Behind The War On Cash—-A New Power Grab By Statist Politicians

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.

Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft.

By all means people should be able to go cashless if they like. But it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? Why wouldn’t they eventually ban all cash transactions much as they banned gold and silver as mediums of exchange?

Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.

DYI Comments:  No doubt in this bloggers mind when the next recession hits the U.S.(and Canada) will have negative rates.  How far out and how deep?  Most likely rates from T-Bills to 5 year Treasury notes will go negative with 10 year T-Bonds less than 1% with 30 year T-Bonds under 2%.  Will this push basic savings accounts and CD's at the bank negative?  It is a possibility, unfortunately with worse consequences since sub atomic low rates.  The elderly and retired are generally big CD purchasers for all this will do in finish off the job of COMPLETE IMPOVERISHMENT of this group.

Cash hording along with increase in gold and silver coins will in this scenario.  How much of a police state will be created to do away with these mediums of exchange is unknown at this time.

This is Central Bank madness gone world wide.  Most likely will end in a deflationary smash then accelerate into high rates of inflation (10% to 15%) until saner heads prevail.

DYI 

    

Warning with a Capital "W" 

John P. Hussman, Ph.D.

Valuations remain extreme on the basis of measures most tightly correlated with subsequent 10-12 year S&P 500 total returns in market cycles across history (see Rarefied Air: Valuations and Subsequent Market Returns). When investors are inclined toward speculation, as evidenced by indiscriminately uniform market action across risk-assets, even obscene overvaluation can be followed by further risk-seeking (see The Hinge). At present, however, market internals have deteriorated substantially, including spiking credit spreads in the debt markets. Beyond those factors, we also observe evidence of an oncoming global economic downturn, including a U.S. recession (see A Growing Risk of Recession, and An Imminent Likelihood of Recession). 

Recession Ahead: Faltering Industrial Production Trend’s Leaving Little Doubt

 Warning with a Capital "W" 

Worse, those who don’t recognize how easily the 3.2% nominal annual total return of the S&P 500 since 2000 is likely to be completely wiped away over the completion of the current market cycle; who believe that the investment merit of stocks is wholly independent of valuations or the risk-preferences of investors; and who don’t recognize how quickly the standing of risk-managed strategies can shift relative to long-only strategies over the cold winter that completes a market cycle (see in particular Chumps, Champs and Bamboo) – those investors may not know Jack Frost, but will be introduced soon enough.

DYI Comments:  Stocks and junk bonds are highly correlated to prosperity take that away (recession) prices come tumbling down!  How far?  Higher the valuation bigger the drop.  Currently today valuation are so high for stocks and long term high quality bonds DYI's formula has "kick us out" of these two markets and rightfully so!

  2-1-2016

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION

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

83% - Cash -Short Term Bond Index - VBIRX

17% - Gold - Precious Metals & Mining - VGPMX

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

 0% - Stocks - Total Stock Market Index Fund - VTSAX

[See Disclaimer]

Below are the numbers for the Dow Price to Dividend Ratio and it becomes quite obvious why DYI has marked the year 2000 as a secular top for stocks.  Each successful market top's price to dividends is reduced as the market as a whole "mean reverts" all the way back to massive undervaluation.

  

Dow's current price to dividend ratio is 36 to 1

Secular Market Top - Since January 2000

+  43.2% Dow       

+132.0% Transports 

+115.8% Utilities

+32.1%  S&P 500

+13.4%  Nasdaq

+57.4%  30yr Treasury Bond

+285.5% Gold

  +31.3% Oil

From High to Low

+285.5% Gold

+132.0% Transports

+115.8% Utilities 

+  57.4% 30 Year Treasury

+  43.2% Dow

+  32.1% S&P 500
+  31.3% Oil

+  13.4% Nasdaq

The premise for stock, Lt. bonds, gold, and cash there is a bull market among one or two of these asset categories.  Currently today world wide central banks have "jacked up" almost all asset categories.  However, Mr. Market in the long run is always more powerful than any central bank as oil/gas/service companies and precious metals mining stocks have sold off dramatically.  Precious metals mining stocks have been decimated providing an excellent opportunity to dollar cost average into both of these areas.

