and regression to the mean, rather than from volatility. Many agree this is the key to value investing.  

Please note there is controversy regarding the divisor (Avg. PE10).  The average since 1881 as reported by Multpl.com is 16.70.  However, Larry Swedroe and others believe that using a revised Shiller P/E mean of 19.6 , the number since 1960 ( a 53-year period), reflects more modern accounting procedures.

DYI adheres to the long view where over time the legacy (prior 1959) values will be absorbed into the average.  Also it can be said with just as much vigor the last 25 years corporate America has been noted for accounting irregularities.  So....If you use the higher or lower number, or average them, you'll be within the guide posts of value.

Please note:  I changed the formula when the Shiller PE10 is trading at it's mean stocks and bonds will be at 50% - 50% representing Ben Graham's Defensive investor starting point; only deviating from that norm as valuations rise or fall.        

  

DYI

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.

The Formula.

A value based allocation strategy

February 19, 2010 by John Kingham

Day to Day

Run of the Mill

FAKE NEWS

Dummy

Crushed in Elevator

Careful Intense Laughter will Occur!

Death Elevator 

Such Fine Journalists  

The New York Post

DYI

Negative Yield Curves to Infinity 

DYI:

Of course it is fraud, or better said, counterfeiting. Fractional reserve banking is a juggling act (check kiting) with alternating pendulum swings to manipulate inflation and deflation to manipulate the price of capital always to the disadvantage of the parties that are not part of the prime mover crowd. If property entrusted to you and do what banks do with money, you would prosecuted and go to jail.  Don't believe me? I know baby-sitting co-ops and other such exchanges which introduced their own chips or tokens, and faced prosecution.

The proof is in the pudding. CEO compensation has sky rocketed since the economy was financialized, turning executives into a type of banker, balance sheet jockeys and price share manipulators. Just look at GE or GM. Average compensation of bankers and executives cannot possibly by explained as productive labor -- they are multiples of the gains realized by criminal syndicates and racketeering schemes. Why do you think all these too big to fail banks have all paid billions to buy off felony money laundering, market rigging, and fraud charges? Because the illegal activities are in fact of exactly the same nature as the legalized activity, they cannot really be distinguished.

To restore banking minor amounts of regulation would be required.  However in today’s environment gargantuan levels of sustained political energy is needed to rein in bankers.  Banks employing capital is simply this; equity that is acquired to form the bank 80% is eligible to be lent; depositor’s capital only 50% is authorized for lending.  Monies by owners [in whatever form] if found to have been borrowed from other sources for bank equity or deposit would be deemed illegal and face criminal prosecution.  That’s it!

No longer would the economy be on its roller coaster path.  Recessions would still appear but to create another 2009 or Great Depression would simply not befall our great nation.

Individuals and families wishing to borrow money will go back to the time tested five C’s of banking; character, capacity, capital, conditions and collateral.  In the regulatory environment stated previously these five C’s would all be addressed before dollars [or possibly gold or silver] is lent.

DYI

The

NASA MOON LANDINGS

A

Simpler Time

For America!

When

PROPAGANDA

COULD STAND ON ITS OWN TWO FEET!

Apollo 11 Heroes Happy Anniversary!!!

Are

You?

an

American

Patriot?

Think Hard

Before Answering!

[Side Thorn’s Web Site]

The Truth Is Out There

DYI: 

Side Thorn [that’s his handle name] is a TRUTHER of biblical proportion who has exposed the FAKE Sutherland Springs mass shooting with endless video.  Caught on video were FBI, CIA [special Activities Division] and the ever present DHS along with their side kick FEMA.  Exposed so thoroughly including many high up personnel that he was arrested on bogus charges and has so far been held without trial for over 2 years!  

It is known – to what degree is unknown – that a majority of his imprisonment is in solitary confinement.  We can only speculate how many times food, water and light has been deprived is obviously unknown.

We Hoax Together In Sutherland Springs 

Part 1

 https://153news.net/watch_video.php?v=G4M38XBR8YA5

Part 2 – 

Meet the Crisis Actors of Sutherland Springs  https://153news.net/watch_video.php?v=YG2A9HRN8NBG

Part 3

Texas Shooter Killed Children Who Were NEVER BORN?  https://153news.net/watch_video.php?v=N4BR953MXU2H

Part 4

Interview, April 2018 https://153news.net/watch_video.php?v=XU6716OXX26S+

Part 5  

Side Thorn on Rover’s Morning Glory Radio, April 2018 https://153news.net/watch_video.php?v=76AW8M2OX1KK  

*****

Church Shootings Are Very Profitable  https://153news.net/watch_video.php?v=3G4UBKY3M6K4

Texas Church Massacre Cemetery Visit  https://153news.net/watch_video.php?v=SYA53HYK5B19

Side Thorn Journalist Mainstream Media Radio Interview - https://153news.net/watch_video.php?v=D78SKD4XMG9H

SIDE THORN Tells All  

https://153news.net/watch_video.php?v=5O86SYUS8OH1

Texas Church Shooting Crisis Actor Family - https://153news.net/watch_video.php?v=WM929RW23SDG

DYI

PROOF OF CONSPIRACY

Page Updated with New Photos!

DYI

U.S. Weighs Selling 50- and 100-Year Bonds After Yields Plummet

The announcement follows a plunge in the 30-year yield to a record low this week below 2%, and also comes in the wake of many other nations opting to extend their borrowing profiles with so-called century bonds. Investors have snapped up 100-year bonds issued by the likes of Austria, although the experience of Argentina underscores some of the potential pitfalls of buying such long-maturity debt. 

