If these guys are right, the S&P 500 could fall below its 2008 low

This year’s SocGen bearfest was suitably scary. Albert Edwards reiterated his ‘Ice Age’ thesis. This is essentially the idea that Japan was just a warm-up act for the rest of the world. The entire global economy will be crushed by deflation, before at some point rampant inflation kicks in as central bankers panic and take things way too far. 

Edwards reckons that “the US equity market is in a valuation bear market that did not fully play itself out in March 2009, when the S&P touched the 666 level… we will see new lows.” He also reckons that the Federal Reserve’s interest rate could fall as low as negative 5%.

DYI Comments: Here at DYI it would come as no surprise from T-bills up to 5 year T-notes go to negative interest rates.  Along with 10 year T-bonds under 1% and 30 year T-bonds in the low 2% range.  A. Gary Shilling of InSights has stated many times the big wars such as our Civil War, WWI, WWII, Korea, Cold War or the never ending Vietnam saga chews up massive amounts of natural resources along with tons of dollars, inflation will prevail.  Absence major wars our defense spending drops not only nominally but after inflation on a real basis. [This author of DYI is ex military (U.S. Army) I realize full well for the families who lost loved ones in our two Gulf wars and the on going war on terror will never be a small war].

 Inflation cools off and interest rates will follow as well.

   

  http://www.multpl.com/10-year-treasury-rate  

Currently today on a price to interest(PI) basis bonds as measured by 10 year T-bonds are now 123%(rounded) above their average!  The 1930's didn't produce bond values this high or rates this low as they are today.  DYI's weighted averaging formula has "kick us out" of the market and rightfully so.  Once you have passed 100% greater than the average rate expressed in price to interest we are done in the bond market.

Mankind being as we are there will be other big war out there.  Along the way is also massive entitlements Social Security and Medicare to be paid for the soon to be retiring Boomer generation.  This expense which ramps up significantly in the 2020's will produce inflation as a best guess in the high single digits.  All in all high quality bond interest rates on a secular basis are in the process of bottoming.  That bottom of course will be in a few years in the making or as I've said for stocks The Great Wait Continues.  The Great Wait for bonds will be just that as it will most likely be 3 to 5 years before rates begin to move upward in any meaningful degree.

Market Sentiment

Smart Money buys aggressively!
Capitulation
Despondency
Max-Pessimism *Market Bottoms*Short Term Bonds
Depression MMF
Hope
Relief *Market returns to Mean* Gold

Smart Money buys the Dips!
Optimism
Media Attention
Enthusiasm

Smart Money - Sells the Rallies!
Thrill
Greed
Delusional
Max-Optimism *Market Tops* Long Term Bonds
Denial of Problem U.S. Stocks
Anxiety
Fear
Desperation

The current shenanigans in China are just a sign that this is happening. China devalues, and exports deflation across the globe, alongside collapsing commodity prices. Countries become locked in a competitive devaluation spiral and we end up in a situation not far off the 1930's: “an outright deflationary bust accompanied by a trade war”.

The coming boom in sovereign busts

Emerging markets are at risk of going bust as capital flees their shores. They’ve got too much dollar-denominated debt. Given the choice between servicing this or protecting the best interests of their populations by defaulting on it, there’s no contest. 

This in turn could cause a crisis, as that debt goes unpaid. Investors holding this emerging market debt (and there are a lot more of them these days) will panic, find they’re unable to sell in an illiquid market, and will instead sell anything else that they can get their hands on. (Not unlike in 2008.)

 In any case, Russell’s suggestions for what to buy look pretty good to us – he likes gold and Japanese equities among other things.

DYI Continues:  DYI has many times pointed out that oil/gas/service stocks along with precious metals mining companies being bargains.  I would also mention that Japanese stocks are or have bottomed.  

DYI favorite fund, as you may have guessed, is Vanguard's Pacific Stock Index Fund. Admittedly not a pure play for Japanese stocks but has been close enough for the majority of companies in the fund are Japanese. 

  

A direct play would be The Matthew Asian Funds using their Matthew's Japan Fund symbol MJFOX. Buy this fund after a market smash for a lump sum or you can dollar cost average.

