Submitted by aka.attrition
“2022 is an extreme year when it comes to the #correlation of #returns between #stocks and #bonds. Indeed, since 1926, stocks and bonds only had 3 years (1931, 1969 and 2022) of combined negative returns.” – Stéphane Monier , Chief Investment Officer, Banque Lombard Odier
“YTD annualized return for the 60/40 portfolio is the worst in 100 years.” – Bank of America Global Research.
Guest Post by Marin Katusa via International Man
A bull market can make an average or even rookie investor feel smarter than a Wall Street or Bay Street vet.
First time investors are throwing darts at a board blindfolded and coming up with big winners.
They’re putting their “Stimmy’s” (stimulus checks) to work in Robinhood—getting free stock for signing up and watching their “stonks” rise.
The thrill of big gains in stocks is juicing the loins of a whole new generation of traders and investors.
If TikTok is any indicator…
Guest Post by Simon Black
The year was 1990, and the Soviet Union was on the verge of collapse. The Berlin Wall was still in the process of being destroyed, and East and West Germany were set to reunify later in the year.
Nelson Mandela was released from prison in February, and the South African government began talks to end Apartheid soon after.
Iraqi dictator Saddam Hussein invaded Kuwait in August.
Ghost, Home Alone, and Pretty Woman were the top movies of the year. Janet Jackson’s Rhythm Nation was the top-selling album.
And the S&P 500 reached an all-time high of 360.65 in May.
Continue reading “You’ll be surprised to see what investment has destroyed the S&P 500”
Guest Post by Mark Hulbert
“For money you wouldn’t need for more than 10 years, which ONE of the following do you think would be the best way to invest it—stocks, bonds, real estate, cash, gold/metals, or bitcoin/cryptocurrency?”
That question was recently asked of more than a thousand investors in a recent Bankrate survey, and the winner—by a large margin—was real estate. For every two respondents who answered stocks there were more than three who said real estate is the way to go.
Are these investors onto something? Have financial planners been wrong all these years? For this column I mine the historical data for answers.
Continue reading “The single best investment for the next decade”
“The corporate bond market has all kinds of problems. I think investors should use the strength of junk bonds that’s happened as a gift and get out of them. Corporate credit, as a percentage of GDP, has never been higher.
The leverage in the corporate economy is very bad, There’s been a lot of buybacks — borrow money at low rates, buy back stocks — which of course, it’s just turning the equity market into a CDO residual, an equity piece, that’s getting thinner and thinner, riskier and riskier.
I think investors need to go to strong balance sheets. Strong balance sheets are going to be the way to survive during the zigzag of 2019.”
Jeffrey Gundlach
“Goldman Sachs Group Inc. is leading a pack of bullish voices cheering for gold. The bank’s analysts led by Jeffrey Currie raised their price forecast for gold, predicting that over 12 months the metal will climb to $1,425 an ounce — a level not seen in more than five years. Bullion has benefited as rising geopolitical tensions fuel central bank purchases, while fears of a recession helped boost demand from investors seeking ‘defensive assets,’ they said.”
Bloomberg, Goldman Predicts Gold Prices to Climb to Highest Since 2013
Guest Post by Martin Armstrong
We are entering a phase of rising interest rates, so bond funds will do poorly. We are not yet at a stage where U.S. government bonds would default or be swapped. Therefore, my recommendation has only to do with rising rates. What you should do is stay short-term, like 90-day paper or less, be it corporate or government. This is just an interest rate play moving into 2018.
As we move into 2018, we will look at corporate vs government shift. That will become the play, but that will most likely unfold after we begin to see serious problems with government debt outside the United States. In Japan, the ownership of public debt by the private sector is in freefall. Debt to GDP held by the private sector before Abe came to power was 177%, which had collapsed to 100% in 2012, and has continued to decline to about 75%. The Bank of Japan through its quantitative easing now owns more government debt than the private sector. Japan is in VERY SERIOUS trouble and there is no possible way to reverse this nightmare.
Guest Post by Doug Casey
So, Trump has won the election. Of course anything can happen between now and his presumed inauguration on January 20. Maybe the Swamp Creatures will succeed in causing a recount in so-called Purple States that could change the number of electors in Hillary’s favor. Maybe they’ll somehow influence Trump electors to vote for Hillary. None of this would have been an issue if Baby Bush II, Jeb, had been the Republican nominee, as was supposed to have happened. It all just shows what a transparent (a word these people love to use) fraud “democracy” has become.
