Tag Archives: PE

Market Bubbles: It’s Not The Price, It’s The Mentality.

“Actually, one of the dangers is that people could be throwing risk to the wind and this [market] could be a runaway. We sometimes call that a melt-up and produces prices too high and then if there’s a shock, you come down to Earth and that could impact sentiment. I think this market is fully valued and not undervalued, but I don’t think it’s overvalued,” Jeremy Siegel

Here is an interesting thing.

“Market bubbles have NOTHING to do with valuations or fundamentals.”

Hold on…don’t start screaming “heretic,” and building gallows just yet.

Let me explain.

I can’t entirely agree with Siegel on the market being “fairly valued.” As shown in the chart below, the S&P 500 is currently trading nearly 90% above its long-term median, which is expensive from a historical perspective.

However, since stock market “bubbles” are a reflection of speculation, greed, emotional biases; valuations are only a reflection of those emotions.

In other words, bubbles can exist even at times when valuations and fundamentals might argue otherwise. Let me show you an elementary example of what I mean. The chart below is the long-term valuation of the S&P 500 going back to 1871.

Notice that with the exception of only 1929, 2000, and 2007, every other major market crash occurred with valuations at levels LOWER than they are currently. 

Secondly, all market crashes have been the result of things unrelated to valuation levels such as liquidity issues, government actions, monetary policy mistakes, recessions, or inflationary spikes. Those events were the catalyst, or trigger, that started the “reversion in sentiment” by investors.

For Every Buyer

You will commonly hear that “for every buyer, there must be a seller.”

This is a true statement. The issue becomes at “what price.” What moves prices up and down, in a normal market environment, is the price level at which a buyer and seller complete a transaction.

Market crashes are an “emotionally” driven imbalance in supply and demand.

In a market crash, the number of people wanting to “sell” vastly overwhelms the number of people willing to “buy.” It is at these moments that prices drop precipitously as “sellers” drop the levels at which they are willing to dump their shares in a desperate attempt to find a “buyer.” This has nothing to do with fundamentals. It is strictly an emotional panic, which is ultimately reflected by a sharp devaluation in market fundamentals.

Bob Bronson once penned:

“It can be most reasonably assumed that markets are sufficient enough that every bubble is significantly different than the previous one, and even all earlier bubbles. In fact, it’s to be expected that a new bubble will always be different than the previous one(s) since investors will only bid up prices to extreme overvaluation levels if they are sure it is not repeating what led to the last, or previous bubbles. Comparing the current extreme overvaluation to the dotcom is intellectually silly.

I would argue that when comparisons to previous bubbles become most popular – like now – it’s a reliable timing marker of the top in a current bubble. As an analogy, no matter how thoroughly a fatal car crash is studied, there will still be other fatal car crashes in the future, even if the previous accident-causing mistakes are avoided.”

Comparing the current market to any previous period in the market is rather pointless. The current market is not like 1995, 1999, or 2007? Valuations, economics, drivers, etc. are all different from cycle to the next. Most importantly, however, the financial markets adapt to the cause of the previous “fatal crashes,” but that adaptation won’t prevent the next one.

It’s All Relative

Last week, in our MacroView, I touched on George Soros’ theory on bubbles, which is worth expanding a bit on in the context of this article.

Financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. The degree of distortion may vary from time to time. Sometimes it’s quite insignificant, at other times it is quite pronounced. When there is a significant divergence between market prices and the underlying reality, the markets are far from equilibrium conditions.

Every bubble has two components:

  1. An underlying trend that prevails in reality, and; 
  2. A misconception relating to that trend.

When positive feedback develops between the trend and the misconception, a boom-bust process is set into motion. The process is liable to be tested by negative feedback along the way, and if it is strong enough to survive these tests, both the trend and the misconception will be reinforced. Eventually, market expectations become so far removed from reality that people are forced to recognize that a misconception is involved. A twilight period ensues during which doubts grow, and more people lose faith, but the prevailing trend is sustained by inertia.

As Chuck Prince, former head of Citigroup, said, ‘As long as the music is playing, you’ve got to get up and dance. We are still dancing.’ Eventually, a tipping point is reached when the trend is reversed; it then becomes self-reinforcing in the opposite direction.”

Typically bubbles have an asymmetric shape. The boom is long and slow to start. It accelerates gradually until it flattens out again during the twilight period. The bust is short and steep because it involves the forced liquidation of unsound positions.

