Our Favorite Recession Indicator: Next Recession Keeps Moving Further Out

by Wolf Richter • May 9, 2024

It’s time again to look at the trends in claims for unemployment insurance benefits.

We pay attention to claims for unemployment insurance benefits because they’re fairly raw and unruly data that give a good warning about an oncoming recession. The data is not based on surveys, but on actual claims for unemployment benefits, and it reacts a notch more quickly then the huge monthly pile of survey-based data in the jobs report.

The number of people who are still claiming unemployment insurance benefits at least one week after the initial application – people who haven’t found a job yet – started rising out of the historic trough from late 2022 through March 2023. But by summer 2023, the number stabilized at what is still a historically low level, currently at 1.78 million.

What this labor market is telling us recession watchers here is that there is still no recession in sight, and we’ll just have to keep watching for it.

 

Could US Treasuries Become the Trade of the Decade?

The expediencies and policy extremes have yet to be explored, much less exploited.

CHARLES HUGH SMITH APR 9 Which brings us to US Treasuries. The expedient game plan for the past 15 years was to inflate a global Everything Bubble via expanding "money"-printing, debt and leverage, on the implausible but oh-so appealing theories that 1) borrowing more from future earnings and resources was painless and 2) inflating the wealth of the already-wealthy would generate a pain-free "wealth effect" some of which would trickle down to the working stiffs who don't own any of the assets being pushed into orbit. The first step in crisis is to save what must be saved to keep the ship afloat: the federal government's ability to borrow more money and float that rising debt by selling Treasury bonds. This isn't just a necessity for the domestic status quo, it's also a necessity for the Imperial Project, which must have the capacity to "export" dollars in size globally to preserve the benefits of issuing a reserve currency. The obvious way to save what must be saved is to reward owners of Treasuries and punish everyone else: make owning Treasuries safer and more lucrative than owning any other asset. The new game will be to push a significant percentage of the $300 trillion in bubble-assets sloshing around the global economy into Treasuries. The grab-bag of policy options is capacious: everything from outright expropriation to wealth taxes to windfall taxes to restrictions on ownership are all available: mix and match, try a few or try them all. All of these policies rewarding Treasury owners and punishing every other asset class can be sold as serving the public good and protecting us from risk. Every one can start with a single twist of a screw that is then tightened at regular intervals. DYI:  This is a real possibility of taxation policies changing to punish everything except ownership of U.S. Treasury securities.  Exploding Federal deficits will be a funding nightmare as interest rates ratchet higher and higher over the coming years.  In order to stop this nightmare scenario punish (tax) non treasuries and provide sweeteners (less tax) for ownership of treasuries. This is not my forecast however it is something to keep our eyes and ears open to changes in tax laws as every fifty years or so sweeping changes have occurred since the U.S. was born.  The last change was from the failed president of Jimmy Carter to the successful Ronald Reagan (January 20, 1981 – January 20, 1989) who kicked off the pro-business government movement.  So…Fifty years in the future is 2031 if this cycle holds who ever becomes president (Jan. 2025) will be seen historically as a failed president due to the tidal wave size economic sea change at this president’s door step.  Not until the 2030’s will Federal financing needs be placed above all other asset classes by tax policy (if this fifty year cycle holds). DYI

 5%+

Cash is King!

Buffett Invests in T-bills instead of Stocks, Waits for Bad Stuff to Happen, Cash is King at 5%-plus

by Wolf Richter • May 6, 2024

Treasury bills are now all the rage at Berkshire Hathaway. They have been earning between 5.0% and 5.5% since mid-2023, and Warren Buffett decided they’re a great deal, rather than stocks at current prices, and loaded up on them.

Excluding the amounts held by “Railroad, Utilities and Energy” companies, total T-bills and cash jumped to $182 billion, and Buffett said at the shareholder meeting that it was “a fair assumption” that it would grow to $200 billion by the end of June, and that he was “quite satisfied” with that position. Cash is king.

“I don’t think anyone sitting at this table has any idea how to use it [the cash] effectively, and therefore we don’t use it,” Buffett said.

“We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money,” he said.

When Buffett gets unexcited about stocks, dark-ish about their potential, waits for them to drop, dumps a big pile of Apple, and invests in T-bills — and explains why — suddenly no one takes him seriously anymore.

J. Paul Getty Quote!

"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."