Let the hoi polloi cast a meaningless vote, so they have the illusion of being in control. Instead of seeing themselves as subjects, they’ll think they’re “we the people,” who actually have some say in what happens. That way they’ll pay their taxes willingly, enthusiastically sign on to aggressive wars on the other side of the world against people they know nothing about, and generally do as they’re told. Because it’s supposed to be patriotic. “Democracy” is a much more effective scam for controlling the plebs than kingship or dictatorship.
Just over a week ago the world was coming unglued, as enough British citizens grew a pair and spit in the face of the EU establishment and global elite by voting to exit the EU. The fear mongering by central bankers and their puppet political hacks failed to deter people who have become sick and tired of being abused and pillaged by bureaucrats working on behalf of bankers and billionaires.
Stock markets around the world plummeted on Thursday and Friday. The world braced for another Black Monday. The phone lines were buzzing between central bankers around the world over the weekend as their banker constituents demanded relief. If one thing has been proven over the last seven years, its a coordinated effort between central bankers and Wall Street banks to rig the stock market higher can work over a short time period.
The titans of finance were able to once again confound short-sellers and the prophets of doom with a 5% surge from the Friday lows over the next week. It was surely a coincidence the Fed declared all Wall Street banks, safe, sound, and capable of buying back their stocks to the tune of billions early in the week.
These insolvent zombies were now free to borrow billions to buy back their overvalued stocks, destroying shareholder value, while boosting executive compensation. Poor Jamie Dimon is struggling to get by on his $27 million per year. The Wall Street banks obliged by immediately announcing multi-billion dollar buyback schemes to capitalize on the short-term trading mentality of the 30 year old MBA trading geniuses who bought the news without worrying about the actual value of the stocks they were buying.
This week John Hussman’s pondering about the state of our markets is as clear and concise as it’s ever been. He starts off by describing the difference between an economy operating at a low level versus a high level. He’s essentially describing a 2% GDP economy versus a 4% GDP economy. We have been stuck in a low level economy since 2008. And there is one primary culprit for the suffering of millions – The Federal Reserve and their Wall Street Bank owners. They are the reason incomes are stagnant, the labor participation rate is at 40 year lows, savers can only earn .25% on their savings, and consumers have been forced further into debt to make ends meet. Meanwhile, corporate America and the Wall Street banks are siphoning off record profits, paying obscene pay packages to their executives, buying off the politicians in Washington to pass legislation (TPP) designed to enrich them further, and arrogantly telling the peasants to work harder.
In economics, we often describe “equilibrium” as a condition where demand is equal to supply. Textbooks usually depict this as a single point where a demand curve and a supply curve intersect, and all is right with the world.
In reality, we know that economies often face a whole range of possible equilibria. One can imagine “low level” equilibria where producers are idle, jobs are scarce, incomes stagnate, consumers struggle or go into debt to make ends meet, and the economy sits in a state of depression – which is often the case in developing countries. One can also imagine “high level” equilibria where producers generate desirable goods and services, jobs are plentiful, and household income is sufficient to demand all of that output.
The problem is that troubled economies don’t just naturally slide up to “high level” equilibria. Low level equilibria are typically supported and reinforced by a whole set of distortions, constraints, and even incentives for the low level equilibrium to persist. In developing countries, these often take the form of legal restrictions, price controls, weak property rights, political and civil instability, savings disincentives, lending restrictions, and a full catastrophe of other barriers to economic improvement. Good economic policy involves the art of relaxing constraints where they are binding, and imposing constraints where their absence allows the activities of some to injure or violate the rights of others.
In the United States, observers seem to scratch their heads as to why the economy has shifted down to such a low level of labor force participation. Even after years of recovery and trillions of dollars directed toward persistent monetary intervention, the economy seems locked in a low level equilibrium. Yet at the same time, corporate profits and margins have pushed to record highs, contributing to gaping income disparities.
