Today's Market
by Dr Invest

No, I haven't been commenting on the market. There is so much more to comment on, such is broad market swings due to covid-19 and protests. How to I explain the markets..."It was the best of times and the worst of times... seems appropriate.

Perhaps the best place to begin this article is to go back to 2009, when I first complained of the U.S. Federal Reserve's "stimulus plan". The "stimulus plan" or "quantitative easing", I suggested, was like putting a patient on life support. You don't put a patient on life support if they are healthy, only if they are sick. What stands out is, that out economy is sick.


I don't care how much money you claim to have made in your stock investments, you are a fool if you don't realize that the TRILLIONS of dollars spent to stimulate the economy is YOU, THE TAXPAYER, PAYING THE ECONOMY TO STAY AFLOAT!

Keeping interest rates at near ZERO RATES is just another way of stimulating an UNHEALTHY ECONOMY.  Recent monies given to US, the citizens for covid losses, amounted to 2.2 Trillion in stimulus. When you consider that the median household earns $56,000 a year or $4,600 a month, the $1,200 check seems like a pretty poor contribution to the monthly needs of most citizens out of work.

What is worse is that the HOUSE of REPRESENTATIVES is working on another Stimulus Package even more expensive than the first stimulus package.  Nancy Pelosi will seek $3 Trillion this time. And what will we get? Another $1,200? Some will have accolades, toasting our politicians for GIVING US FREE MONEY from the government, but that MONEY CAME FROM YOUR BILLFOLD. Let me be clear...THERE IS NO FREE RIDE. Politicians are giving you your own money, and then claiming they gave it to you... so you will remember to vote for them.

Yes, this is a rant! It is neither directed at Democrats or Republicans because both have kept the stimulus going since 2009. This continued stimulus is what I warned about in 2009 and continues today, distorting the market. Listen to Allianz chief economic advisor Mohamed El-Erian:

...investors should not only worry about "zombie" companies but "zombie" market as well. El-Erian warned that asset prices are becoming distorted and detached from fundamentals. Taking cues from the concept, El-Erian explained that a situation of "zombie market" may arise if central banks and policymakers around the world continue to prop up assets, thereby destroying the market’s ability to allocate capital efficiently.

“Zombie markets are markets that are completely mispriced, they’re completely distorted,” he said. “Why? Because there is a policy view that you need to subsidize everything in markets for now.”

His comments come on the back of various measures taken by the central banks to prevent the stock market from crashing. For example, the US Federal Reserve has pledged to buy corporate debt and unlimited amounts of Treasury along with lowering the interest rates to near-zero levels.

I hope you are getting this... that you are understanding what is happening in the markets. It doesn't mean that you can't make some money in stocks...but the Lord giveth, and the Lord taketh away. So when you see gains of 500 points and then losses returning the next day of 500 points, it is rather hard to guess which will be a fine day or your worse nightmare. 

More importantly, bonds are worthless, and that is by design to get you to invest or spend your money.  Go google "negative interest rates", learn a little bit. The purpose of negative interest rates is to force you to get your money out of the bank and spend it. The the economy will be more stimulated. 

All this time I thought I was making money in the stock market, it was my taxes stimulating the market that made me think I had made 40% in returns. Duh, all along the politicians were using my own money to make me think I was in the den of prosperity. I DIDN'T REALIZE I WAS PAYING FOR MY OWN RIDE!




You may believe that the stimulus is working, but politicians, since 2009, have simply found another way to convince you that they are riding to your rescue.

Again, whether a sophisticated investor or a newbie investor, you cannot depend of the FED to rescue you and the reality of DEBT will eventually arrive to collect what your government has spent.


What really shocked me was the REALITY of just how much Quantitative Easing has gone on over the last 14 years. seeing the chart below, helps me realize WHY our markets have remained in the longest BULL MARKET this country has ever known.

We are so proud of ourselves but our economic successes have come upon the back of debt. When the debt is finally called in, there will be many tears. Only then will we understand that the magic of our economic success  is smoke and mirrors.

SO THE ANSWER IS?

