Excellent!BOB
rhare,I don't advertise my paper towel gains. Someone might break in and steal them!
. . . and I think they are, I think there will be an incredible buying opportunity in equities - but it's not happening right now. I've been watching and playing markets for a long time. I think (hope) I know a bubble formation/hyperbolic uptrend - whatever you want to call it - when I see one. Consider, for instance: those of you who were into PMs in spring of 11 may recall when silver made that move to almost $50 and then dropped like a lead balloon, or to cite another recent example, when WTI petroleum prices went to 147 in July of 08 and then dropped to $32. I could mention '87 and a number of other such moves too. To me, this current stock market has that same feel - just waay tooo many days in row of up up up. Way too much irrational optimism
For whatever it's worth, I'll just tell you that I'm selling into this bull (as in BS) market - taking profit - a little more every week, every day, instead of buying. This is in regard to Pharmaceuticals, Utilities, Energy (I think especially inflated at this moment), and consumer staples - selling em off steady and sure. There's only one kind of stock I'm buying right now and that's PM stocks - and those slowly, a little bit every week - cost averaging in to new positions and hedging in case there's another drop. The fundamentals in PMs will prevail at some point - but they could also move down with a general market drop.
Anex do not dispair, I really don't think you've missed anything at all. I think there will be a major correction or even a real market collapse (think 08/09) and it will be a HUGE buying opportunity - particularly in regard to energy stocks. It may come this year or next, who knows, but I'd say be ready. Stocks at that time, which may be hard to call, will be a much more solid investment than they are now. Just my two cents.
BUT, as with PM stocks right now, you'll have to be willing to buy when everybody and their cousin is saying it's the worst move in the world and that you're a total idiot for doing it. That's the deal - it really is "blood in the streets" .
Just my two cents.
Wendy, I couldn't agree more in regard to investing in resiliency. It pays off in many many ways.
[quote=Wendy S. Delmater]rhare,
I don't advertise my paper towel gains. Someone might break in and steal them!
[/quote]
They'll have to pry them from my clean, well-dried hands!
There's only one kind of stock I'm buying right now and that's PM stocksAny thoughts about buying inverse ETFs, such as the Proshares Ultrashort S&P500?
well, one thing that really makes me nervous is giving anyone else specific investment info - but, in general, I think you've got to be very very careful with those inverse ETFs, especially the ones that are 2x and 3x. Most of them are adjusted to a daily return (key idea). So, if you already know this, excuse - but this is my main concern, so I'll just put it out there in case you don't know it. If it is a "daily" relationship to the market (And I'm fairly certain that one is), then if the SPX goes up yours goes down 3x (whatever) for the day. This Diminishes your base. Like, say you start with 100 and the first day the market goes to 101 - well, inverse 3x takes you 97. Let's say the next day same thing - spx goes to 102 - now you're at 94.x . Your base keeps shrinking daily. SOOOO, then, to come up out of that hole you're in you have to start from a greatly dimished base. for instance, if you're now at 90, and SPX goes from 100 to 99, well, you only go to 92.7 for the day. Remember, and this is key, this occurs DAILY, not on an ongoing continuum. So, you know the Ultra short, as a concept, is great if and when the market is tanking but it could really really be a bitch and diminish a lot of your capital base if, as may well be the case, the spx continues to climb. Do not assume that it will just move up and down in a sort of linear relationship relative to a fixed entry point on the spx - not so. I hope that makes sense.
The same essential structure is there for 1x and 2x Daily etfs, but, 3x especially, could eat you alive. proceed with caution.
The other popular way to short is to play options - buy "puts', but don't do this until and unless you really know about it and have practiced with monopoly money (hey, come to think of it, our Federal Reserve notes are monopoly money - ha, ha, on us.).
From all I can tell, that one does look well enough mangaged - It's one of the ones I've been watching but I've never bought it.
The inverse ETF can be a really good strategy for hedging, but I'd say you have to keep an eye on your portfolio and consider it a one day - day at a time - sort of investment. That's what I do when I buy them. Look, if you haven't done it before (I don't mean to be presumptuous), set up a watch list and watch what the thing does - as if you've bought it.
Another concern is liquidity. But that's a big one and it's trading all the time.
Supposedly CM is going to let is in on it when he decides to short the markets. Might be interesting, but I doubt he'll be specific about his MO.
Back to the cabbage seedlings - hope that helps.
Rob, thank you for your answer. I had played with that particular fund in a trading game I played with some coworkers. Monopoly money 
Reading Chris' brief mention of considering an inverse ETF got me thinking about it and psyched up to try it for real.
You make a good point about the leveraged funds that are 2x or 3x. The Proshares one I mentioned is 2x and I will watch that very closely.
Though with regards to a 1x inverse fund, I don't see how that is very different from any investment in that, any investment that falls 1% must then grow again greater than 1% just to get back to where it was. I suppose the only thing inherently more risky about a 1x inverse fund is that you are betting on overall shrinkage, rather than growth in the market - and that's just not how things are supposed to work.
[quote=kevinoman0221]
Any thoughts about buying inverse ETFs, such as the Proshares Ultrashort S&P500? [/quote] We've talked about this topic numerous times here in the past. Stay away from these, especially the leveraged ones. You'll get ripped to shreds.
There's only one kind of stock I'm buying right now and that's PM stocks
Kevin, with the 1x look at the inverse relationship bewteen the index and the etf. Think about it - model it as a daily percentage shift with a lot of daily volatility up and down - but more up than down in the index. I believe the base will still shrink in the etf while the base of the index expands so that increasingly large real moves inthe index produce smaller real movements in the etf - although they began at 1 to -1. No problem with a 1x straight correlation that I can see. Both start and end daily 1 to 1, whatever the ratio.
