Valuations are Crucial

For

Market Success!

“Points of ‘secular’ undervaluation such as 1922, 1932, 1949, 1974 and 1982 typically occurred about 50% below historical mean valuations, and were associated with subsequent 10-year nominal total returns approaching 20% annually.  By contrast, valuations similar to 1929, 1965 and 2000 were followed by weak or negative total returns over the following decade.  That’s the range where we find ourselves today.”  

John Hussman of the Hussman Funds.

DYI:  If this chart was reworked to show for the massive profit margins thus eventually regressing back to the mean this indicator would be slightly higher than the 2000 top besting all records for the U.S. market on a valuation basis.  The 2000 top was labeled “The Great Insanity” by the late legendary investor John Templeton of the Templeton funds and very accurate in his description.  What name he would give this top would be a guess?  How about calling this “The Boundless Folly?!”  Whatever name that is eventually labeled in twenty years or so these future market historian will in the end have only one thing to say “What were these people thinking?”  DYI is anticipating a 60% to 75% market decline.  Whether it is achieved within one or two market cycles is up to debate.  Eventually the Shiller PE will bottom out when this secular market  decline ends at or below Shiller PE of 10!

Using the data of massive unsustainable profits margins when reworked places the Shiller PE at a breathtaking 48 to 1.  If 15 years from now stocks reside below 10 Shiller PE what would be your estimated average annual return?  Drum roll please!  Negative 3.43%...That’s right your money will have gone backwards for stocks purchased today or stocks held, go to sleep like Rip Van Winkle, waking 15 years from now your return will be very close to that average.  God forbid if an individual is retiring now with an all stock portfolio using a systematic with draw will send his or hers nest egg to zero in a short time frame.

Valuations are Crucial to Future Returns! 

   The chart above shows the historical returns at market major market turning points highlighting returns during over and undervalued markets and between over 10 year time periods.  Simply another way showing that once again valuations are crucial to stock market success!

DYI

Death

Watch! 

The Retail Apocalypse Is Heating Up in 2019. Here Are the Major Stores Currently on Deathwatch

Sears  J.C. Penney  Victoria’s Secret  Payless

Gymboree  Gap  Ann Taylor

Retailer bankruptcies and store closures: They’ve supplied depressingly consistent storylines at America’s malls for the past few years. And, just two months into 2019, it sure looks like the U.S. retail scene will continued to be plagued by a stunning number of store closures — and perhaps quite a few retailers going out of business for good. 

In a single 24-hour period last week, Gap, J.C. Penney, and Victoria’s Secret announced they would be closing more than 300 stores combined. These announced store closures come soon after retail companies made the difficult decisions to shut down all Payless ShoeSource and Gymboree stores throughout the U.S., and in the middle of Sears’ dramatic struggle to survive. 

Below are seven big retailers closing stores left and right in 2019. Some are restructuring debt and refiguring business models to fight to stay alive in today’s fast-moving ultra-competitive retail world, where every store must offer a compelling alternative to Amazon in order to win over shoppers. Other retailers have already lost the battle, are hosting liquidation sales right now, and will soon disappear entirely — like Toys “R” Us and Bon-Ton before them.

 DYI

Gold to Silver Ratio

Breathtaking 84 to 1!

SILVER EAGLE SALES DOUBLED IN FEBRUARY: U.S. Mint Temporarily Suspends Authorized Purchases

Sales of Silver Eagles continue to be strong as demand for the official coins surged in February.  Moreover, as the Authorized purchases of Silver Eagles jumped by 775,000 oz this past Thursday, the U.S. Mint issued a temporary suspension of sales until inventories can be restocked.  This is a very positive sign as total Silver Eagle sales last year fell to low of 15.7 million, down more than 50%, compared to the 37.7 million set in 2016.

DYI:  For those of you who are hedging your portfolio with physical precious metals the Gold to Silver Ratio is a lopsided 84 to 1.  Gold is selling 84 times greater than silver placing the odds in one’s favor for silver to close this gap.

This indicator is a two way street.  Silver could very well rise from here setting up a nice capital gain or if precious metals go into a bear market then silver’s loss will be significantly less than gold.  This indicator is only between the two but not the general direction.  For long term holders of gold and silver this ratio is a required tool for accumulation and trading between both precious metals to enhance their total return.  

DYI

Never

Defy the

American Empire! 