Keep your powder dry better values for dividend yields and bond yields will avail themselves in the months and years ahead, allowing the long term investor to increase their holdings to improve your compounding.

The Great Wait Continues....

DYI  

Humanoid robots to manufacture planes

Humanoid robots that can carry out difficult tasks during plane manufacturing are being developed by Airbus and the Joint Robotics laboratory. 

Using humanoids on aircraft assembly lines will make it possible to relieve human operators of the most laborious and dangerous tasks, thus allowing them to concentrate on more valuable tasks that cannot be carried out by machines. 

The four year project will attempt to research and develop solutions for a number of issues around using humanoid robots in manufacturing. 

One of the most prominent difficulties for these robots will be to work in a confined environment and move without colliding with the numerous surrounding objects.

DYI 

Teamster retirees fight massive pension cuts at Kansas City town hall, warn others at risk

Dale Dorsey, after working 33 years, is facing a 51 percent cut to his pension. He’s not facing it alone.

He’s married. Dorsey’s mother lives with them. And, having gotten a late start on a family, so do his children, one in the fourth grade and one in the eighth grade.

“This is just going to cripple my family,” said Dorsey, who was one of 750 retirees and workers who attended a town hall meeting Tuesday in Kansas City.

They came to battle massive pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, 220,000 of them retired. The fund is so short of money, it will go broke in 10 years.

A controversial 2014 law allowed the pension to propose the cuts, many of them by half or more, as a way to perhaps save the fund.

“This pension should be paid out in full until it’s gone,” said Larry Logston Jr., who said he’s among those facing a 50 percent pension cut.

Central States’ proposal would allow the retirees to work and still collect their reduced benefits. But some are no longer able to work, and the idea didn’t seem plausible to others.

“You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked Feinberg. “I’m available.”

The letters from Central States show each retiree the amount of his current monthly benefit and the reduced amount under the proposal. Among 16 such letters shared with The Star, the cuts ranged from 39.9 percent to 60.7 percent. 

Their average pension loss was more than $1,400 a month.

DYI Comments:  Where does one begin?  Politicians who over promised along with gullible rank and file union members who actually believed that a bloated pension could be maintained along with pension managers who promised out sized returns of 8% to 10% forever.  This is only the tip of the iceberg there will be many more pension blowups for years to come. Eventually all pensions will be self funding with 401k type plans.  401k type planes are not without its problems as most participants (average Jane or Joe) underfund their pensions, take money out before retirement or are simply terrible at investing.  There are no easy answers.

DYI  

Sixteen area retirees facing cuts from the Central States Pension Fund shared their notification letters. The proposed cuts to current monthly retirement checks averaged more than $1,400 and ranged from 39.9 percent to 60.7 percent. Here is a sample.

Current check	After cut	Loss of pension
$3,000.00	$1,179.79	-60.7%
$3,200.00	$1,462.12	-54.3%
$2,964.43	$1,482.09	-50.0%
$2,492.82	$1,341.97	-46.2%
$2,523.13	$1,515.68	-39.9%

Source: Central States Pension Fund notices

Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=cpy

Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=cpy

Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=cpy

Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=cpy

Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=cpy

After 'Whipping Up Myth of Russian Threat,' NATO Approves New Fighting Force

NATO Pop. 603 million...Russian Pop. 146 million....NATO GDP $18.35 Trillion...Russian GDP $2.09 Trillion

NATO 'aggravating tensions' with new deployment of thousands to Russian border

The United States and the 27 other NATO-member nations on Wednesday agreed to a new multinational force that will patrol the eastern European border setting up what many believe is "a dangerous dynamic...that has every possibility of spiraling out of control." 

"The result of this massive increase of spending will be more military hardware, more troops, more provocative exercises on Russia’s western flank and much more tension between Moscow and NATO—which once upon a time promised Russia it would not expand 'one inch east' following the collapse of the Soviet Union," Bridge wrote. 

"The fact is," he continued, "from Russia’s point of view, foreign troops are there; they will have a constant presence regardless as to how they are defined. And that is how NATO—not Russia—is aggravating tensions with Russia."

