Today's Market
by Dr Invest

I have been trying not to write on investment over pass months because NOTHING has changed. We are in DEBT and borrowing even more. Both private and public sectors are pathetic. It appears the only real viable reason to buy more equities, is because people are buying more equities.

The price of equities is not based on FUNDAMENTALS or everyone would sell. No, the price of equities is base solely on the fact that people buy equities at ever increasing prices. There is a faux sense that stocks are growing in value, but the Price to Earnings reveal that stocks are just being over-valued.

For the first time, Yellen has admitted that a problems exists. Aaron Hankin wrote:

Federal Reserve Chairperson Janet Yellen delivered a downbeat message to the Senate Banking Committee on Tuesday, saying she sees "considerable uncertainty" in the economic outlook for the U.S. In a prepared speech to the Committee, Yellen was cautious on the outlook of the U.S. economy and the possible path of interest rates.


“Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 per cent objective,” Yellen said.

"The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach to adjusting monetary policy remains appropriate.”

When the Fed did adjust monetary policy in December 2015 (the first time in nearly a decade), their projections were for another four hikes in 2016. At last week's Federal Reserve meeting this number was down to two, with six of the 17 Fed officials seeing just one. After today's speech markets have increased the likelihood of no hikes in 2016.

The uncertainty in the prepared speech extended to offshore concerns, notably Thursday's referendum in the U.K., where she said the Brexit vote poses potential risks and could have "significant economic repercussions.” However, Yellen described the chances of potential spillover into the U.S. as moderate.

Yellen, who tends to shy away from comments on equity prices said the disjoint in asset prices as a result of the lengthy accommodative monetary policy has made equities expensive on a forward price-to-earnings basis. "Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth," Yellen said.

Traditionally, Yellen has remained upbeat about the path of U.S. growth during her tenure as the Federal Reserve Chair, but today she blinked for the first time saying “we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future.”

Let me interpret. Yellen says, "the price of stocks are overvalued, but never you mind because things are really going pretty good; but should there be bad news that hits the market, this whole thing could blow-up; but it probably won't because things are really pretty good."

You can't play this both ways, either things are bad or they are good. Yellen is suggesting that anything could happen.

In my previous post, I have shown that since the year 2000, a $1,000 investment would have grown 1.7% if invested in the S&P 500. It is unlikely that most people are beating the S&P Index, so this great gain doesn't lie. After the stimulus and operation twist by our central bank, we have erased the interest we would have normally gotten for bonds. Today, a 1.7% return on a bound would be super given that some countries are selling bonds with a negative interest.

Stocks CANNOT continue their climb without a serious event that will bankrupt investors, who are seeking ever higher returns at greater risks.

(Note: the above article is for entertainment purposes only and not to be used in any way as investment advice.)

Today's Market
by Dr Invest

Sandy Jadeja is a technical analyst and chief market strategist at Core Spreads. He accurately predicted four market crashes to the exact date each time and says that there are three more dates to worry about.

He now warns that the following dates spell trouble for the Dow Jones in the US that could spread to other markets. 

1. Between August 26 and August 30, 2016.
2. September 26, 2016.
3. October 20, 2016.

Jadeja said, "We have interesting times ahead of us. We are dealing with issues on so many levels from economic uncertainty in the financial markets, including currencies and commodities as well as the rising house prices we have seen."

In 2005, he said he warned 2,000 investors at a speaking event in Shanghai, China, a talk in New York at a Traders Expo, as well as banks and investment houses at a speaking event in Dubai about the property market crash - eight weeks before it happened.

More recently, on July 31, 2015, before flying to Singapore to speak at a conference of more than 5,000 people, Jadeja warned investors on CNBC that something big would happen on August 18, and to "be prepared to bank profits and stand aside." There was then a flash crash where the Dow Jones Index lost 2,198 points (-12.5%) in just four trading days.

After that successful prediction, Jadeja told CNBC on August 28, 2015, that "there would be a further decline commencing on September 14 or 17, 2015. Then, yet again, the Dow Jones fell 991 points (-5.8%) over eight trading days.

