US flirts with deflation as prices fall by largest since financial crisis

World's largest economy sees prices fall by 0.4pc in December, with yearly inflation crawling up after oil collapse

But, when measured on a monthly basis, consumer prices fell by 0.4pc compared to November, the biggest drop since December 2008. 

The decline can be largely attributed to the continued descent in world commodity prices, with the price of oil declining by more than $1 per gallon, according to the US Bureau of Labour Statistics. 

A measure of core inflation, which strips out the effect of energy and food, was also flat at 0pc. It is only the second time since November 2010 that the core reading has remained unchanged.

The Bond Market Is Warning of Huge Trouble Ahead

How else can you explain the fact that the yield on the U.S. 30-year bond hit a record low of 2.4 percent on Wednesday? Or that Japanese and German 10-year yields are plumbing record lows? Or that five-year yields of bonds issued by Eurozone safe havens Finland, Germany and Switzerland are in outright negative territory?

For the U.S. 30-year yield, current levels have dropped below the lows set during the 2008 financial panic and 2012 pre-QE3 slowdown. And this is down from the post-recession high of 4.85 percent set in 2010 and a recent high of nearly 4 percent set in late 2013. 

With stocks not far from late December's record highs, with job growth surging, investor confidence at extremes, consumer and small business confidence high, GDP growth strong and the Federal Reserve telling everyone it's preparing for its first interest rate hike since 2006, the bond market's message comes off as downright weird. 

And it's warning that we're in trouble. The problem is threefold: 

• The evidence is building that the global economy is slowing, led by weakness in Asia and Europe. The JP Morgan Global Manufacturing PMI, which measures factory activity, last month dropped to its lowest level since August 2013. Activity is declining outright on a month-over-month basis in China, Greece, Austria, Italy and France.

• This comes as the developed world governments, reacting to the blowup of private sector debts (mostly real estate), recession and the risk to the financial system in 2008-2009, have piled on public debt. China is in the mix here too, with local government and private credit exploding higher, fueling fixed-asset investment bubbles, overcapacity and now an unresolved bad debt problem that we got a quick taste of in early 2014. In Italy, the government debt-to-GDP ratio has grown from 104 percent in 2008 to 133 percent, with no signs of slowing. 

• All this is occurring at a time of low global inflation, tipping into outright deflation in some areas. Prices at Chinese factory gates have been dropping for months. The Eurozone is expected to have fallen into outright deflation in December. Capital Economics expects consumer price deflation in the United States for January.

DYI COMMENTS:  Deflation looming here, recession and depression in Central Europe, Russia blowing up financially, China with a massive debt bubble about to burst it is strange that all the talk is of the Fed's to rise short term interest rates, including the Fed's!  If long term rates continue to drift down will the Fed's by moving short rates higher risk an inverted yield curve throwing the U.S. back into recession?  Strange indeed!  What I do know is this is a very expensive stock market as compared to sales, earnings or dividends. It is historically overvalued so caution with a low stock to bond asset allocation is recommended.  How high is high?  Going back to 1871 the average price to dividend is 23 and today is trading at 51 times dividends.  (51 - 23) / 23 x 100 = 122% above the average price to dividends. That is simply above the average or fair value.  To obtain a bargain in the classic sense one would prefer to buy when the price to dividend ratio is BELOW the average.  That is a long way down; to nullify 122% requires a 61% drop just to get back to fair value.  With the monstrous and outright scandalous sub atomic low interest rates policies the Fed's have "jack up" this market in its extreme.  A 45% to 60% decline is possible and very well probable.  This time is NOT different nor has it been at any other market extremes including the 1907, 1929, 1968, 2000, 2007.

Caveat Emptor!

DYI    

Updated 1-20-15

THE DIVIDEND ROOM

Just as the name Dividend Yield Investor indicates is my affinity with dividends; for they have never gone out of style as far as I'm concerned.  In the end they are the real reason investors, as opposed to speculators, purchase quality companies with increasing dividends.  In my mind these are the true growth stocks.  As the dividend is increased over time so will the stock price. As the legendary Charles Dow has written:

"To know values is to know the meaning of the market.  And values, when applied to stocks, are determined in the end by the dividend yield."  