Continue reading “FED LUNACY IS TO BLAME FOR THE COMING CRASH”
For the lazy people who don’t like to slog through Hussman’s entire data laden weekly tome, I’ve picked out the most pertinent sections. For the really lazy, I’ve bolded the most important sentences. When everyone on Wall Street is using the same algorithms in their HFT supercomputers, and John Q. Public isn’t even in the market, who will these supercomputers sell to when they all get the sell signal at the same time? When that time comes, and it won’t be long, I’ll be munching popcorn and watching the festivities unfold. The talking heads, government apparatchiks, and Ivy League educated big swinging dicks on Wall Street will declare a national emergency and demand another bailout. Will we be stupid enough to fall for it again, or will we start hanging bankers?
The higher the price an investor pays for a given stream of expected cash flows today, the lower the return that an investor should expect over the long-term. As detailed below, investors have responded to zero interest rates by driving stock valuations up to the point where expected market returns over the coming decade are also zero. Given that outcome, one is quite free to say that stocks are reasonably valued “relative” to zero interest rates, but one should still expect zero 10-year returns on stocks.
My impression is that’s not how investors are thinking. Particularly at market peaks, investors seem to believe that regardless of the extent of the preceding advance, future returns remain entirely unaffected. The repeated eagerness of investors to extrapolate returns and ignore the Iron Law of Valuation has been the source of the deepest losses in history.
Current valuations are above the 2007 peak, and are now within about 15% of the 2000 extreme.
NEW YORK (Project Syndicate) — A paradox has emerged in the financial markets of the advanced economies since the 2008 global financial crisis. Unconventional monetary policies have created a massive overhang of liquidity. But a series of recent shocks suggests that macro liquidity has become linked with severe market illiquidity.
Policy interest rates are near zero (and sometimes below it) in most advanced economies, and the monetary base (money created by central banks in the form of cash and liquid commercial-bank reserves) has soared — doubling, tripling, and, in the United States, quadrupling relative to the pre-crisis period.
This has kept short- and long-term interest rates low (and even negative in some cases, such as Europe and Japan), reduced the volatility of bond markets, and lifted many asset prices (including equities, real estate, and fixed-income private- and public-sector bonds).
This combination of macro liquidity and market illiquidity is a time bomb. So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices.
And yet investors have reason to be concerned. Their fears started with the “flash crash” of May 2010, when, in a matter of 30 minutes, major U.S. stock indices fell by almost 10%, before recovering rapidly. Then came the “taper tantrum” in the spring of 2013, when U.S. long-term interest rates shot up by 100 basis points after then-Fed Chairman Ben Bernanke hinted at an end to the Fed’s monthly purchases of long-term securities.
There are three financial hurricanes hurtling towards our country and most people are oblivious to the coming catastrophe. The time to prepare is now, not when the hurricane warnings are issued.
Hussman makes his usual solid case that stocks and bonds are as overvalued as they have ever been in the history of investing. People are under the false impression that bonds are always a safe investment. The fact that you are already getting a negative real return on bonds doesn’t seem to compute with math challenged Americans. Over the next ten years you will absolutely lose money in bonds.
Liquidity in both the stock and bond markets is thinning considerably. In bonds, quantitative easing by global central banks has resulted in a scarcity of available collateral, a collapse in repo liquidity, and increasing frequency of delivery failures, all of which is shorthand for a bond market that is becoming less liquid and more fragile to any credit event. Meanwhile, risk premiums are minuscule. Avoiding a negative total return on 10-year bonds now requires that interest rates must not rise by even one percentage point over the next three years. Bond yields have historically covered investors against a meaningful change in yields before resulting in negative total returns. On a one-year return horizon, bond yields presently cover investors for a yield change amounting to only about 0.25 standard deviations – matching mid-2012 as the lowest level of yield coverage in history.
The fragility of the economic, financial, and social systems of the U.S. is at extreme levels. The median American household has less real income than they had in 1989. The social fabric of the country is tearing as we speak, with Baltimore and Ferguson as the warning shots of coming chaos and civil strife. The ruling elite control the monetary system, so the rigged financial markets continue to rise and have reached bubble proportions. An unexpected pin will be along shortly to pop the bubble. The next crash will make 2008 look like a walk in the park. It may be decades until markets reach these levels again.
Market crashes always reflect two features: extremely thin risk premiums in an environment where investors have shifted toward greater risk-aversion, and lopsided selling into an illiquid market. Under present conditions, we observe the precursors for both. That doesn’t force or ensure a crash, but it creates the underlying fragility that allows one.