 

Foreign markets, oil/gas, or precious metals mining companies all come under the umbrella of our Dow to Gold Ratio weighted formula.  Currently this ratio has reverted back to the mean which places our commitment at 20%. 

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  1/1/16

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

80% - Cash -Short Term Bond Index - VBIRX

20% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

The idea behind our four asset categories there is a bull market somewhere, especially on a secular basis.  Those who bought oil/gas or gold and/or gold mining companies back in the late 90's our formula would have had you greater than 60% as it would have been 150% x 60 equals 90% of your portfolio[this would have crowded out bonds so a judgment call would be needed] nevertheless you would know stocks were insanely priced and gold/oil/gas on the give away table.  You would have gone against the crowd.  As those prices rose our weighted average took money off the table securing a huge majority of those profits.  From 90% to around 25% when gold went into its cyclical bear market.

The point being by working through these four asset categories there is a bull market somewhere.

HAPPY HUNTING

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. 

U.S. recession is not only a risk but an imminent likelihood...John Hussman....

January 18, 2016

An Imminent Likelihood of Recession

John P. Hussman, Ph.D.

Since October, the economic evidence has shifted from supporting a growing risk of recession, to a guarded expectation of recession, to the present conclusion that a U.S. recession is not only a risk but an imminent likelihood, awaiting confirmation that typically only emerges after a recession is actually in progress. The reason the consensus of economists has never anticipated a recession is that so few distinguish between leading and lagging data, so they incorrectly interpret the information available at the start of a recession as “mixed” when, placed in proper sequence, the evidence forms a single, coherent freight train.

Much of the disruption in the financial markets last week can be traced to data that continue to amplify the likelihood of recession. Remember the sequence. The earliest indications of an oncoming economic shift are observable in the financial markets, particularly in changes in the uniformity or divergence of broad market internals, and widening or narrowing of credit spreads between debt securities of varying creditworthiness.

The next indication comes from measures of what I’ve called “order surplus”: new orders, plus backlogs, minus inventories. When orders and backlogs are falling while inventories are rising, a slowdown in production typically follows. If an economic downturn is broad, “coincident” measures of supply and demand, such as industrial production and real retail sales, then slow at about the same time. Real income slows shortly thereafter.

The last to move are employment indicators - starting with initial claims for unemployment, next payroll job growth, and finally, the duration of unemployment. 

Our concerns about both the economy and the financial markets would be less immediate if we were to observe uniformly favorable market internals across a broad range of individual stocks, industries, sectors, and security types (including debt securities of varying creditworthiness). Instead, we currently observe negative leadership, weak breadth, and dismal participation, with only 17% of individual stocks still above their own respective 200-day moving averages. Meanwhile, credit spreads spiked to fresh highs last week.

DYI Comments:  Stocks being highly correlated to prosperity an oncoming recession will knock the legs out from this market.  Due do excessive valuation a 45% to 60% decline would be expected.  So hold onto your cash as better valuations lie ahead.

The Great Wait Continues....

DYI 

Currency Wars Keep Global Gold Miners In Good Shape

Summary

While the US dollar gold price has fallen over 40% from its 2011 peak, the same is not true in major gold producing nations' own currencies.

With most gold mining costs incurred in domestic currencies and revenues in US dollars, the economics of mining in most of the world's top producers are not nearly so negative.

In Canada and Australia for example the gold price is only down 15% and 13% respectively from the 2011 peak.

In Russia - the world's No. 3 gold miner - the current gold price is close to an all-time high.

In South Africa (the world's sixth largest producer) and Argentina (world No. 14), the gold price is comfortably at an all-time high.

DYI Comments:  When the going gets tough governments will devalue currencies in a race to the bottom in an attempt to export their way back to prosperity.  Only when the excess manufacturing has been eliminated through plant closings and consolidation is when profitability will return.  For those who are devaluing it is hoped that the other guy(nation) will have to close down their excess manufacturing.

With precious metals mining companies off by 80% it is an excellent opportunity to dollar cost average into your favorite precious metals mutual fund awaiting for the turn around for this industry.