The chart below is an example of asymmetric bubbles.

The pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view. Prices reflect the psychology of the market, which can create a feedback loop between the markets and fundamentals.

This pattern of bubbles can be seen at every bull market peak in history. The chart below utilizes Dr. Robert Shiller’s stock market data going back to 1900 on an inflation-adjusted basis with an overlay of the asymmetrical bubble shape.

As Soro’s went on to state:

Financial markets do not play a purely passive role; they can also affect the so-called fundamentals they are supposed to reflect. These two functions, that financial markets perform, work in opposite directions.

  • In the passive or cognitive function, the fundamentals are supposed to determine market prices. 
  • In the active or manipulative function market, prices find ways of influencing the fundamentals. 

When both functions operate at the same time, they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other, so that neither function has a truly independent variable. As a result, neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified.”

Currently, there is a strong belief the financial markets are not in a bubble, and the arguments supporting that belief are based on comparisons to past market bubbles.

It is likely that in a world where there is virtually “no fear” of a market correction, an overwhelming sense of “urgency” to be invested, and a continual drone of “bullish chatter;” the markets are poised for the unexpected, unanticipated, and inevitable event.

Reflections

When thinking about excess, it is easy to see the reflections of excess in various places. Not just in asset prices but also in “stuff.” All financial assets are just claims on real wealth, not actual wealth itself. A pile of money has use and utility because you can buy stuff with it. But real wealth is the “stuff” — food, clothes, land, oil, and so forth.  If you couldn’t buy anything with your money/stocks/bonds, their worth would revert to the value of the paper they’re printed on (if you’re lucky enough to hold an actual certificate). 

But trouble begins when the system gets seriously out of whack.

“GDP” is a measure of the number of goods and services available and financial asset prices represent the claims (it’s not a very accurate measure of real wealth, but it’s the best one we’ve got.) Notice the divergence of asset prices from GDP as excesses develop.

What we see is that the claims on the economy should, quite intuitively, track the economy itself. Excesses occur whenever the claims on the economy, the so-called financial assets (stocks, bonds, and derivatives), get too far ahead of the economy itself.

This is a very important point. 

“The claims on the economy are just that: claims. They are not the economy itself!”

Take a step back from the media, and Wall Street commentary, for a moment and make an honest assessment of the financial markets today.

The increase in speculative risks, combined with excess leverage, leave the markets vulnerable to a sizable correction at some point in the future. The only missing ingredient for such a correction is the catalyst to bring “fear” into an overly complacent marketplace.  

It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: “Stocks have now reached a permanently high plateau.” 

This “time IS different.” 

However, “this time” is only different from the standpoint the variables are not exactly the same as they have been previously. The variables never are, but the outcome is always the same.

The Next Decade: Valuations & The Destiny Of Low Returns

Jani Ziedins via Cracked Market recently penned an interesting post:

“As for what comes next, is this bull market tired? Is a crash long overdue? Not if you look at history. Stocks rallied for nearly 20 years between the early 1980s and the late 1990s. By that measure, we could easily see another decade of strong gains before the next “Big One”. Of course, the worst day in stock market history happened during that 20-year bull market in 1987, so we cannot be complacent. But the prognosis for the next 10 years is still good even if we run into a few 20% corrections along the way.”

After a decade of strong, liquidity-driven, post-crisis returns in the financial markets, investors are hopeful the next decade will deliver the same, or better. As Bob Farrell once quipped:

“Bull markets are more fun than bear markets.” 

However, from an investment standpoint, the real question is:

“Can the next decade deliver above average returns, or not?”

Lower Returns Ahead?

Brian Livingston, via MarketWatch, previously wrote an article on the subject of valuation measures and forward returns.

“Stephen Jones, a financial and economic analyst who works in New York City, tracks the formulas that several market wizards have disclosed. He recently updated his numbers through Dec. 31, 2018, and shared them with me. Buffett, Shiller, and the other boldface names had nothing to do with Jones’s calculations. He crunched the financial celebrities’ formulas himself, based on their public statements.

“The graph above doesn’t show the S&P 500’s price levels. Instead, it reveals how well the projection methods estimated the market’s 10-year rate of return in the past. The round markers on the right are the forecasts for the 10 years that lie ahead of us. All of the numbers for the S&P 500 include dividends but exclude the consumer-price index’s inflationary effect on stock prices.”