Be careful! Here are some things you can do to avoid the tears:

1. Don't borrow money.
2. Get out of debt.
3. Invest in solid investments - real estate, rental properties, and so forth that return income.
4. Stay away from investments that are higher risk.
5. Stick to tame stocks. (MCD or STBUKS or MO)

There are few places you can invest without risk, but minimize your risk as much as is possible and invest where you can have control of your money instead of an institution in New York.  Just some thoughts for your consider.

Note: We are not selling anything. Any investment has risks, we offer no advice regarding your investments and recommend seeing a financial advisor before any investment is made.

Today's Market
by Dr Invest


There is no question that the market has seen remarkable gains since 2008, this doesn't mean that we have a viable economy. No, I'm not a perma-bear! But the reality is that major corporations are releasing employees and cutting back like a recession will begin at any moment. Sears, J.C.Penny, Catepillar, Boeing, and the list goes on and on. These are strategies to insure stability for corporations.  What do they know that we don't?

When asked if stocks are overvalued, Nobel laureate Robert Shiller supplies a simple answer: "yes." But that doesn't mean equities are set to dive.

Evidence that stocks may be richly priced is easy to find. Shiller's cyclically adjusted price-to-earnings ratio, which compares the current value of equities to inflation-adjusted earnings over the past 10 years, is at levels not seen except for the years surrounding 1929 and 2000. And at 29, the ratio is higher than its highest level before the Great Recession.



Still, Shiller makes it clear this doesn't necessarily suggest that investors should sell stocks.
"I'm not saying pull out of the market — I'm saying that it looks dangerous now," the Yale economics professor said Wednesday on CNBC's "Trading Nation." "But it could keep going up."

Another fund manager and now consultant Raoul Pal suggest that a recession will be due in 2017.

Recession and Elections

I recently noted that since 1910, the US economy is either in recession or enters a recession within twelve months in every single instance at the end of a two-term presidency… effecting a 100% chance of recession for the new President.

No recession without an election

I then spent some time looking at US recessions in general, and found that every single one occurred during, or just after, an election, without exception.

Not every single election sees a recession, only every two-term incumbent change. Some two-term Presidents saw recessions at their first-term re-elections too (Wilson and Eisenhower).
The following chart shows every NBER recession since 1910 (in yellow) with the new President after a two-term election marked in white and the new Presidents after a single-term presidency in red. Wilson and Eisenhower appear as both. Only Coolidge saw more than a year (sixteen months) from his second-term election and the onset of the subsequent recession at the end of WWI...




Trump will see a Recession in 2017

Finally, bearing in mind the above, we have to acknowledge that there is an extremely high chance of a recession within the coming year with the imminent change of government in the US after a two-term presidency. History would suggest that the odds are 100%.

Amid the furor of glowing economic reports, remember that our economy is still on "Life Support". The FED is only now attempting to normalize interest rates. This process will take years to complete especially at raising basis points only 1/4% three or four times a year. The other crisis is the purchase of bonds to the tune of 13 Trillion. Again, it will take years to wash out this liquidity from our economic system. The final obstacle is our national debt, at nearly 20 Trillion.

The problem is that as you raise interest rates, it will cost you more to pay back the money you have borrowed. Borrow $100 at 1% interest and you owe $1 per year, but if you raise interest rates to 5%, you will owe $5 per year. That is 4 times more you would owe.

Now if you talk about $100,000 of debt, at 1% interest you owe $1,000 and at 5% you owe 5,000 per year. Let's go to 1,000,000 of debt, at 1% interest you own 10,000 and at 5%, you owe $50,000 per year.

Assume you earn $100,000 per year. Paying back $5 per year is easily done, even paying back $5,000 is no sweat, but paying back $50,000 in interest alone would become somewhat challenging. The government also faces the same challenges. The U.S. government has limited income...from taxes...at some point the debt will become greater than the government's capacity to pay the interest.

CLOSING THOUGHTS

There is the promise of a return to 5% GDP, unemployment is low, the economy seems to be heating up, buying American seems the tone along with MAKING AMERICA GREAT AGAIN. The problem is that the demographics don't support these goals. The population of active workers is declining with the retirement of thousands of baby boomers, production will continue to decline and with it will come deflationary pressures. Meanwhile we are simply waiting for the next shoe to drop...that is a long overdue recession. While you are are counting all the money you are making from being positioned in stocks, you might consider the risks that grows higher each day.