Financial Imperialism:

The Case of Venezuela

(1.)  Behind the scenes it is clear, as it has been for months, that US Neocons are once again back in charge of US foreign policy, driving the US toward yet another war and attempt at regime change of a foreign government. 

(2.)  The US Neocon-led strategy is increasingly clear: establish a ‘beach-head’ on the Colombian-Venezuelan (and Venezuelan-Brazilian) border under the guise of providing humanitarian aid. Use the aid to get Venezuelans on the border to welcome the US proxy forces to cross over. 

(3.) Set up political and military structures thereafter just inside the Venezuelan borders with Colombia and Brazil, from which to launch further similar efforts deeper into Venezuela. 

(4.) Repeat this province by province, step by step, penetrating Venezuela space until enough local units of the Venezuelan military change sides and convince one or more of the Venezuelan military hierarchy to join them. 

(5.) Establish a dual state and government within and along the border of the Venezuelan state this way. A breakaway State and dual power within the country. 

(6.) Make it appear, by manipulating the media, that the Venezuelan people are rising up against the Maduro government, when in fact it is US proxy forces invading and using opportunist local politicians, military, and others in the ‘conquered’ zones, as the media covers for their invasion.

DYI:  Attempt to break away from the U.S. Global Empire the elites will employ financial measures, propaganda, and if all else fails the U.S. will evade.  Of course it will all be sold as saving the Venezuelans from a power mad dictator.  What is really going on is another grab for the natural resources – especially oil – for our global natural resource corporations.

 DYI

Deficits

Don’t Matter?

Bernie Sanders' 2016 economic advisor Stephanie Kelton

 Modern Monetary Theory and the 2020 race

DYI:  Despite the fancy name of Modern Monetary Theory – MMT – it’s the same old dance of the idea that deficits don’t matter.  Well they do matter and matter a great deal.  As the national debt continues to increase the carrying cost from the interest expense ramps up; eventually choking off the entire budget simply to pay the largest holders of the debt.  Who are they?  Bankers; which of course is owned by the elites.  This is transference of larger and larger portion of our tax dollars into their hands something this economist failed to express.

Also not mentioned is asset inflation due to aggressive budget deficits.  This has “jacked up” stocks, bonds, and real estate significantly reducing returns going forward to sub atomic low levels for stocks and bonds.  Young people attempting to purchase their first home are finding themselves “priced out” of the market despite historically low interest rates.

The biggest topic that was not mentioned is energy as this economist believes that only money is what propels the economy.  No matter how much “pump priming” as long as the cost of energy extraction continues to increase you will have a sluggish economy.

Another economist from the crowd that thinks that you can get something for nothing; with no ill effects.

 DYI

Sandy Hook

Hoax’s 

https://justpaste.it/3ztt4

DYI:  Top flight link to the Sandy Hook Hoax highlighting FEMA employee CRISES ACTOR Gene Rosen.  Plus extensive links to other supporting information.

DYI

Fascist’s

America??

DHS buys five bullets for every American man, woman and child

Ammunition purchases by the Department of Homeland Security in 2013 were also controversial and were subsequently investigated by the GAO. DHS had claimed that is was buying over a billion rounds of ammunition, including hollow-point rounds, in order to “save money.” However, this has long been in doubt, given that hollow-point rounds are significantly more expensive than other rounds that do not expand upon impact. 

At the time, Forbes noted that the massive ammo purchases by DHS could be used to sustain a “hot war” for more than twenty years, given that during the height of the Iraq War the Army used around 6 million rounds per month. With its planned purchase of 1.6 billion rounds, DHS would have ammo left over after matching the Army’s peak daily outpouring of hot lead for two solid decades.

There is no denying that these purchases represent a significant amount of government waste. 

More importantly, these purchases reveal the gradual yet continual effort to militarize federal agencies that have historically been administrative, a trend that should concern all Americans. 

While the militarization of domestic police forces has attracted attention, it is equally important to ask why regulatory agencies are now so heavily armed, considering that virtually all of those pursued by these regulatory agencies are American citizens who are wanted for minor infractions or non-violent crimes. 

For instance, in 2016, the Department of Education sent armed U.S. marshals after Paul Aker over a $1,500 unpaid student loan. The armed officers arrived at Aker’s home with an arrest warrant, which resulted in a two-hour standoff. 