  • Shiller’s P/E10 predicts a +2.6% annualized real total return.
  • Buffett’s MV/GDP says -2.0%.
  • Tobin’s “q” ratio indicates -0.5%.
  • Jones’s Composite says -4.1%.

(Jones uses Buffett’s formula but adjusts for demographic changes.) 

Here is the important point:

“The predictions might seem far apart, but they aren’t. The forecasts are all much lower than the S&P 500’s annualized real total return of about 6% from 1964 through 2018.”

While these are not guarantees, and should never be used to try and “time the market,” they are historically strong predictors of future returns.

As Jones notes:

“The market’s return over the past 10 years,” Jones explains, “has outperformed all major forecasts from 10 years prior by more than any other 10-year period.”

Of course, as noted above, this is due to the unprecedented stimulation the Federal Reserve pumped into the financial markets. Regardless, markets have a strong tendency to revert to their average performance over time, which is not nearly as much fun as it sounds.

The late Jack Bogle, founder of Vanguard, also noted some concern from high valuations:

“The valuations of stocks are, by my standards, rather high, butmy standards, however, are high.”

When considering stock valuations, Bogle’s method differs from Wall Street’s. For his price-to-earnings multiple, Bogle uses the past 12-months of reported earnings by corporations, GAAP earnings, which includes “all of the bad stuff.” Wall Street analysts look at operating earnings, “earnings without all that bad stuff,” and come up with a price-to-earnings multiple of something in the range of 17 or 18, versus current real valuations which are pushing nearly 30x earnings.

“If you believe the way we look at it, much more realistically I think, the P/E is relatively high. I believe strongly that [investors] should be realizing valuations are fairly full, and if they are nervous they could easily sell off a portion of their stocks.” – Jack Bogle

These views are vastly different than the optimistic views currently being bantered about for the next decade.

However, this is where an important distinction needs to be made.

Starting Valuations Matter Most

What Jani Ziedins missed in his observation was the starting level of valuations which preceded those 20-year “secular bull markets.”  This was a point I made previously:

“The chart below shows the history of secular bull market periods going back to 1871 using data from Dr. Robert Shiller. One thing you will notice is that secular bull markets tend to begin with CAPE 10 valuations around 10x earnings or even less. They tend to end around 23-25x earnings or greater. (Over the long-term valuations do matter.)”

The two previous 20-year secular bull markets begin with valuations in single digits. At the end of the first decade of those secular advances, valuations were still trading below 20x.

The 1920-1929 secular advance most closely mimics the current 2010 cycle. While valuations started below 5x earnings in 1919, they eclipsed 30x earnings ten-years later in 1929. The rest, as they say, is history. Or rather, maybe “past is prologue” is more fitting.

Low Returns Mean High Volatility

When low future rates of return are discussed, it is not meant that each year will be low, but rather the return for the entire period will be low. The chart below shows 10-year rolling REAL, inflation-adjusted, returns in the markets. (Note: Spikes in 10-year returns, which occurred because the 50% decline in 2008 dropped out of the equation, has previously denoted peaks in forward annual returns.)

(Important note: Many advisers/analysts often pen that the market has never had a 10 or 20-year negative return. That is only on a nominal basis and should be disregarded as inflation must be included in the debate.)

There are two important points to take away from the data.

  1. There are several periods throughout history where market returns were not only low, but negative.(Given that most people only have 20-30 functional years to save for retirement, a 20-year low return period can devastate those plans.)
  2. Periods of low returns follow periods of excessive market valuations and encompass the majority of negative return years. (Read more about this chart here)

“Importantly, it is worth noting that negative returns tend to cluster during periods of declining valuations. These ‘clusters’ of negative returns are what define ‘secular bear markets.’” 

While valuations are often dismissed in the short-term because there is not an immediate impact on price returns. Valuations, by their very nature, are HORRIBLE predictors of 12-month returns and should never be used in any investment strategy which has such a focus. However, in the longer term, valuations are strong predictors of expected returns.

The chart below shows Dr. Robert Shiller’s cyclically adjusted P/E ratio combined with Tobin’s Q-ratio. Again, valuations only appear cheap when compared to the peak in 2000. Outside of that exception, the financial markets are, without question, expensive. 

