It depends on whether they need short-term cash at their disposal. For millennials just getting going on their 401ks, it's probably a good time to boost contributions or shift the mix of funds in retirement accounts to be more aggressive (younger investors should usually be fairly aggressive anyway, since they have decades to recover from short-term bear markets).
As a savvy investor, you should be especially wary of inappropriate holdover patterns from the long Bull Market. Perhaps you sense that it may be time to take back control of your finances, in the same way legendary hedge fund manager, George Soros, came out of retirement to rescue his own fortune. Like him, you will be able to sleep soundly, knowing your living standards are secure.
A bear market rally is a trend that tends to trick investors into thinking the bull market is on the rise again -- but is, in fact, an upward trend where the stock market posts gains for a couple days or weeks but drops again. There may be several bear market rallies within a regular bear market, but an upward trend can't be considered a bull market until market prices rise 20% or more.
The issuer of a municipal bond receives a cash purchase price at the time of issuance in exchange for a promise to repay the purchasing investors, or their transferees, (the bond holder) over time. Repayment periods can be as short as a few months (although this is very rare) to 20, 30, or 40 years, or even longer. The issuer typically uses proceeds from a bond sale to pay for capital projects or for other purposes it cannot or does not desire to pay for immediately with funds on hand. Tax regulations governing municipal bonds generally require all money raised by a bond sale to be spent on capital projects within three to five years of issuance. Certain exceptions permit the issuance of bonds to fund other items, including ongoing operations and maintenance expenses in certain cases, the purchase of single-family and multi-family mortgages, and the funding of student loans, among many other things.
The last refunding two weeks ago, which consisted of three, 10- and 30-year securities, surprised many by drawing strong demand. That was before the tariff tantrum in markets. When asked on Friday whether China plans to scale back its purchases of Treasuries in response to tariffs imposed by the Trump administration, China's ambassador to the US, Cui Tiankai, wouldn't rule out the possibility. "We are looking at all options," he said.
good article, Doc. It kind of reminds me of a point Mish made a while back about exponential functions and the dangers of apparently small imbalances over time. Basically, if wages are increase slightly slower than inflation (which is bound to happen when the CPI is as cooked as it has been for several decades), the effects will become massive over time. For instance, if real inflation was 4.5% while median wages increase, let’s say, 3.5% per year in the same time, most people will say it’s not a big deal. Just a penny on a dollar. But if this is consistently the case for 25 years running, that $25,000/year job would now be pulling in about $59,000 but the $75,000 house purchase back then would now be demanding about $225,000. The d-to-i ration to maintain the same household on the same job, then, moved from 2.4 to over 3.0. Another 5 years down the road and it’ll up to 3.2. But if those 5 years are between 2008 and 2013, the chances of maintaining any momentum in wages is slim. Adjusted for inflation, everyone I know working the private sector is actually losing ground versus inflation, even with the rare down year factored in. I won’t pronounce it dead just yet, but the American dream certainly is taking a pounding.
It is a false premise that you can know when you’re in a bear market. Market observers are fond of looking at a downward sloping historical stock index chart and saying “the market is going down” or “we are in a bear market.” The truth is, the only thing you can say with certainty is that the market has gone down and perhaps we were in a bear market. Where it is going next or whether we are in a bear market is anyone’s guess.
I might add that you might enjoy reading a 1984 science fiction that predicted our situation in a very amusing light (something I really needed) - Home Sweet Home 2010 A.D., by Mack Reynolds and Dean Ing. A little colorful language, but a deft and delightfully irreverent satire. Fortunately, I can still afford the occasional second-hand paperback. Published in 1984, the paperback originally sold for $2.95. I got it used for 50 cents at a going-out-of-business sale this year. New paperbacks run as much as $12 each. Could that be a hint of inflation?
In the beginning of 2017, you could buy 1 Bitcoin for around $700-$900. Throughout the summer, Bitcoins price started to soar and seemed to reach new highs on almost a daily basis. In the fall of 2017, Bitcoin continued its impressive run, doubling in price in a 30 day period while breaking through the much anticipated $10,000 USD mark. On December 7th, Bitcoin went parabolic and breached $19,000 USD before settling in the $15,000 – $17,000 range. Even long-term Bitcoin enthusiasts were shocked at this price movement. With these spectacular new highs, more people are discovering Bitcoin and it’s becoming increasingly difficult for media pundits to write Bitcoin off as some cypherpunk fad or anomaly. Make no mistake, for better or for worse, Bitcoin has arrived in a big way and it has officially put the financial world on notice. Read More
Historically, municipal bonds have been one of the least liquid assets on the market. While stocks can be bought and sold within seconds on exchange platforms, given the current absence of widespread secondary market platforms for the exchange of stocks, municipal bonds are much harder to maneuver. At the same time, the minimum investment amounts for stocks are typically <$500 and about $1000 for CDs and money markets; in comparison, municipal bonds have higher average buy-in minimums of $5000. These minimum investment amounts previously barred many individuals from investing in bonds.