“I’m still shaken,” Aker said at the time. “Why send seven guys with guns about a student loan?” The DOE, during the last two years under the Obama Administration, increased its spending on guns, ammunition and military-style equipment by 25 percent.

With so many other civilian, regulatory agencies now heavily armed, how long before Aker’s experience becomes the norm for those who fall behind on their payments to the IRS or whose pets make too much noise at a National Park?

DYI

Gold

Bull or Bear?

DYI:  Despite all this time since the year 2000 the gold bugs continue to reign supreme out distancing all others that DYI tracks.  How long will gold continue its winning ways??  Who knows!  What we do know is the Dow/Gold Ratio [chart below] currently hoovering slightly above average or fair value. [DYI places fair value at 16 to 1].

 

As of 3/1/19 Dow Gold Ratio is 20 to 1

This is why our model account has a 34% commitment to gold along with 63% in cash [short term bonds].  So no matter which way things go we have plenty of fire power to either buy gold, bonds or stocks all depending upon their valuations.

Just a quick remainder our model portfolio is designed to out perform the Permanent Portfolio – a fixed asset allocation of 25% in Gold, Stocks, Long Term Bonds and Cash – it is not an attempt to out perform the market.  Permanent Portfolio since May of 1986 to the end of 2017 [latest data I could find] is a sub par 6.2% and a 100% stock portfolio on average would have clock in at an even 10.0%.  DYI approach is to hit somewhere between the two with significantly less volatility!  Most folks only have a 20 to 30 year window to put it all together get caught in a long term bear market for stocks in the wrong age group you will not even come close to Harry Browne’s Permanent Portfolio let alone what one would have expected from the stock market in general.  That is what the financial portion of this blog is all about.               

3-1-19
Updated Monthly

Secular Market Top - Since January 2000

+125.4% Dow       

+251.6% Transports 

+166.9% Utilities

+89.5%  S&P 500

+85.1%  Nasdaq

+52.5%  30yr Treasury Bond

+354.5% Gold

+123.5% Oil
  +58.2% Swiss Franc's

    

From High to Low

+354.5% Gold

+251.6% Transports

+166.9% Utilities

+125.4% Dow
+123.5% Oil 

+ 89.5% S&P 500 

+ 85.1% Nasdaq  
+ 58.2% Swiss Franc's

+ 52.5% 30yr Treasury Bonds

December 1999 Shiller PE10 was 44.19               
August 2000 S&P 500 dividend yield was 1.11%

DYI

Stocks

Continue at Nose Bleed Levels!

Avoid Stocks until Reasonable Prices Avail Themselves Once Again!

DYI:  Ben Graham’s formula for purchasing or sale of stocks on a market basis is simply genius in its simplicity.  Even for those who hate math the formula [see below] is actually basic arithmetic that can be done with any grocery store 4 function calculator.  Just plug in the numbers from left to right and bingo you have your answer.

The EYC Ratio [Ben Graham’s formula] is another tool showing that stocks remain at nose bleed levels.  Investing in stocks at this market level will highly likely result in loss or sub atomic returns despite a 20 year plus holding period.  Simply put stocks valuations remain insanely elevated and should be avoided until reasonable prices avail themselves once again.     

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

1.75 plus: Safe for large lump sums & DCA

1.30 plus: Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

Current EYC Ratio: 0.92 (rounded)

As of  03-01-19
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.
Lump Sum any amount greater than yearly salary.

PE10  ..........30.42
Bond Rate.....3.93%

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

Continue at Nose Bleed Levels!

DYI:  Stocks continue to defy economic and valuation gravity as prices have rebounded from their mini selloff over the past few months.  In the end valuation will rule the day when Mr. Market begins the sell off in earnest.  When that day will arrive no one knows. 

What we do know is that stocks purchased or held today, go to sleep like Rip Van Winkle waking 12 years from now, the estimated average annual return with dividends reinvested is – drum roll please – 0.46%!  If you have any debts with interest rates greater than 3% - 2.70% is Vanguard’s Short Term Bond Fund yield – maximize paying those off.  Net worth is – assets minus liabilities – will be improved either by increasing assets or decreasing liabilities.  If you are completely out of debt then follow DYI’s model portfolio.  

%
Stock & Bonds

Allocation Formula

03-01-19
Updated Monthly

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

Current PE10.....30.43

Avg. PE10......... 16.61

% 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 16.61.  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

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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

The Formula.

A value based allocation strategy

February 19, 2010 by John Kingham