The Dividend Room is a new addition to my blog showing a list of high quality dividend paying stocks for your further study.  All picks are basic time tested value approach. All companies have a reasonable low level of debt for their respective industry and a low PE multiple. Of course a competitive dividend yield two times greater than the S&P 500 with a payout ratio less than 85% for utilities and all others less than 50%.  Also screened companies that have increased their dividends on a regular basis (the true growth stocks). Included is additional screens based upon the Benjamin Graham approach for the defensive investor.

Our attempt is to find ten high quality companies with a yield double that of the S&P 500.  Recommend selling when the dividend yield is less than the S&P 500.

Please note:  Companies that fall off the list are not necessarily companies gone bad they simply have risen in price and no longer represent the deepest value and/or highest dividend yield.

For diversification purposes recommend building up to 40 to 50 companies.

The price of oil is in the news which has pounded down the prices of many of the finest oil/gas/servicing companies in the world.  Let's start there and expand into other industries.

Yield     S&P 500 Dividend Yield 1.95%

               Oil/Gas/Service 

6.20%    Sasol Limited symbol SSL

4.60%    Helmerich & Payne symbol HP

4.20%    Spectra Energy Partners SEP   

4.10%    Chevron Corp.  symbol CVX

              Industrial Metals & Minerals
6.50%   Alliance Resource Partners LP symbol ARLP

               Utilities

4.70%    Companhia de Saneamento Basico symbol SBS

               Apparel Stores

4.50%    Guess' Inc.  symbol GES

               Tobacco Products

5.20%    Universal Corp. symbol UVV

              REIT - RETAIL

4.10%   HMG/Courtland Properties symbol HMG

             Financial Asset Management

4.60%  Calanos Asset Management symbol CLMS

DYI recommends that you use our stock allocation formula to arrive at your allocation of stocks to bonds.  Currently it is at 25% for stocks.  For your cash holdings Vanguard's Short Term Bond Index symbol VBIRX or for those in a high tax bracket Vanguard's Limited Term Tax Exempt VMLTX.

 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.

Global Recession?? The Possibility is Increasing!

Copper Prices Continue to Drop

The Biggest Story In Markets Right Now

To start 2015, long-dated government bonds from a number of major economies including the US, Germany, and Japan, have seen yields tumble. The drop in long-dated bond yields has been attributed to the decline in inflation expectations, particularly out of Europe, as well as concerns over global growth and a slowing pace of debt issuance from the Treasury department. 

Speaking with Bloomberg News on Wednesday, long-time bond bull Lacy Hunt said the 30-year yield could fall as low as 2%. 

"We’re in the money-management business, we’re not in the mind-changing business," Hunt told Bloomberg's Daniel Kruger. "We’ve thought for a very, very long time that the bond yield could go to 2 percent, or slightly lower, and that remains our view."

Treasury Bond Yield Drops to Record Low Amid Fear of Global Deflation 

LOW INFLATION: Treasury yields show traders are pricing in deflation for the next two years. The difference between yields on two-year notes and non-indexed U.S. government debt of comparable maturity, an indication of consumer prices called the break-even rate, fell to negative 0.13 percentage points, down from 1.96 percentage points in March 2014. 

“Yields across the globe are going down and we’re still the highest yielders, the safest place to be, and that continues to drive dollars into this market,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “The bigger picture is that’s more important than anything, the amount of cash out there looking for a safe home.”

U.S. retail sales drop biggest in 11 months, but seen as a blip

(Reuters) - U.S. retail sales recorded their largest decline in 11 months in December as demand fell almost across the board, tempering expectations for a sharp acceleration in consumer spending in the fourth quarter.

Global markets dive after World Bank cuts growth forecasts

U.S. stocks fell, extending losses in the Standard & Poor’s 500 Index to a fourth day, as a decline in American retail sales and slump in copper prices spurred concern that global growth is slowing. 

“People are starting to get very nervous as commodity prices are faltering and we know it’s because the global growth rate has been brought down,” Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages about $10 billion, said in a phone interview. “The U.S. alone can’t support the world and the retail sales are a warning shot across the bow.” 

Economic Growth 

Concern about the impact of plunging oil on investment and what falling yields signal about economic growth are testing the resilience of U.S. stocks that have tripled since 2009. The stress pushed a Bank of America Corp. gauge of hedging costs in bond, stock, currency and commodity markets to an 18-month high last week. 

“It’s a lot of little factors here that add up to one big mess, frankly,” said Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York. “Think about it like little tremors indicating an earthquake – crude price, copper price, overall index volatility, weakening data, retail sales data. Global growth is threatened.”