The public pension fund system is approaching apocalypse. Earlier this week teachers who are part of the Colorado public pension system (PERA) staged a walk-out protest over proposed changes to the plan, including raising the percentage contribution to the fund by current payees and raising the retirement age. PERA backed off but ignoring the obvious problem will not make it go away.
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The living symbol of Smokey Bear was a five-pound, three month old American black bear cub who was found in the spring of 1950 after the Capitan Gap fire, a wildfire that burned in the Capitan Mountains of New Mexico. Smokey had climbed a tree to escape the blaze, but his paws and hind legs had been burned. Local crews who had come from New Mexico and Texas to fight the blaze removed the cub from the tree.
Falling consumer confidence. This is generally one of the last dominoes to drop leading up to a bear market, partly because people are too stubborn to think any economic party could possibly end, and partly because they don’t have the data or the skill to analyze what’s going on behind the scenes. In other words — consumers are usually “the last ones to see it coming.”
Additionally, having a diversified portfolio in stocks, bonds, cash, and alternative investments is important in a bear market. Alternative investments are non correlated with the stock and bond market so over time having this type of asset allocation has proven to out perform the older more traditional stock, bond and cash portfolio asset allocation model.
The second important institutional change is the growth in the mutual fund industry since the mid-1980s, which resulted from the changes in the retirement plans as well as from the individual small investor’s demand for an inexpensive means of acquiring a diversified investment in the capital markets. Households’ investment in stock and bond mutual funds (not including those held indirectly through pension funds) grew from about 1% of total financial assets in 1984 to 9% in 2002. To be sure, with the increased prominence of pension funds and stock and bond mutual funds, direct holdings of stocks and bonds as a share of financial assets has declined from about 37% in 1960 to 22% in 2002. Nevertheless, the potential cost advantage and portfolio diversification available through financial intermediaries facilitates household investment in stocks and bonds. Therefore, the availability of pension and mutual funds should tend to work in consort with the underlying economic fundamentals affecting households’ demand for stocks going forward.
This week we saw the beginning of the implosion of one of the most crowded trades in the world. We’re talking, of course, about the short VIX trade. I say “the beginning” because the short VIX trade is multi-faceted and has deep roots in the business cycle that we’re in. Like most stories in the market, you need to back up from the tree-line in order to get a view of the forest rather than the trees.
Municipal bonds have traditionally had very low rates of default as they are backed either by revenue from public utilities (revenue bonds), or state and local government power to tax (general obligation bonds). However, sharp drops in property valuations resulting from the 2009 mortgage crisis have led to strained state and local finances, potentially leading to municipal defaults. For example, Harrisburg, PA, when faced with falling revenues, skipped several bond payments on a municipal waste to energy incinerator and did not budget more than $68m for obligations related to this public utility. The prospect of Chapter 9 municipal bankruptcy was raised by the Controller of Harrisburg, although it was opposed by Harrisburg's mayor.
“If you pay peanuts, you get monkeys” is the perfect way to describe the current market. Investors are all playing the same game and reinforcing the passive investing trend by constantly plowing more money into passively managed funds. The management fee of the iShares Core S&P 500 ETF (NYSE: IVV) is just 0.04% which is extremely low and positive for investors. However the low fees, mindless investment strategies, and extremely high valuations will lead to a catastrophe when the same mindless buying reverts to panicked, mindless selling.
Maybe you suspect a bear market will start because the bull market has run on too long. Question One—is there a “right” time a bull market needs to last? No! There is no “right” length for a bull market. As bull markets run longer than average in duration, there is normally a steady stream of folks who say a bull market must end because it’s too old. (Read more on this phenomenon in Markets Never Forget.) That isn’t right. They all end for their own reasons and will end eventually—but age isn’t among them. People started saying the 1990s bull market was too old in 1994, only about six years too soon. “Irrational exuberance” was first uttered in 1996—again, way too early. Bull markets can die at any age.
Appeal Case – “Given my status at the time, I felt completely lost and was afraid to make the wrong move given the risks. I wanted guidance and wasn’t completely sure who to turn to. I exchanged emails with Mr Kuhner then moved forward with his coaching service. My entire situation was nerve-wracking, and I did not feel I was prepared to handle it on my own. Now, I feel great that my problem is resolved. And even better that I have gained knowledge, I did not previously know or fully understand. It was also a pleasure working with Mr Kuhner (Coach-for-College), who was nothing but professional in assisting me.” – Dorothy D. – New Jersey [Appeal Award $3,000]
Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from: the Latin word for a single head of cattle is pecus. Salt has been used as money, also in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt is sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value. Read More
Ten-year Treasury yields jumped 13 bps this week to 2.48%, the high going back to March. German bund yields rose 12 bps to 0.42%. U.S. equities have been reveling in tax reform exuberance. Bonds not so much. With unemployment at an almost 17-year low 4.1%, bond investors have so far retained incredible faith in global central bankers and the disinflation thesis.