The challenge for the Treasury would be to offer a yield attractive enough for the typical investor base of pension funds and institutions, while keeping a lid on the cost of borrowing for U.S. taxpayers. 

By Braizinha’s estimates, the yield on a 50-year issue would be expected to come in around 10-30 basis points above the 30-year rate.

US National Debt Spiked $363 billion in Two Weeks, $1 Trillion in 12 months. But Who Bought This Pile of Treasury Securities?

Foreign investors bought hand-over-fist. But not the Chinese!

All foreign investors combined – so “foreign official” holders, such as central banks, and foreign private-sector investors such as banks and Mexican billionaires – held $6.64 trillion in US Treasury bonds and bills, having raised their holdings in the month of June by $97 billion, and over the 12-month period by $411 billion, all of it driven by frantic buying over the past seven months. 

No country comes close to Japan and China. The third largest foreign holder is the UK with $341 billion in Treasuries, followed by a gaggle of others. Most of the entries in the list are tax havens for corporate or individual entities. Belgium is home to Euroclear, which handles large amounts in fiduciary accounts (in parenthesis, Treasury holdings in June 2018):

• UK (“City of London” financial center): $341 billion ($274 billion)
• Brazil: $312 billion ($300 billion)
• Ireland: $262 billion ($301 billion)
• Switzerland: $233 billion ($235 billion)
• Luxembourg: $231 billion ($220 billion)
• Cayman Islands: $227 billion ($191 billion).
• Hong Kong: $216 billion ($196 billion)
• Belgium: $203 billion ($155 billion)
• Saudi Arabia: $180 billion ($164 billion)

Foreign investors, as we have seen above, bought $411 billion of this new debt. Leaves $417 billion that other non-foreign entities must have bought. 

Not the Fed. It got rid of $265 billion in Treasury securities over the 12 months, reducing its holdings to $2.1 trillion at the end of June. 

So other US entities must have bought the $265 billion the Fed dumped, plus the $417 billion in new debt that foreign entities did not buy, for a total of $682 billion. But who? 

US government entities bought $106 billion in Treasury securities over the 12 months, bringing their total holdings to $5.83 trillion. This “debt held internally,” when seen from the other side, are assets in funds such as the Social Security Trust Fund and government pension funds.

So over those 12 months, the government added $828 billion to its debt. Foreign investors bought $411 billion of it; the Fed dumped $265 billion; and US government funds acquired $106 billion. Leaves $576 billion that someone must have bought. Who? 

The only one left. 

American institutions and individuals added $576 billion of Treasuries to their holdings, bringing them to $7.46 trillion. US banks were large buyers of Treasuries. According to the FDIC, in the first quarter, the latest data available, banks added $55 billion in Treasuries to their holdings, “the largest quarterly dollar increase since fourth quarter 2014,” the FDIC said.

Other large US institutional holders include bond funds, pension funds, hedge funds, businesses with cash balances that they don’t want to keep in a bank, and private equity firms sitting on their “dry powder.” Individuals are also large holders, via their accounts at Treasury or at their broker. All combined, American institutions and individuals held 34% of the US gross national debt.

Gold Nears Record Highs In Euros as Deutsche Falls To New Record Low Showing Bank Contagion Risk

Gold has consolidated on recent gains this week and has crept higher in all major currencies (see LBMA prices below) and is nearing all time record nominal highs in euros 

* Deutsche bank’s new record low at €5.80 underscores German and European banking contagion risk 

* FTSE 100 opens slightly higher after trading delay of 90 minutes on trading trading services ‘issue’ 

* GE falls the most in 11 years after Madoff whistleblower calls it a ‘bigger fraud than Enron’ 

* Gold prices are marginally lower today but are currently set for another higher weekly close as safe-haven buying continues 

* The wider economic, monetary and geopolitical backdrop will support safe haven assets and investors without an allocation to the precious metal should cost average into physical gold

12 Reasons Why Negative Rates Will Devastate The World

1. Lower bank profitability 

2. Reduced rather than increased credit creation to the real economy 

3. Higher rather than lower bank lending rates 

4. Higher rather  than lower savings rates by households and non-financial corporates. 

Similarly there is little evidence that the non-financial corporate sectors of Euro area and Japan have reduced their financial surplus by more than the US since the introduction of negative policy rates in 2014. Higher uncertainty and the pressure to save more for retirement are likely behind persistently high savings rates by both households and companies. 

5. Impaired functioning of money markets 

6. Reduced liquidity in bond markets 

7. Increased rather than reduced fragmentation 

8. Lower bond yields increase pension fund and insurance company deficits putting pressure on pension funds to match assets and liabilities. 

9. More income and wealth inequality as households and small businesses fail to benefit or are even hurt from negative rates. 

10. Central banks are trapped. 

11. The death of creative destruction and the zombification of corporations 

By potentially allowing unproductive and inefficient companies to survive, helped by low debt servicing costs, negative rates could potentially hinder the creative destruction taking place during a normal economic cycle. 

12. QE exacerbates so called “currency wars”. 

It is this sense of abnormality and uncertainty that makes businesses and consumers less rather than more keen to spend and banks more rather than less averse to taking risk and extending credit to the real economy. 

Which is also why if and when negative rates are adopted by every central bank in the world, the consequences for society, for the economy, and for capital markets will be nothing short of catastrophic.

 DYI