 DYI

Soaring Bond Prices May Sound an Economic Warning

The prices of Treasury bonds are rallying fiercely. The slide in oil prices has elevated concerns about growth in the global economy, and investors, as they do in times of stress and uncertainty, are seeking out the safety of government bonds. 

The rally in global government debt is pushing their yields, which move in the opposite direction from their price, to astonishing lows. The yield on the 10-year Treasury note — a benchmark for mortgages and other interest rates — fell below 2 percent on Tuesday. Any investor holding that security would be paid only 1.94 percent each year, for the next 10 years. In the past, such a return would have been considered unthinkably slight.

 In other words, the bond market is raising the specter that a period of economic growth that may have already felt lackluster to many Americans could be on the verge of losing steam. 

Bond market analysts, however, offer some solace by saying Treasury bonds are not necessarily forecasting an actual recession. 

“We’re in the seventh inning of a business cycle and it may be coming to an end soon,” Mr. Goncalves, the analyst, said. “It is not calamity but a slowness that could linger for some time.”

4 Reasons To Buy Oil And Gas Now

Most investors can also agree that this makes an unprecedented opportunity to buy very fundamentally sound companies that are trading at a deep discount to their intrinsic value. However, many investors are holding off buying up these companies as they wait for prices to settle at the bottom, so that they can scoop up these companies up with the greatest possible upward potential. At the forefront of these investors' minds is where is the bottom and when will it come? 

This leads to the main thesis of this article: the time to buy is now. The main reasons for this are as follows:

1. Investor sentiment can change very quickly.

1. Companies are trading at discounts not seen in recent years.

1. Long-term fundamentals are in place.

1. A small drop in price in the short term likely wont benefit investors that much.

DYI Comments:  I completely agree this is an excellent time to dollar cost average into your favorite oil/gas/service company mutual fund or individual stocks.  DYI's favorite of course is Vanguard's Energy Fund . The two assets that have been beat up is gold and precious metals mining companies and oil/gas/service companies.  It is time to reduce your shares of your general stock market fund (such as Vanguard's S&P 500 Index Fund) and rebalance into uncorrelated assets as in the case of gold and oil.

DYI

READING ASSIGNMENTS

The bear is back: A cautionary tale of global gloom

The Fed is Focused On Only One Thing…the BOND bubble

A Better Lesson than "This Time is Different"

High Valuations for IPOs and Private Tech Firms Imply This Time is Different

Shale Oil: Expensive, Over-hyped, and Short-Lived

Driver Wanted for Obama Motorcade. Novice Welcome.

Germany Is Conquering Europe!

DYI

Market Valuation Overview: The Drift Higher Continues

Here is the same chart, this time with the geometric mean and deviations. The latest value of 89% is also above the two standard deviation and the highest level outside 46 months during the Tech Bubble from September 1997 to July 2001. 

As I've frequently pointed out, these indicators aren't useful as short-term signals of market direction. Periods of over- and under-valuation can last for many years. But they can play a role in framing longer-term expectations of investment returns. At present market overvaluation continues to suggest a cautious long-term outlook and guarded expectations. However, at today's low annualized inflation rate and the extremely poor return on fixed income investments (Treasuries, CDs, etc.) the appeal of equities, despite overvaluation risk, is not surprising.

Pimco moves to expand equity push with new stock strategies

(Reuters) - Pimco, the bond fund manager, is expanding its presence in equity management with seven new stock strategies in partnership with asset manager Research Affiliates LLC.

DYI Comment:  Bond managers moving into stocks.  This is not fund managers with a fiduciary mentality but money marketers.  Stock mutual funds are hot as a pistol and they are raising money for funds under management to expand their revenue base.  Normally I have no problem with business expansion (I applaud all those who do) but at these market levels these funds will end in a trail of tears.  I wonder how many will be merged or closed in the years ahead to hide their poor performance?  Closing or merging funds is the oldest trick in the fund business to hide poor performance and enhance their future returns for sales and marketing purposes.

All that is missing is a hot IPO market that signifies a market top.  The Great Wait Continues.

Deflation hits eurozone as energy prices fall

Inflation in the eurozone has turned negative, official figures have shown, with prices in December 0.2% lower than the same month a year earlier. 

The tip into deflation adds pressure on the European Central Bank (ECB) to take further action to stimulate the bloc's economy.

EuroStat

Euro area annual inflation down to -0.2%

Euro area annual inflation is expected to be -0.2% in December 2014, down from 0.3% in November, according to a flash estimate from Eurostat, the statistical office of the European Union.