Furthermore, note that forward 10-year returns do NOT improve from historically expensive valuations, but decline rather sharply.

Warren Buffett’s favorite valuation measure is also screaming valuation concerns (which may explain why he is sitting on $128 billion in cash.). The following measure is the price of the Wilshire 5000 market capitalization level divided by GDP. Again, as noted above, asset prices should be reflective of underlying economic growth rather than the “irrational exuberance” of investors. 

Again, with this indicator at the highest valuation level in history, it is a bit presumptuous to assume that forward returns will continue to remain elevated,.

Bull Now, Pay Later

In the short-term, the bull market continues as the flood of liquidity, and accommodative actions, from global Central Banks, has lulled investors into a state of complacency rarely seen historically. As Richard Thaler, the famous University of Chicago professor who won the Nobel Prize in economics stated:

We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping. I admit to not understanding it.

I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked. Nothing seems to spook the market.”

While market analysts continue to come up with a variety of rationalizations to justify high valuations, none of them hold up under real scrutiny. The problem is the Central Bank interventions boost asset prices in the short-term, in the long-term, there is an inherently negative impact on economic growth. As such, it leads to the repetitive cycle of monetary policy.

  1. Using monetary policy to drag forward future consumption leaves a larger void in the future that must be continually refilled.
  2. Monetary policy does not create self-sustaining economic growth and therefore requires ever larger amounts of monetary policy to maintain the same level of activity.
  3. The filling of the “gap” between fundamentals and reality leads to consumer contraction and ultimately a recession as economic activity recedes.
  4. Job losses rise, wealth effect diminishes and real wealth is destroyed. 
  5. Middle class shrinks further.
  6. Central banks act to provide more liquidity to offset recessionary drag and restart economic growth by dragging forward future consumption. 
  7. Wash, Rinse, Repeat.

If you don’t believe me, here is the evidence.

The stock market has returned more than 125% since 2007 peak, which is roughly 3x the growth in corporate sales and 5x more than GDP.

It is critical to remember the stock market is NOT the economy. The stock market should be reflective of underlying economic growth which drives actual revenue growth. Furthermore, GDP growth and stock returns are not highly correlated. In fact, some analysis suggests that they are negatively correlated and perhaps fairly strongly so (-0.40).

However, in the meantime, the promise of another decade of a continued bull market is very enticing as the “fear of missing out” overrides the “fear of loss.”

Let me conclude with this quote from Vitaliy Katsenelson which sums up our investing view:

Our goal is to win a war, and to do that we may need to lose a few battles in the interim.

Yes, we want to make money, but it is even more important not to lose it. If the market continues to mount even higher, we will likely lag behind. The stocks we own will become fully valued, and we’ll sell them. If our cash balances continue to rise, then they will. We are not going to sacrifice our standards and thus let our portfolio be a byproduct of forced or irrational decisions.

We are willing to lose a few battles, but those losses will be necessary to win the war. Timing the market is an impossible endeavor. We don’t know anyone who has done it successfully on a consistent and repeated basis. In the short run, stock market movements are completely random – as random as you’re trying to guess the next card at the blackjack table.”

For long-term investors, the reality that a clearly overpriced market will eventually mean revert should be a clear warning sign. Given the exceptionally high probability the next decade will be disappointing, gambling your financial future on a 100% stock portfolio is likely not advisable.

Valuations, Returns & The Real Value Of Cash

Since the beginning of 2019, the market has risen sharply. That increase was not due to rising earnings and revenues, which have weakened, but rather from multiple expansion. In other words, investors are willing to pay higher prices for weaker earnings.

The issue, of course, is that while it may not seem to matter in the short-term, valuations matter a lot in the long-run.

I know what you are thinking.

“There is NO WAY cash will outperform stocks over the next decade.” 

I understand. After a decade-long market advance, it’s hard to fathom a period where stocks fail to perform. However, despite what you have been told, this time is not different, valuations do matter, and “no,” Central Banks do not have it all under control. (In reality, the Federal Reserve are the “Firemen” in Fahrenheit 451.)

While the media is rife with historical references about why you should only “buy and hold” investments over a 100-years, they tend to ignore the measures which dictate 5, 10, and 20-year investing cycles which have the greatest impact on most Americans.

Let me explain that.