The reason why sticking with a plan is so important is that it lets you invest at low prices, allowing your money to go further by buying more shares. When stocks recover, you'll own more shares and earn particularly strong returns on the investments you made at or near market lows. Capitalizing on those opportunities will have a definite positive impact on your long-term returns -- as long as you have the discipline to pull the trigger when the time comes.
Dr. D: Well, all parts of the system rely on accurate record-keeping. Look at voting rights: we had a security company where 20% more people voted than there were shares. Think you could direct corporate, even national power that way? Without records of transfer, how do you know you own it? Morgan transferred a stock to Schwab but forgot to clear it. Doesn’t that mean it’s listed in both Morgan and Schwab? In fact, didn’t you just double-count and double-value that share? Suppose you fail to clear just a few each day. Before long, compounding the double ownership leads to pension funds owning 2% fake shares, then 5%, then 10%, until stock market and the national value itself becomes unreal. And how would you unwind it? Read More
Good short-term returns, moreover, increase egos, and complacency comes into play. One of the biggest reasons is that the information is all there transparently, so there is no such thing as a free lunch. Remember, all the information about companies is publicly available and there are people whose job it is to look at this information and weight the pros and cons of all that information.
There is perhaps no better illustration of the deep decay of the American political system than the Senate race in New Jersey. Sen. Bob Menendez, running for re-election, was censured by the Senate Ethics Committee for accepting bribes from the Florida businessman Salomon Melgen, who was convicted in 2017 of defrauding Medicare of $73 million. The senator had flown to the Dominican Republic with Melgen on the physician’s private jet and stayed in his private villa, where the men cavorted with young Dominican women who allegedly were prostitutes. Menendez performed numerous political favors for Melgen, including helping some of the Dominican women acquire visas to the United States. Menendez was indicted in a federal corruption trial but escaped sentencing because of a hung jury. Read More
The rhetoric in the United States is heating up and we’re sounding anything but…well…united. It seems to most media pundits like we are too far down the path to Civil War 2.0 to turn back now. Activists are laying siege to government offices. Threats toward people who disagree are growing in ferocity. It’s ugly and getting uglier. It’s a powder keg that is about to erupt. (Here are some thoughts on what a full-fledged Civil War might look like.) Read More
All day today the presstitute scum at NPR went on and on about President Trump, using every kind of guest and issue to set him up for more criticism as an unfit occupant of the Oval Office, because, and only because, he threatens the massive budget of the military/security complex by attempting to normalize relations with Russia. The NPR scum even got an ambassador from Montenegro on the telephone and made every effort to goad the ambassador into denouncing Trump for saying that Montenegro had strong and aggressive people capable of defending themselves and were not in need of sending the sons of American families to defend them. Somehow this respectful compliment about the Monenegro people was supposed to be an insult. The ambassador refused to be put into opposition to Trump. NPR kept trying, but got nowhere. Read More
In 1962, Smokey was paired with a female bear, "Goldie Bear", with the hope that perhaps Smokey's descendants would take over the Smokey Bear title. In 1971, when the pair still had not produced any young, the zoo added "Little Smokey", another orphaned bear cub from the Lincoln Forest, to their cage—announcing that the pair had "adopted" this cub.
Every once in a while the trading action in a given market breaks through its historically normal boundaries and starts exploring new territory. This can mean one of two things: Either something fundamental has changed, creating a “new normal” to which participants will have to adapt. Or the extreme move is a temporary aberration that will eventually be corrected by an equally extreme snap-back into the previous range. Read More
How fast and furious it goes will depend on many things and is somewhat hard to predict. The tax cut means a lotta corporate cash is coming back for stock buybacks. This counteracts the trend from the Fed portfolio decline. On the other hand more and more being are seeing the professional market cheerleaders for what they are - con artists or children. So that trickle could easily be overwhelmed by the thundering waterfall of people whose eyes have been opened up to the overwhelming heroic assumptions required to keep this bubble inflated this high.
There is increasing awareness that another financial crisis is in the offing, and, of course, everyone has an opinion as to what will trigger it and what form it will take. But there is broad agreement that since the Lehman crisis ten years ago, instead of resolving the problems that led to that crisis, governments and their monetary authorities have allowed the underlying position to deteriorate. Read More
A few weeks ago the DJI became over-bought, but not by as much as we normally expect to see at tops, while at the same time showing very bearish volume and Accumulation Index divergences. Immediately afterwards, we started seeing day-after-day weakness at the close following earlier intra-day strength. This first cluster of technical conditions set up the decline. Now the sell-off has been confirmed by (1) the Hourly OBV Line on the DJI making new lows ahead of the DJI itself , (2) by the increase in down-day volume above the previous day’s volume and (3) the steady 10 day streak of red “candle-sticks” on the daily SPY (SP-500) chart.
Jim, I have so much been looking forward – ever since we launched this podcast two years ago with Jim Rogers, actually, as our first guest – I’ve been looking forward to getting you on the program. And, frankly, I’m glad it took this long because I don’t think there’s ever been a more important time in the last ten years to be very closely observing interest rates.