And then on October 1, 2015, and in November, he told CNBC again that, "January 4, 2016 would face a bearish mood and see the markets fall despite the bullish consensus on Wall Street." On that date, US markets and other global indexes fell sharply, where the Dow Jones shaved off 1955 points (-11.2%) over 11 trading days.



Though an Analyst is unlikely to tell you all of his data and secret sauces to accurately pin point change, Jadeja does give some hints.

"We are currently in a very dangerous time zone between 2011 until 2018. This is an 84-year cycle [called the 'Time Cycle'] and the previous cycle appeared during 1928 until 1934 where the Great Depression took place," he said.



Then below is the next cycle he claims is coming.



"This exact same cycle is what we are in right now. And so I am worried that we could see a potential threat to our economy in the current 'Time Cycle' we are witnessing right now," said Jadeja. 

"We have a situation. This lasts until 2018 for this particular cycle. And my worry is that we could see sudden sharp declines take place and tripping investors if they are not prepared," he said. Jadeja is convinced that the sudden declines will take place on three dates - between August 26 and August 30, September 26, and October 20, 2016 - in this "time cycle."  (Business Insider - Lianna Brinded)

Although I am not a big fan of time business cycles, sun spots, and tea leaves, the remarkable accuracy of some analyst are worth noting. Considering the extraordinary length of this bull market and the overvaluation of stocks, one should take notice of the NEAR POTENTIAL RISKS.

(Note: the above article is for entertainment purposes only and should not be used as investment advice.)

Today's Market
by Dr Invest

I've been looking for something to celebrate in market recovery over the past month, and I am disappointed. All of the promised improvements in the U.S. economy have not appeared. Even worse, there is an apparent decline in the U.S. economy that even the Federal Reserve recognizes.  Yellen would never say that, but her planned increase in interest rates have been taken off the table. She, of course, reminds us that the Federal Reserve will be reviewing the progress of the economy and could increase interest rates at any time. (wink wink)

History shows that valuations above 23x earnings have tended to denote secular bull market peaks. Conversely, valuations at 7x earnings, or less, have tended to denote secular bull market starting points. This point can be proven simply by looking at the distribution of returns as compared to valuations over time.

From current levels history suggest that returns to investors over the next 10 and 20-years will likely be lower than higher. However, as I said, we can also prove this mathematically as well.

(1+nominal GDP growth)*(normal market cap to GDP ratio / actual market cap to GDP ratio)^(1/10)-1

Therefore, IF we assume that GDP could maintain 4% annualized growth in the future, with no recessions, AND IF current market cap/GDP stays flat at 1.25, AND IF the current dividend yield of roughly 2% remains, we get forward returns of:

    (1.04)*(.8/1.25)^(1/10)-1+.02 = 1.5%

So what we learn from John Hussman's formula is that AT BEST, we should be getting a return of 1.5% is every thing remains the same over the next 10 to 20 years.

TRUTH

Truth is hard to come by. On any one day, you will read articles that the economy is surging and that economy is floundering. Truth is what every investor desires. What is the TRUTH?

Below is a chart showing in the BLUE, returns promised by investment software. This is what your investment adviser uses to figure all the money your are going to get from your investments in the years ahead. Charts are always comforting to view, but are based on VARIABLES from past years. Note the word: VARIABLE.... it means things change.  



Most investment firms calculate your potential returns based on data from the 1950's. The economy changes and that is even more evident beginning in 2000.  When you visit your financial adviser ask him to show you the returns on $10,000 invested in the year 2000 until the present, and you will be shocked.

Overspending, high government and personal debt, defaults, and Central Bank stimulus have all taken their toll on returns. The myth is that the rich are getting richer, while the middle class is slipping into poverty. This idea is largely false when it comes to stocks. Truth!

Look for a moment at the S&P chart below:


The total return certainly looks better, but the real (inflation-adjusted) purchasing power of that $1,000 is currently only 316 dollars above break-even, a real compounded annual return of 1.71%.