  

DYI Comment:  It appears that deflation is heading to North America imported from Europe.  The global economy slowing down and the growing possibility of debt defaults deflationary forces will prevail.  Yields are rising on low rated (junk bonds) paper as Treasury securities rally thereby lowering their rates.  This is a symptom of an economy under stress as a market blow off in junk is a high probable event.  There is simply too much debt in the system to be supported by these companies.  Another recession will be needed to clean out the dead wood.  While that is happening look for mild deflation (-1% to -2%) to prevail during the teen years of this decade.

30 Years Ago, Warren Buffett Gave Away The Secret To Investing And Correctly Predicted No One Would Listen

Buffett writes:"The common intellectual theme of the investors from Graham-and-Doddsville is this: they search for discrepancies between the value of a business and the price of small pieces of that business in that market."

And that's pretty much it. Buffett doesn't think about buying a stock; he thinks about buying a business. 

                          

                          The Late Benjamin Graham

  AP Benjamin Graham. The name "Graham-and-Doddsville" comes from Benjamin Graham — whom Buffett studied under at Columbia — and Dave Dodd, with whom Graham literally wrote the book on security analysis.

 "I can only tell you that the secret has been out for 50 years," Buffett writes, "...yet I have seen no trend toward value investing in the 35 years I've practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world, if anything, has actually backed away from the teaching of value investing over the last 30 years. It's likely to stay that way. Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper."

DYI Comments:  Here at DYI all I do is apply historical long term valuation measures to the current market based upon our formula to determine your asset allocation.  Currently today the stock market as measured by dividends (our favorite!) is now 130% above its average since 1871. This average (4.42% or 23 times dividends) has seen it all.  Growth, depressions, war, peace, inflation, disinflation, deflation, high, medium, low taxes, balanced budgets, out of balanced budgets and anything else I can't think of.  This is a sky high market to where future returns will be poor at best and market losses at worst over the next ten years.  As a value player those purchasing stocks at these levels are way over paying.  Yes, there is a wide discrepancy today between price and value; its overvalued!

******************************** 

Canada's Housing Bubble

All-time high: Price of Vancouver detached home hits $1 million

The City of Glass has hit a new all-time high for home prices.

The benchmark home price index hit $1,002,200 last month for detached single-family properties in Greater Vancouver, according to new figures released by the Real Estate Board of Greater Vancouver.

The benchmark price for all residential properties in the region reached $638,500 in Dec. 2013, a 5.8 per cent increase from the year before.

The benchmark price of an apartment in Greater Vancouver now sits at $380,700, according to the index.

Last summer, a global credit ratings agency said Canada’s housing prices are overvalued by a whopping 20 per cent.

Fitch Ratings blames record-low interest rates for contributing to soaring levels of household debt-to-income levels: The average Canadian owes $1.63 for every dollar earned.

DYI Comments:  I suppose almost everyone enjoys watching a train wreck.  Canada is going to experience a deflationary smash as this commodity driven country experiences a massive debt blowoff in the private sector.  Low commodity prices will only arrive faster to their deflationary smash (especially oil) as the average Canadian is 163%  (U.S. topped at 130%) in debt to income.  The above headline is linked to the article and they have a short video (1:49) showing houses at the one million mark; these homes are anything close to a McMansion.  The typical house shown is around 2300 square feet.  Canadian's in Vancouver is over paying to the tune of  600,000 to 700,000 in my judgment.

DYI

Bill Gross

Janus Funds

“Ides”

A January Investment Outlook should normally be filled with recommended “do’s and don’ts,” “picks and pans” and December 31, 2015, forecasts for interest rates and risk assets. I shall do all of that as usual when I travel to New York City for the annual Barron’s Roundtable in a few weeks’ time. That is always an opportunity for me to engage in verbal jousting with Marc Faber, Mario Gabelli and the usual bearish forecast from the Gnome of Zurich, Felix Zulauf. So I’ll leave the specific forecasting for a few weeks’ time and sum it up in a few quick sentences for now: Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over. 