Last week, the Nasdaq Composite finally clawed its way to breakeven, 15 years after its spectacular bubble peak in 2000. It’s a testament to the overvaluation of technology stocks in 2000 that it has required the third equity bubble in 15 years to reclaim that 2000 high, at least briefly. As you may remember, the Nasdaq Composite reached its intra-day high of 5132.52 in March 2000, plunging to 795.25 (down -78%) by October 2002. The Nasdaq 100, representing the most glamourous of the group, peaked at 4816.25 in March 2000, plunging to 795.25 (down 83%) by October 2002. Even a decade later, in 2010, both indices were still 60-65% below their 2000 highs. The 2000-2002 decline also took the S&P 500 down by half, wiping out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996.
Continue reading “THREE HURRICANES HEADED OUR WAY – NO WHERE TO HIDE”
If you own stocks or bonds or any investment through a broker, you don’t really own those investments. They are pooled and if the broker goes under, you’re shit out of luck. Not only don’t you own the investments you bought with your own money, but your broker has pledged those assets many times over. The Casey Report has a jaw dropping interview with hedge fund manager David Webb, who reveals the truth about our financial system. The conclusion is that your owners don’t give a fuck about you. They have your money and they want more. And they will get it. Here are a few choice quotes from the interview:
“It took me some years to uncover the basis for how this has changed. It all arises from a revision of the Uniform Commercial Code, Article 8, in 1994. This article governs securities “ownership.” When they did this revision in 1994, they created a completely new legal concept called a “security entitlement,” which means that a security is now a contractual claim rather than property. That’s the key, and it’s hugely important because a contractual claim in a bankruptcy proceeding has very little standing. So even though there are records that a particular security is your property, it’s really not. If your broker goes bankrupt, those securities, by law, become part of the bankruptcy estate. As a client, you cannot revindicate those securities in a bankruptcy. Of course, secured creditors have a higher priority to the assets of the bankruptcy estate than you do. So you’re left with an inferior claim to what you thought was your own property.”
“But it gets worse. All of the securities are pooled – there is no specific identification of who owns what. By law, in a bankruptcy, the losses must be shared pro rata across the client pool. So even if a client somehow manages to get a legal assurance that their securities are not being hypothecated, they are still in a pool where other clients have margin accounts and their securities are being hypothecated. Hypothecation is when a firm pledges a clients’ assets as collateral to another party. The securities firm is allowed to use the client assets as collateral for its own proprietary trading. In my book, that’s fraud. But it is perfectly legal. So the securities firm borrows the security on the assumption that it will return like securities to the pool. But, of course, when an insolvency occurs, the music stops and those securities are not returned. The firm that received those securities as collateral is a secured creditor, and if there is a bankruptcy, they take those assets – the assets you thought you owned – and immediately sell them. They are gone. And you’re left as an unsecured creditor, which means you get what’s left over at the end, if anything. Further, in 2005, the Bush administration rewrote the bankruptcy law. There used to be a concept of “fraudulent conveyance,” which meant that if a firm transferred assets to a secured creditor within six months before its bankruptcy filing, the receiver was required by law to give those assets back. It’s called a clawback. But this revision of the bankruptcy law changed that. The law now specifically says that the receiver is not to claw back the assets. So what was considered a fraudulent conveyance prior to 2005 is now legal. This is very similar to what happened with MF Global and their transfer of client assets to JPMorgan. But it was not considered fraud. Everything was done according to the law.”
“One set of assets can be used as collateral multiple times, which is called rehypothecation. So a securities firm gives client assets to a secured creditor as collateral for proprietary trading. The secured creditor can then turn around and use those same assets as collateral for their own proprietary trading. So those assets are passed on to another firm as collateral, and so on. This is the chain of hypothecation and rehypothecation; the same assets are used as collateral over and over again. I can’t stress this next part enough – it’s very, very important. There are about $700 trillion of derivatives worldwide in a $70 trillion economy. It’s pretty easy to see that there cannot possibly be enough collateral backing. The entire financial asset base of the public is being used as collateral. This is a huge risk that everyone bears, whether they know it or not. If we have a major failure anywhere in that collateral chain, the collateral is pulled out and cannot be returned to the pool.”
When the collapse ensues, they will take your money. Laws won’t matter. Justice won’t matter. Fairness won’t matter. You won’t matter. They want it all.