USA

Land of the Rip Offs

From the Desk of

Miles Mathis

Biden just called for raising taxes on the rich and all the alternative and “conservative” sites like Breitbart, Infowars, Gateway Pundit, and Zerohedge are in a tizzy. Showing us where their loyalty really lies. Some wonder why I call myself a liberal, but you are about to see why again. I am not a democratic party liberal or progressive, obviously. I have no use for Biden. I am an old-school liberal, in favor of protecting the little guy from rapine by the rich. OF COURSE the rich need to be taxed more and the poor and middle taxed less! And that is just a start. 

So many other things need to be done as well, starting with enforcing existing laws against collusion by the wealthy and re-regulating big business, including the banks and huge investment groups.

The income inequality in this country was always obscene, but it is now just criminal. Such regulation isn't Communism or Socialism, though that is what these people always try to tell you. It is just the enforcement of sensible laws against racketeering, money laundering, and worldwide theft.

 [DYI:  Not just our nation the entire western world was psyoped into taking a bogus vaccine for a disease that doesn’t exist ripping off estimated 3 trillion in U.S. dollars.  Big Pharma is organized crime who racketeer (business model based on fraud) and this is only one example!]  

Get this through your head: ENFORCING LAWS AGAINST THEFT IS NOT COMMUNISM! It is simply the foundation of a civil society.

The very rich are now getting away with mass pillaging, it is that simple. Government is no longer government, it is just a vast front for and shakedown by the very rich. We used to have crony capitalism, but now we don't even have that, the economy just being a monstrous vaudeville in which you pay for a million things you aren't getting. 

Fake space programs, fake nuclear programs, fake anti-terrorism programs, fake security, fake bombs, missiles and planes, fake wars, and fake research in a thousand fake fields. And the few things that are being delivered no one wants: fake school shootings put on by thousands of agents, fake BLM parades and riots, fake Antifa, fake trannie programs run to cause chaos, 24/7 fake news, and a very real invasion by illegal immigrants.

You are paying the salaries of hundreds of agents who have nothing better to do than run psyops on you all day and all year. A lot of them are in the Department of Defense, residing on AFBs, since, like the CIA and FBI, these people have nothing else to do. 

There is no real mafia, no terrorism, and no real wars, but these people have to justify their paychecks somehow. So they have declared war on you. 

As the taxpayer, you have been tapped to underwrite an entire Matrix of lies and fictional events, most of them with you as the target. You are paying these people to attack you, steal from you, and ultimately destroy you.

[DYI:  The problem with thieves as long as they get away with stealing from you they will always come back for more as we've have witnessed rapidity making the American public an easy mark!  The billionaires (and trillionaire families) will not stop stealing until either we stop them or when there is nothing left to heist (with many of us dead)]  

If you could stop all those programs, your taxes would go WAY down. Defense could be cut by 90% and we would still be outspending China. Intel could be cut by 98% and no one would miss it. Mental health would skyrocket. Banker welfare could be immediately ended. Meaning, private banks shouldn't be loaning money to the treasury at interest, and shouldn't be in control of the Federal Reserve. Banking should be nationalized, like the post office. It should be a service, not a scheme of profit. The space program should be scaled back to reality, ditto for the rest of science. Outside NASA, science funding is pretty low: it just needs to be redirected into real programs instead of fake ones. As for the arts, they are actually underfunded, which—with Modernism—was fine with everyone, including me. But real art should be brought back and refunded.

If we reformed society on those foundations, we wouldn't have to tax the rich more, since they would lose most of their methods of theft. It is illogical to let them steal and then try to steal some of it back through taxes. Better to keep them from stealing in the first place, right?

Thank You

Miles Mathis

Monthly Update!

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 5/1/24

Active Allocation Bands (excluding cash) 0% to 50%

29% - Cash -Short Term Bond Index - VBIRX

45% -Gold- Global Capital Cycles Fund - VGPMX **

 26% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.  

*****************************************

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]

Lump Sum any amount greater than yearly salary.

PE10  .........33.43
Bond Rate...5.47%

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: 0.60(rounded)

As of  5-1-24
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 is any dollar amount greater than one year salary.

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

*******************************************

%
Stocks & Bonds

Allocation Formula

5-1-24
Updated Monthly

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

Formula's answer determines bond allocation.

Current PE10.....33.43

Avg. PE10...........17.11

% 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

*****************************************************

Smart Money - Buys Aggressively!

Capitulation

Despondency

Max-Pessimism 

Depression 

Hope - Silver F

Relief *Market returns to Mean  - Short Term Bonds & MMF

Smart Money - Buys the Dips!

Optimism - Gold

Media Attention

Enthusiasm

Smart Money - Sells the Rallies!

Thrill

Greed

Delusional

Max-Optimism  Residential Real Estate

Denial of Problem - Stocks 

Anxiety 

Fear

Desperation - Long Term Bonds