DYI Comments:  Russia is correct.  Since the end of WWII the U.S. State Department and England their first objective was to contain the Soviet Union, then break the Soviet Union, expand NATO eastward, with the final objective to break apart Russia eliminating the Caucasus', the northern Laplands and all land east of the Ural Mountains.  If this is accomplished this would significantly reduce if not eliminate Russia as a naval power thereby eliminating their ability to project power on a world wide basis.  Those who rule the world's oceans rule free trade.  Today America along with their staunch ally England rule the worlds oceans.

Is the U.S./U.K./NATO/EU alliance "aggravating tensions with Russia?"  Absolutely.  Russia will have to respond by increasing her land based armies and air forces sapping their economy plus leaving very little left for naval power.  Geopolitics are being played.  Russia knows this but unable to stop its ultimate conclusion.  The best they do is delay the inevitable for Russia is outnumbered and a far smaller economy as compared to NATO. This may take another 10 to 20 years but it will happen.

DYI   

Consumer companies' outperformance no longer guaranteed by cheap oil

Consumer companies are offering investors a small degree of relief from the turmoil in banking and resources in a results season dominated by fears about slowing economic growth. 

But those companies say lower oil prices no longer translate into a traditional boost for spending on their products because households are using the money saved at the gas pump and on energy bills to stash cash, pay off debt or on other items.

 

"When I ran L'Oreal US ten years ago, every 10 cent, or 20 cents less in the price of the gas translated immediately into more consumption," Agon said. "We started the year, last year, with the idea that the reduction in the price of gas would probably mean an acceleration of the consumption ... and honestly, we did not see it at all."

DYI Comments:  Over the next 5 to 7 years our household debt to disposable will drop back to the 60% to 70% range over the same time period the stock market will cool off substantially as well.  Don't be surprised a few years from now the market as measured by the Dow Jones is trading under 5000 with the Shiller PE10 in single digits.

 

2/16/16 Shiller PE Ratio 24.34

Currently markets world wide are "cooling off!"  

The only two asset categories that are bargains are oil/gas/service companies and precious metals mining companies.  Bargain assets worth dollar cost averaging; buying at low prices with rebounding(beware they could go lower) share prices a few years from now.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  2/1/16

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

83% - Cash -Short Term Bond Index - VBIRX

17% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

DYI's gold allocation is for non-dollar or assets that perform well in inflationary environments. Vanguard Funds 

Energy Fund - VGENX

Precious Metals & Mining - VGPMX

REIT Index - VGSLX

European Index - VEUSX

Pacific Index - VPADX

My objective is to reduce or eliminate assets that are overvalued and increase exposure as they become increasingly undervalued.  DYI's weighted formula does just that based upon historically driven valuations.  Simply, I'm playing the long term averages for U.S. stocks, U.S. long term bonds and gold(Dow/Gold Ratio).

DYI

U.S. continues to Dance on the Head of a Pin between Growth and Recession....

If You Want To Be Wealthy, Don't Focus on Owning a House--Build a Business

If You Want To Be Wealthy, Don't Focus on Owning a House--Build a Business

DYI Comments:  What's the old adage??  "If you can't beat em join em!"  Concentrate on the 1% as compared to the bottom 90%; by staying debt free, living in a very modest house or apartment, build a business and invest the excess into stocks, bonds, and income producing real estate your percentages will be similar to the top 1%.

In other words, by completely reversing what has been told to the middle class and that is, buy a house and a big one pronto.  It is usually strongly advocated by well meaning relatives, yet it is the worst possible advice placing young people into a large amount of debt right from the git go!  On top of that most relatives will advise to take out a 30 year mortgage increasing the interest costs significantly.  Seven to ten years later this young couple moves and purchases another 30 year mortgaged home starting the interest debt clock all over again.  With a 15 year mortgage if they move ten years later a significant amount of the house is paid for as opposed to the 30 year mortgage with an INsignificant (almost none) paid off.

  Here is a quote from Thomas Stanley:

"The data strongly indicates that this ratio of wealth building productivity is inversely related to the market value of one's home."