Timing the end of an asset bull market is nearly always an impossible task, and that is one reason why most market observers don’t do it. The other reason is that most investors are optimists by historical experience or simply human nature, and it never serves their business interests to forecast a decline in the price of the product that they sell. Nevertheless, there comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs, when it comes to future expectations for asset returns. Now is that time and hopefully the next 12 monthly “Ides” will provide some air cover for me in terms of an inflection point. Manias can outlast any forecaster because they are driven not only by rational inputs, but by irrational human expressions of fear and greed. Knowing when the “crowd” has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear. As you know, however, moving out of the way has never been my style so I will stake my claim with as much logic as possible and hope to persuade you to lower expectations for future returns over the next 12 months. 

And so that is why – at some future date – at some future Ides of March or May or November 2015, asset returns in many categories may turn negative. What to consider in such a strange new world? High-quality assets with stable cash flows. Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically. With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.

DYI Comment:  Low quality stocks and junk bonds will be toast!

DYI 

If energy prices remain near current levels, Canada's economy is in trouble

The Canadian Housing Bubble 

In Canadian debt we trustThere was an inflexion point for US markets when household debt surpassed household income.  People kept saying it was a liquidity crisis initially but it was truly a solvency crisis.  People took on too much debt and were walking on a financial tightrope.  In the US, this peaked above 120 percent.  Canada is well on its way above 160 percent:

 

Canada has enjoyed many years of the global commodities boom and now finds itself contending with a market full of debt and inflated housing values.  Short of oil rising back up to $80 a barrel and higher Canada is likely going to face some short-term pain.  The housing market is due for a correction.  Those of us in California realize that booms and busts can occur all of a sudden but the events leading up to this are largely foreseeable. 

I’m sure many in Canada assume that home values will simply continue to go up and just because banks check incomes doesn’t mean squat.  As the above data shows, households are already deep in the quicksand of massive debt.  It is all dandy when everything is going up including oil.  When oil gets smashed as it did, it came on quickly.  Canada has their versions of $700,000 crap shacks usually in the form of condos.  Hey, at least with a crap shack you don’t have to share a common wall.  When you look at the Canadian housing market it makes the US look like a frugal uncle.

Housing Market: Toronto Condo Analysis Uncovers Spectre Of Irresponsible Lending

A report from an equity research firm into the Toronto condo market raises serious questions about the possibility of irresponsible mortgage lending, and suggests that, with the market turning down, some investors could be risking their retirement nest-eggs by buying condos. 

In an effort to determine what’s behind the big run-up in condo prices in Toronto in recent years, market analysis firm Veritas sent “mystery shoppers” to two unnamed Toronto condo projects still under construction. 

To their surprise, the researchers found that “no mortgage pre-approval was needed to buy a unit. … Only a valid driver’s licence was required to purchase a unit, along with a down payment cheque.”

Harper dismisses reports of a Canadian housing bubble

Analyst is predicting crash that could cut home prices in half

Canadian Prime Minister Stephen Harper

In an interview published in the Globe and Mail today, MacBeth predicts a serious crash in house prices as soon as this coming spring, and advises people with large mortgages to sell, and rent.. His book, When the Bubble Bursts, forecasts a drop of up to 50 per cent in housing prices. 

But Harper told a New York business audience that he did not anticipate a housing crisis in Canada, and that that there was no comparison between the Canadian housing market now and the U.S. market before the crash of 2008. 

He said only  small percentage of Canadian households would be vulnerable to interest rate hikes or a downturn in prices. 

MacBeth disagreed, saying real estate should not be regarded as a sure investment and a crash is necessary to bring debt levels into line. 

He also advised people to sell their condos.

If energy prices remain near current levels, Canada's economy is in trouble

DYI Comments:  Canada over the past 20 years or so has morphed into a commodity driven export country.  Their primary commodity is OIL as many Canadian economist's have termed their country a PetroState.  As commodity prices soared and sub atomic low interest rates those Canadian dollars went into real estate setting off a massive boom.  Now the world wide economy is in the doldrums so have commodity prices especially oil.  The bloom will soon be off the rose as average residential single family homes dropping by 50% and condos by 70%.  For real estate investors keep your powder dry massive bargains will arrive soon north of the 49th parallel. 

DYI   

 ****************************

NYSE Margin Debt Drifts Higher in November

December 22, 2014

by Doug Short

DYI Comment:  Time will tell but it appears that margin debt is rolling over.  If this is accurate the long awaited market drop will soon begin.