Today's Market
by Dr Invest


I've been hearing how great it is to be in the market. The future is bright and there is no place the market can go, other than up. The Obama presidency has restored the economy with jobs growing to an all-time high. And inflation is heating up, as the dollar  rises to it's own all-time high against world currencies.

NOW IF YOU BELIEVE THIS, I HAVE A BRIDGE TO SELL YOU.....


The financial industry is in trouble. Most of the financial news articles read on the internet are designed to push investors into the market. They are slanted in favor of banks, brokerages, and financial institutions. A recent study showed that the S&P 500, since 2000, only gained 1.8%. Yes, I know it looks like more than that, but if you take $1,000 and it loses 50%, you have to gain 100% to just get back to even. Since 2000, we have had two very deep recessions. That $1000 invested in 2000 would have only gained 1.8% per year.

Another issue is that we are taught that only a PROFESSIONAL FINANCIAL ADVISER can properly invest our money. When you consider that they often charge 2% to manage your portfolio, you could end up with your investment provide a negative return.

HOW DO YOU KNOW THIS?

Well the facts that I have just mentioned. Even though you can say, the S&P500 has return 138% since 2012, you have to begin counting since 2008 when we entered the bear market. That has been 8 years. Let's go back to that $1,000. You lose 50%, it takes a 100% gain to just return to $1,000; then you divide 38% by 4.75% per year. Take off another 2% for your financial adviser and now you have 2.75% return. The fly in the soup is this: not everyone is invested in stocks alone... they are diversified. The result is that only a hand full of investor brokers beat the S&P 500, the majority of investor brokers fall way short of the returns of the S&P 500.

SHORTFALLS IN PENSION FUNDS

Some of the brightest fund managers are directing investments for the pension funds, yet have fallen short of their investment goals. This has left pensioners with a declining pool of money to invest on their behalf.

To handle short-term short-falls in investment returns, these pension fund managers buy INSURANCE. One of the major players in this business is THE PENSION BENEFIT GUARANTY CORPORATION.  Listen to this report from the Washington Post:

The Pension Benefit Guaranty Corp., which insures private pensions, said it is $58.8 billion short of the cash it needs to cover benefits for multiemployer pension funds that are expected to run out of money within 10 years. That is up from the $52 billion deficit seen last year, marking a new high. With roughly $2 billion in assets, the insurance fund is on pace to run out of money by 2025, if not sooner, the agency said.

What does this mean to me? Why does the PBGC even matter to me? The answer is that even professionals have not been able to meet their investment goals in the current financial climate. Even the insurance company guaranteeing the returns is running out of money. By 2025, the promised pensions to millions of retirees cannot be guaranteed by the insurance company.

This does not speak to financial health, but financial weakness. News media can put their own spin on financial health, but the grind of declining profits for businesses and the poor long-term returns for professional financial advisers speak to real economic problems.

With over rich valuations for stocks and a long-in-the-tooth bull run, I would be nervous about staying in stocks until after we have had a market corrections. 

Happy Thanksgiving


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

Today's Market
by Dr Invest

Just a quick hello to friends. Some of you might think that financial calamity has escaped our economy. Yellen believes, along with other central bankers, that markets can be fully controlled by central planning. Hmmm....kind of sounds like socialism. Never the less, according to Yellen, we never need fearing a recession again.

Joining with her are a cadre of economists, brokers, bankers, politicians, and our own president: according to them, employment is at an all-time high, we have moved from the GREAT RECESSION to a increasingly robust economy, and Obama's health care legislation is a resounding success. If you keep repeating these ideas long enough, there is a belief that the public will believe them to be true.

Here are the facts:

Though there has been a consistent gain in jobs since the recession in 2008, we are no where near the number of employed before 2008. Job participation fell to 62% and many jobs offered are only part-time jobs. (Companies required to pay for health insurance for their full-time employees, have answered the new government demands by only hiring part-time employees.)