Sorry if it's a redundant discussion.
In your chart you showed the 10 year bond yield falling from 2008's yield (3.62%) to 2013 (1.89%) as a -48% loss. That's not correct. A drop in yield means the price for that 10Y bond bought in 2008 went up - between 10-15%, give or take.Simple thought experiment: would you rather earn 3.62% on your money, or 1.89%? 3.62% of course. So the 2008 bond (3.62%) is much more attractive than the 2013 bond (1.89%) - therefore, the price of that 2008 bond must rise - why would the seller sell such a bond for the same price as one yielding 1.89%?
In 2008, that 3.62% bond was sold for $1000 - par value. Today, it might fetch $1100, because its coupon (3.62%) is higher than the prevailing rate for the same sort of bonds sold today (1.89%). Things get complicated because the 10Y bond in 2008 is now actually a 5Y bond today, but - it would still sell for a premium.
Bottom line: 10Y bonds from 2008-2013 +10-15%, not -48%. When yields fall = happy news for bondholders.
[quote=davefairtex]In your chart you showed the 10 year bond yield falling from 2008's yield (3.62%) to 2013 (1.89%) as a -48% loss. That's not correct. A drop in yield means the price for that 10Y bond bought in 2008 went up - between 10-15%, give or take.
[/quote]
That makes sense. Thanks for correcting that. I'm not very familiar with the bond market.
Even with that, the 10-15% still isn't keeping up with inflation.
As far as the paper towels, if I had a recent price on a packet of TP, I would have used that instead. It seems much more comparable to stocks.
The overdue Wile E Coyote sell off is getting closer…
It’s taken longer than expected to roll over because SPX / DOW etc daily, weekly AND monthly uptrends are simultaneously completing a protracted topping process.
The resultant downtrend will have good momentum.
Please be careful folks: it will be nasty.
trader618
You're welcome. Bonds are a bit different than most of the other stuff we're used to dealing with.For total return, the 3.62% 10 year bonds actually did pretty well. The capital gains might be 10% and for the 5 years you collected 3.62 x 5 = 18% so total return - perhaps 28%. Likely that beats inflation overall, although pretty clearly if all you buy is paper towels, it won't. But you will only get that capital gain on your bonds if you sell them substantially before they are due to be paid off. If you just hold them to maturity, then all you get back is the original principal - plus all those interest payments of course.
The longer duration the bond, the more the bond "price" moves when rates change. A 30 year bond's price moves the most.
That SP500 total return is better than it looks too, because of dividends. Not sure exactly what they were over the period, but if we guess they were an average of 2% x 5 years = 10% extra return on top of the 18% is nice.
Pretty interesting how some stuff is absurdly more expensive while other stuff isn't so bad.
One last thing for your table: housing (according to Case Shiller 10 RSA) is off about -20% from the start of 2008.
[quote=davefairtex]Likely that beats inflation overall, although pretty clearly if all you buy is paper towels, it won't.
[/quote]
I used paper towels because it was the last thing I purchased that I had some back data on. I think to track inflation a good place is small non-perishable household supplies. They aren't involved in speculative trade, have plenty of competition, tend to be relatively locally sourced, etc. Things like paper towels, toilet paper, soap, laundry detergent, food (although it tends to fluctuate more depending on harvests & seasonality). Even then the problem is quality and quantity changes in packaging have been used to try and hide the inflation. I believe these small items rather than housing, cars, electronics give a much better indication as to the impact on the majority of the population - particularly the farther down the socioeconomic scale you go.
John Williams shows 4-6%/year. I actually would have guessed higher on things I see (grocery bills, restaurant bills, household supplies) - perhaps because many companies let price increases bite into their profit margins for a while. But even at say 5%/year that's about 28% over the 5 years when compounded. You might not notice the 5% each year, but unless your income has grown substantially over the last 5 years, your probably beginging to notice the pain, particularly with the increase in taxes.
I just wonder when the realization will occur that people say, "wow, I would rather have anything other than dollars" that sets off the next crisis. I'm not sure that the problem doesn't originate with the general populace versus the wealthy because they are feeling the burden more.
Thanks all for your words of wisdom and warning.
Chris - I'm listening to your podcasts - I love them. But please recognize that both James Howard Kunstler and Paul Brodsky both commented the opposite what you propose in this article. If there is more money in circulation, of course the stock market is going to go up! The charts you refer to are not accurate because they are not revised to reflect the increase in M2 because of QE.
Chris, your analysis is conclusive, comprehensive and believable. With your own "out on the limb" call notwithstanding and two weeks since your market call, we're now about to reach the S&P's third try at or around 1565.00. With the recent change in market perception on the US Dollar to a "growth" currency, does this change your view in any way relative to EPS and the global economic outlook?
With equity markets at such prosperous levels for banksters and politicians, I believe nothing will get done in Washington. Market forces seem to oblige these conditions indefinitely,therefore, how can we be confident such a directional shift could occur within your timing range?
Sorry for a long winded cry out for feedback.
Avoid these high risk "investments". Serious tracking errors. If you want to be short and can't/don't use Futures, try SH (S&P 1x Short). Expensive (fees) but not as bad from tracking standpoint. Believe me, you could still lose if you're right by using SDS, TWM or SKF! Better off buying SPY LEAPS too!
you could still lose if you're right by using SDSInteresting, thanks for the info. I had wondered how accurately SDS tracked the inverse of the S&P, and how well it might hold up in times of exceptionally unusual economic activity.
OK, good luck. Lastly, since the VIX is so cheap right now, long term option premiums are pretty low, hence and perhaps an alternative if you want to short the S&P (SPY) with limited downside. Vinnie