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  1/1/16

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

80% - Cash -Short Term Bond Index - VBIRX

20% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

                                                            [See Disclaimer]

DYI   

Uber Could Be First to Test Completely Driverless Cars in Public

Uber CEO Travis Kalanick has made no secret about wanting robots to replace human drivers in his rideshare service—and now he’s found somewhere to develop them. Last month, the governor of Arizona, Doug Ducey, paved the way for the world’s first driverless taxis on public roads. 

At a joint press conference with Uber, Ducey unveiled an executive order calling for pilot programmes of self-driving vehicles “regardless of whether the operator is physically present in the vehicle or is providing direction remotely.” 

Several U.S. states already permit autonomous vehicle tests but all require a human in the driver’s seat should the technology unexpectedly fail. While safety drivers might suit auto makers like Tesla that are building “autopilots” to help motorists avoid accidents on boring motorway journeys, Uber ultimately wants to eliminate human drivers altogether. 

Ducey’s executive order looks to have been written with Uber in mind. It requires that Arizona’s driverless vehicle pilot programmes take place on the campuses of public universities, such as the University of Arizona. It also directs the state’s Department of Transportation, Department of Public Safety and “all other agencies” to “undertake any necessary steps to support the testing and operation of self-driving vehicles on public roads within Arizona.”

DYI Comments:  The big step one is now in place for actual usage though limited at closed driving circuits as in the case of University of Arizona.  Once this is done successfully within a year or two then two or three other Universities in Arizona will get on board after successful completion (about one year) then all Universities and Colleges in Arizona will have autonomous vehicles. Once that is successful this will spread like wild fire to all closed circuit courses not just in the U.S. but all 1st world countries.  Areas such as large hospital metroplexes, military bases, or movement around large airports etc.  Once this becomes common place then the next step is public roads.  If you are a long haul trucker you have a bulls eye on your forehead along with what remains of taxi service(human drivers).  The transportation industry for drivers only as reported by Bureau of Labor Statistics is 823,130 for tractor trailer(long haul truckers) and 54,990 light or delivery services.  All told within 10 to 15 years 878,120 jobs will vanish.

This disruptive technology will also change car ownership.  When taxis' no longer require a driver the taxi fare becomes less expensive than buying the car yourself!  Individual car ownership will be reduced significantly over the next 30 years.  Today there are around 40,000 plus fatalities per year. These traffic deaths will drop precipitously over the same time period to a level where the average person will wonder why we ever allowed people to drive!

This will spread to trains, helicopters, and passenger airlines as well.  When I was around 9 or 10 years old (year 1966) there were folks who were in their early seventies nervous about getting into elevators because there was no operator.  I'm not kidding!  Twenty or so years from now when jump on a plane to fly to your favorite destination will you be scared or relieved that computers will be doing the flying?

DYI 

Is the Auto Loan Bubble Ready to Pop?

We all know the end result of the Great Recession — prices soared, millions of houses were foreclosed, and unemployment surged. Demand for homes then plummeted, and home prices ultimately dropped by 20 percent each month. 

The auto bubble has yet to burst, but its negative effects are already starting to gradually appear. For one, delinquencies on car loans have increased by nearly 120 percent, from just over 1 percent in 2010 to 2.62 percent in 2014. Since cars rapidly depreciate in value, this number is projected to spike. By the time these six, seven, and eight year no-money down loans are due to be paid in full, many of these vehicles won’t be worth paying off anymore — maintenance and loan costs will start exceeding the value of the cars.

 At a time when labor force participation is at its lowest level since 1977 — at a time when real wages are rising less than they have since at least the 1980s — it is imperative that the Federal Reserve stop misleading individuals into making irrational investments. The economy is simply too frail to continue weathering these endless business cycles. Economists, politicians, and the general populace need to start learning from their economic history so they can begin recognizing that favoring debt over thrift isn’t beneficial to the country’s financial well-being. Failure to do so will simply lead to more bubbles, more malinvestment, and more economic headaches in the years to come.

DYI 

Bear Market: The Average U.S. Stock Is Already Down More Than 20 Percent

The stock market is in far worse shape than we are being told.  As you will see in this article, the average U.S. stock is already down more than 20 percent from the peak of the market.  But of course the major indexes are not down nearly that much.  As the week begins, the S&P 500 is down 9.8 percent from its 2015 peak, the Dow Jones Industrial Average is down 10.7 percent from its 2015 peak, and the Nasdaq is down 11.0 percent from its 2015 peak.  So if you only look at those indexes, you would think that we are only about halfway to bear market territory.  