So simple and so few follow through....

DYI 

Worst Still Ahead for Mining Industry After Losing $1.4 Trillion

When you find yourself in a hole, the saying goes, stop digging. A simple lesson that arguably has bypassed a mining industry that’s wiped out more than $1.4 trillion of shareholder value by digging too many holes around the globe. The industry's 73 percent plunge from a 2011 peak is far beyond the oil industry's 49 percent loss during the same time. 

DYI Comments:  The best time to pick up corporate assets is when share prices have been decimated.  The precious metals mining industry fits that perfectly as prices shown directly above VGPMX or Vanguard's Precious Metals and Mining Fund, to use my favorite word, decimated.  The mining industry will go through hard times as marginal mines are closed, very weak players go bankrupt with the stronger players merging or buyouts.  This consolidations in time will bring the remaining players back to profitability.  This is turn will result in higher share prices down the road. Only suitable for long term value players, as this work out may take 3 to 5 years setting up for the next commodity bull market in the 2020's.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  2/1/16

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

83% - Cash -Short Term Bond Index - VBIRX

17% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

[See 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.

DYI

Whiff of Panic? Global Bear-Market Progress Report

So here is the global bear market tracker. The Dow, though down 13.6%, is the second-best performer. A week ago, it was still the best performer. The Nasdaq, with its 5.4% loss last week and 2.8% so far today, has slipped further down the ladder and is approaching the bear market line, joining three other indexes in that neighborhood. Of the 18 non-US markets on the list, only five are not in a bear market (US markets as of this morning, European markets as of afternoon trading):

And folks are piling into government bonds. US Treasuries with longer maturities have been rising and yields have been falling, somewhat ironically, ever since the Fed raised rates in December. The 10-year Treasury yield is now at 1.75%, the lowest since almost exactly a year ago. These babes are hot! 

Eurozone government bonds are even hotter, with the German 10-year yield at 0.22% today. Even fiscally challenged Italy gets to borrow 10-year money at 1.70%. But wait… these bonds have plunged today and yields have jumped 14 basis point from 1.56% on Friday. And Spain’s debt too has plunged today, with the 10-year yield jumping 11 basis points to 1.76%. It seems, investors are getting a little spooked about those two countries. 

Alas, the 10-year yield of Japanese Government Bonds is teetering near zero, while any maturity below 10 years wallows in the Bank of Japan’s negative-yield absurdity.

So we still expect stock markets to rise this week, being firm believers in the principle that nothing goes to heck in a straight line. But as we said, that line could be straighter than we’d expect.

DYI Comment:  My model portfolio remains steadfastly defensive despite the market selloff. Valuations are so elevated DYI's weighted formula has "kick us out" of stocks and bonds and rightfully so.  Stocks and long term bond prices are so absurd historically Dollar cost averaging is NOT recommended.  Alas this too will change.  For the short term speculator The Great Wait would have been as long as eternity itself.  For the historical/valuation player The Great Wait is nothing more than a blink of an eye.

In due time markets will become interesting(along with improved valuations).....I promise....Markets are regressing back to the mean and will overshoot as they always do.  Our formula(it's no secret just click on the pages marked stocks, bonds, gold) will "kick us back in" as valuations improve and once they go beyond their mean will increase proportionally greater.  Of course at that time uninformed folks will think you have lost your mind as you purchase bargains for the long haul.  That is the life of a contrarian you're never be popular especially at the point of maximum pessimism or maximum optimism.

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  2/1/16

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

83% - Cash -Short Term Bond Index - VBIRX

17% -Gold- Precious Metals & Mining - VGPMX

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

 0% -Stocks- Total Stock Market Index - VTSAX

                                                                [See Disclaimer]

Here’s my favorite Warren Buffett quote on this.

“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying.

This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

Simply, DYI's formula for stocks, Lt. bonds, gold(precious metals mining companies) answers the question "how much."   When valuations improve your allocation is increased and when valuations decline so does your allocation.  Since these three asset categories plus cash are so diametrically opposed there is a bull market somewhere.

DYI