So listen, if you are part of the crowd that beats their chest and complains about all the BIG money that rich investors are getting from stocks, think again. The compounded annual return for the buy and hold crowd is barely over the interest currently being paid by banks for a Certificate of Deposit. 

I give you permission to go and cry for awhile.  Tell the truth and don't perpetuate the myth of large profits, it just isn't happening.

(Note: the above article is for entertainment purposes only and not to be used in any way as investment advice.)  

Today's Market
by Dr Invest

Many of you thought I had died, but no! We are currently caught in a current that returns us back to where we began, a kind of Ground Hog's Day event. Oh yes, our financial advisers remind us that our economy is growing and we will all get rich; the Federal Reserve reminds us that our economy is growing and is robust enough for another interest rate increase; and our president reminds us that under his guidance, our economy has made enormous strides toward recovery after the Republicans had messed everything up.

Just a comment, it is like our government has DOUBLED its debt under the Obama administration and increased spending by 1/3, and implemented one of the largest healthcare fiascos ever placed on U.S. citizens, and then calling all of this a great success. Barf! If you are believing any of this, it is only because you don't have a clue about what is true.


The reason I am mentioning this at all, is because reality escaped the political and economic spheres a long time ago. It is all about the SPIN. It is how you tell the story and get the masses of people to believe it. Candidates are running for political office... it is about the SPIN. Financial Advisers are now boldly talking about there role as FIDUCIARIES, meaning that they have your best interest in mind. Still, they will put you into the investment that returns to them the best kick-backs from their companies.

Here is what Stan Druckenmiller, one of the worlds greatest traders recently said: “Sell your equity holdings.”

CNBC has a good summary:

“The conference wants a specific recommendation from me. I guess ‘Get out of the stock market’ isn’t clear enough,” said Druckenmiller from the conference stage in New York. Gold “remains our largest currency allocation.”

The billionaire investor expressed skepticism about the current investment environment due to Federal Reserve’s easy monetary policy and a slowing Chinese economy.

“The Fed has borrowed from future consumption more than ever before. It is the least data-dependent Fed in history. This is the longest deviation from historical norms in terms of Fed dovishness than I have ever seen in my career,” Druckenmiller said. “This kind of myopia causes reckless behavior.”

He believes U.S. corporations have not used debt in productive investments, but [have] instead relied on financial engineering with over $2 trillion in acquisitions and stock buybacks in the last year. This is finally showing up on the books of companies as operating cash flow growth in U.S. companies has gone negative year-over-year, while net debt as gone up, according to the investor.

Druckenmiller was negative on China’s economy going forward and believes recent attempts at further stimulus in the Asian country will not work and “aggravated the over-capacity in the economy…. Higher valuations, limits to further easing... the bull market is exhausting itself,” he said.

Without boring you with volumes of statistics, the ten-year expected return on equities is only 2% per year.   Mauldin Research can provide you the volumes of research, and much of it free. The point is that until there is a DRAMATIC fall in equities, there is no real opportunities to profit from the current market. Four words describe the current market conditions: HIGH RISK, LOW RETURN.

Even BOND purchases at this time are RISKY because the FED could raise rates, leaving you with a bond no one wants to purchase. If you have bonds you purchase many years ago, returning 5%... keep them!

The Federal Reserve and Central Banking as a whole, have set a course that is largely experimental. It would appear that we will eventually end up like Japan, in a stagnate and indebted economic state.

What to Do

There really is not a great course of action other than batten down the hatches and ride out the storm. If you have investments in a ROTH, selling your stocks and moving to Certificates of Deposit could work well and be secure. (Called, the Grandma Investment) You can get 1.2% returns on CDs at this time. Perhaps by July, if the FED raises interest a basis point, you might get even a higher rate of return.

Gold has been mentioned and at some point may bring great returns, but since 2012 gold has been a real loser. You want to see a return from an investment you don't have to hold for 30 years.