Unfortunately, a few high flying stocks such as Facebook, Amazon, Netflix and Google have been masking a much deeper decline for the rest of the market.  When the market closed on Friday, 229 of the stocks on the S&P 500 were down at least 20 percent from their 52 week highs, and when you look at indexes that are even broader things are even worse. 

For example, let’s take a look at the Standard & Poor’s 1500 index.  According to the Bespoke Investment Group, the average stock on that index is down a staggering 26.9 percent from the peak of the market…

 Here’s a statistical damage assessment, provided by Bespoke Investment Group, of the pain being felt by the average U.S. stock in the S&P 1500 index: 

* Large-company stocks in the S&P 500 index are down 22.6%, on average, from peaks hit in the past 12 months. 

* Mid-sized stocks in the S&P 400 index are sporting anaverage decline of 26.5% since hitting 52-week highs. 

* Small stocks in the S&P 600 index are the farthest distance away from their recent peaks. The average small-cap name is 30.7% below its high in the past year.

DYI 

Clinton Email Hints that Oil and Gold Were Behind Regime Change In Libya

One of them confirms – an email dated April 2, 2011 to Clinton from her close confidante Sidney Blumenthal – that:

Qaddafi’s government holds 143 tons of gold, and a similar amount in silver.

This gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden Dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French. franc (CFA).

(Source Comment [This is in the original declassified email, and is not a comment added by us]: According to knowledgeable individuals this quantity of gold and silver is valued at more than $7 billion. French intelligence officers discovered this plan shortly after the current rebellion began, and this was one of the factors that influenced President Nicolas Sarkozy’s decision to commit France to the attack on Libya. According to these individuals Sarkozy’s plans are driven by the following issues:

1. A desire to gain a greater share of Libya oil production,
2. Increase French influence in North Africa,
3. Improve his internal political situation in France,
4. Provide the French military with an opportunity to reassert its position in the world,
5. Address the concern of his advisors over Qaddafi’s long term plans to supplant France as the dominant power in Francophone Africa)

Are The Middle East Wars Really About Forcing the World Into Dollars and Private Central Banking?

Well, multi-billionaire Hugo Salinas Price told King World News:

What happened to Mr. Gaddafi, many speculate the real reason he was ousted was that he was planning an all-African currency for conducting trade. The same thing happened to him that happened to Saddam because the US doesn’t want any solid competing currency out there vs the dollar. You know Gaddafi was talking about a gold dinar.

Ellen Brown argues in the Asia Times that there were even deeper reasons for the war than gold, oil or middle eastern regime change.

Brown argues that Libya – like Iraq under Hussein – challenged the supremacy of the dollar and the Western banks:

Later, the same general said they planned to take out seven countries in five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.

What do these seven countries have in common? In the context of banking, one that sticks out is that none of them is listed among the 56 member banks of the Bank for International Settlements (BIS). That evidently puts them outside the long regulatory arm of the central bankers’ central bank in Switzerland.

 

Bank for International Settlements

The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked. Kenneth Schortgen Jr, writing on Examiner.com, noted that “[s]ix months before the US moved into Iraq to take down Saddam Hussein, the oil nation had made the move to accept euros instead of dollars for oil, and this became a threat to the global dominance of the dollar as the reserve currency, and its dominion as the petrodollar.”

According to a Russian article titled “Bombing of Libya – Punishment for Ghaddafi for His Attempt to Refuse US Dollar”, Gaddafi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gaddafi suggested establishing a united African continent, with its 200 million people using this single currency.

DYI Comments:  The only problem I have with this article is where they state "This plan was designed to provide the Francophone African Countries with an alternative to the French. franc (CFA)."  There is no longer a French Franc it has been replaced by the Euro.  However, despite this error the basic direction is correct. The U.S./U.K./NATO/EU alliance is in resource wars for all types of commodities especially oil and gas to run our economies.  Make no mistake the war on terror is a side show.  Plus the U.S. needs to maintain its dominance with Dollars.  If this breaks down and we have real competition those Dollars will leave those area's and return to the U.S. along with an increased inflationary rate.

DYI