Second, for the past year and a half corporate profits have been in decline, shipping has been down, and retail sales in a decline. None of these are indicative of a robust economy. The GDP has grown at 1.8% and some believe it to be even lower than 1.8%. Rumors of an exploding robust economy have never fully materialized. When threats to the weak economic rally have appeared, Yellen has doubled-down, promising that she would step-in to spur the economy. Encouraged by endless low interest rates and on-going stimulus, stocks have soared in price. This gives the appearance of a strong economy, but is built solely on the promises of the Fed to continue spurring the economy. Stocks are overvalued with some PEs rising into the 20s, where a PE of 8 would be reasonable. (PE=PRICE TO EARNINGS)

Third, Obamacare has ruined a viable healthcare industry. Almost every promise made to the American people has been a great lie: "You can keep your doctor!", "The price for healthcare will be decreasing!". Agents have told me that costs are dramatically rising, and when you add in a $6,000 deductible before getting any help from your insurance policy, it is almost robbery. If you qualify for a subsidy, you might find Obamacare a great benefit, but most middle class workers with two family members will make more than $64,000 a year and find themselves paying full price. Listen, if you make more than $64,000 a year. you pay the FULL PRICE. This amounts to $1,500 a month, with a $6,000 deductible for a husband and wife or $18,000 a year for health insurance. If you deduct this health insurance from your salary of $64,000 a year.... you now have $46,000. Typically, I will pay another $4,000 for various medical issues between my wife and I. This would leave a middle class family with $42,000 to live on annually. Poverty-line in Williamson County, Texas is $31,700. A middle class family of two, paying for Obamacare, would be forced nearly into Poverty because they made more than $64,000 annually. This family would not qualify for any health insurance subsidy... and would likely pay more in TAXES for those getting a subsidy because they make under $64,000 annually. Excuse me, this doesn't sound like a successful idea...  Pushing middle class people close to poverty and penalizing them will only demotivate them to make money and be productive.  But you be the judge.

If you are fortunate enough to start your own business.... you will need pay for your full-time employees healthcare... and if a small company, you will need to pay an administrator to look over your shoulder verify all healthcare expenditures. This, of course, insures that that your healthcare provider or employee is not using healthcare unreasonably.. blah,  blah... and more money please for the Affordable Healthcare Administrator....(you have to pay for this oversight as a business man.)

The promise from some of our politicians this year is that "We are going to take care of the small business man. We are going to provide the right tools to help him build his business."  Blah, Blah!

Practically speaking, if a patient were put on "life support" we would not call that patient healthy. An economy driven by such ridiculously low interest rates and the promise of stimulus should an economic downturn suddenly appear, IS NOT A ROBUST ECONOMY BUT THE SUREST SIGN OF AN ECONOMY THAT IS SICK! But you be the judge.

Yes, the stock market could rise even higher. Stock prices could continue rising over the next year or two years, or four years. Rising stock prices are meaningless if they don't reflect true value. Should Yellen be wrong and we enter a full fledged recession, ALL GAINS THAT REFLECT AN ARTIFICIAL VALUE WILL BE WIPED OUT IMMEDIATELY. Stocks will eventually find their real value somewhere BELOW the true value of the stock. You could see stocks falling 50% to 80% of their current price. BONDS too, would fall in value. The scenario is that the FED could try to move bonds into a NEGATIVE INTEREST RATE. In a recession, the value of the dollar would also fall so that moving your cash into a 5% negative interest rate would be more economical to an investor than remaining in cash that would decline 25% in value.

GOLD.... Gold is a commodity and statistics show that gold always initially falls in price when there is a recession... because it is a commodity... like wheat, cotton, corn... etc. Gold begins to regain its value as a fear metal after the recession has endured for a while.

My opinion is unchanged, the risk does not outweigh the potential gains you could get by being in the market. Put your money into a Certificate of Deposit and go to sleep at night without worry. The S&P 500 has returned a paltry average of 1.8% since 2000. You can make a 1.27% in a C.D. almost beating the S&P 500 without the risks.

(note: the above information is for entertainment purposes only and to be used in ANYWAY as investment advice.)

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.)