DYI

Disclaimer

Why the oil crash caught so many by surprise (but shouldn’t have)

A look at the entrenched thinking about oil prices that was so prevalent just a year ago

Why oil prices won’t be bouncing back any time soon

International Energy Agency data shows U.S. oil production has risen by 4.7 million barrels per day during the past five years, while Canada’s production is up one million bpd and Saudi Arabia has climbed by 1.7 million bpd.The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.The global oil market appears heavily oversupplied during the first-half of 2015

DYI Comments:  Oil prices have taken a dive setting up an excellent opportunity to dollar cost average into your favorite oil/gas/service sector specialty fund.  Here at DYI our favorite is Vanguard's Energy Investors Fund symbol VGENX.  The fund from peak to current prices is off 27% which includes adding back in their recent long and short capital gain of $2.37 combined.

Oil prices won't stay low forever (although for speculators it may seem that way!) for the world continues to need oil based hydrocarbons especially for countries that are increasing their car and truck ownership.  The biggest of course is China and India despite this global slowdown will continue on their path to becoming 1st world countries.  Oil and gas prices are in a secular bull market this is simply a bump in the road.  An excellent time to add shares to a sector fund that is uncorrelated to the general market.

 Pills for Cognitive Dissonance in a Speculative Bubble 

John P. Hussman, Ph.D.  

For bulls, this cognitive dissonance creates the temptation to ignore the speculative risk and to dispense with valuation concerns by citing measures that have weak or zero historical relationship with actual subsequent market returns. The result is a stream of justifications for why stocks are reasonably priced and likely to advance without interruption. For bears, this cognitive dissonance creates the temptation to ignore the rising prices – to plant the valuation flag, knowing that a century of evidence on reliable valuation measures supports the strong conviction that market returns over the coming decade will be dismal (most likely negative over horizons of 8 years or less), and that the likelihood of a market loss on the order of 40%, 50% or even 60% in the next few years is quite high. 

Though I certainly believe that we’re better equipped to navigate future bubbles (and even the present one if it continues), the fact is that my defensive views have been vindicated over time, even without these adaptations – and our pre-2009 experience bears this out. 

Recall that the 2000-2002 collapse wiped out the entire total return of the S&P 500 in excess of Treasury bill returns, all the way back to May 1996. The 2007-2009 collapse wiped out the entire total return of the S&P 500 in excess of Treasury bill returns, all the way back to June 1995. 

If the S&P 500 was to experience nothing but a run-of-the-mill 34% bear market decline over the coming 3 years, it will have underperformed Treasury bills for what would at that point be an 18-year period since 1999. 

On the most reliable metrics, current valuations aren’t much different than they were then, so payback will be, well... None of that excuses the challenges we’ve had in the recent half-cycle. Again, a stronger emphasis on investor risk preferences – as inferred from market internals – should make an easier job of navigating future bubbles (or even a continuation of the present one). But don’t believe for a second that the market gains of recent years will actually be retained by investors in any event.

DYI Comments:  I've been pounding the table for some time now stating that a decline in the order of 45% to 60% is in the offering.  This is a nose bleed high market that has pushed up all asset categories with the exception of the above mentioned oil/gas/service sector and precious metal mining companies.  All others are sky high meaning 10 year estimated average annual returns going forward from here will be dismal (1% or 2%) at best and negative (-2% to -4%) at its worst.  This 10 year estimation will have a brutal bear market on its horizon.  While everyone else is losing their heads who are ignoring the fact that the S&P 500 PE10 is flying at 27 times earnings along with a minuscule dividend yield of 1.87% don't go losing yours.

DYI 

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.

The Outlook for the New Year — Paul Craig Roberts

The US economy–indeed the entire Western orientated economy from Japan to Europe–is a house of cards. Since the economic downturn began seven years ago, the entirety of Western economic policy has been diverted to the support of a few over-sized banks, sovereign debt, and the US dollar. Consequently, the economies themselves and the ability of populations to cope have deteriorated. 

The financial markets are based on manipulation, not on fundamentals. The manipulation is untenable. With debt exploding, negative real interest rates make no sense. With real consumer incomes, real consumer credit, and real retail sales stagnant or falling, the stock market is a bubble. With Russia, China, and other countries moving away from the use of the dollar to settle international accounts, with Russia developing an alternative to the SWIFT financial network, the BRICS developing alternatives to the IMF and World Bank, and with other parts of the world developing their own credit card and Internet systems, the US dollar, along with the Japanese and European currencies that are being printed in order to support the dollar’s exchange value, could experience a dramatic drop in exchange value, which would make the import-dependent Western world dysfunctional.

DYI