Unless you have contracted “vampirism,” then you do NOT have 90, 100, or more, years to invest to gain “average historical returns.” Given that most investors do not start seriously saving for retirement until the age of 35, or older, they have about 30-35 years to reach their goals. If that period happens to include a 12-15 year period in which returns are flat, as history tells us is probable, then the odds of achieving their goals are severely diminished.

What drives those 12-15 year periods of flat to little return? Valuations.

Despite commentary to the contrary, the evidence is quite unarguable. As shown in the chart below, the cyclical nature of valuations and asset prices is clear.

Not surprisingly, valuations are linked to future returns. This is as it should be, and why Warren Buffett once quipped:

“Price is what you pay. Value is what you get.” 

This is why over rolling 10- and 20-year periods you have stretches where investors make little or no money.

Just remember, a 20-year period of one-percent returns is indistinguishable from ZERO with respect to meeting savings goals. One great thing+ about valuations, such as CAPE, is that we can use them to form expectations around risk and return. The graph below shows the actual 20-year annualized returns that accompanied given levels of CAPE.

20-years is a long time for most investors. So, here is what happens to returns over a 10-year period from 30x valuations as we have currently.

Again, as valuations rise, future rates of annualized returns fall. This is math, and logic states that if you overpay today for an asset today future returns must, and will, be lower.

I know. Ten years is still long. How about 5-years?

We can reverse the analysis and look at the “cause” of excess valuations which is investor “greed.” As investors chase assets, prices rise. Of course, as prices continue to rise, investors continue to crowd into assets finding reasons to justify overpaying for assets. However, there is a point where individuals have reached their investing limit which leaves little buying power left to support prices. Eventually, prices MUST mean revert to attract buyers again.

The chart below shows household ownership of equities as a percent of household ownership of cash and bonds. (The scale is inverted and compared to the 5-year return of the S&P 500.)

Just like valuation measures, ownership of equities is also at historically high levels and suggests that future returns for equities over the next 5, 10, and 20-years will approach ZERO.

No matter how you analyze the data, the expected rates of return over the next decade will be far lower than the 8-10% annual return rates currently promised by Wall Street.

Every Year Won’t Be Zero

This is where things get confusing.

When you discuss a decade, or more, of near-zero returns it does NOT mean that every year will be ZERO.

During that period there is going to strong up years, an extremely bad year or two, then some more good years. In the end you average annual return for the past decade will be close to zero. (Here is an example of how that plays out.)

Or here is how it played out the last time we ran a large national debt, had high starting valuations, and had just finished a period of excessive investment accumulation. (1929-1948)

This is because there are only two ways in which valuations can revert to levels where future returns on investments rise.

  1. Prices can rapidly decline, or;
  2. Earnings can rise while prices remain flat.

Historically, option #2 has never been an outcome.

Michael Lebowitz explained why this is the case for our RIA PRO members (Try FREE For 30-days)

“The all-important link between stock prices, economic and productivity growth, and true corporate earnings potential are being ignored. Stock prices and many other investment asset prices are indirectly supported by the actions and opinions of the central banks. Investors have become dangerously comfortable with this dubious arrangement despite the enormous market disequilibrium it is causing. History reminds us time and again that a state of disequilibrium is highly unstable and will ultimately revert to equilibrium – often violently so.”

The Real Value Of Cash

For most of the last decade, the mantra was “T.I.N.A. – There Is No Alternative” because cash in the bank yielded ZERO.

Today that is no longer the case with money market yields now pushing 2%, or more, in many cases. Nonetheless, the belief was ingrained into the current investing generation that “cash” is a “bad” investment.

I do agree that if inflation is running higher than the return on cash, then you do lose purchasing parity power in the short-term. However, there is a huge difference between the loss of future purchasing power and the destruction of investment capital.

The chart below shows the inflation-adjusted return of $100 invested in the S&P 500 (using data provided by Dr. Robert Shiller). The chart also shows Dr. Shiller’s CAPE ratio. I have capped the CAPE ratio at 23x earnings which has historically been the peak of secular bull markets in the past. Lastly, I calculated a simple cash/stock switching model which buys stocks at a CAPE ratio of 6x or less and moves to cash at a ratio of 23x.

(I would never recommend actually managing your portfolio this way, but this is for illustrative purposes.)

I have adjusted the value of holding cash for the annual inflation rate which is why during the sharp rise in inflation in the 1970’s there is a downward slope in the value of cash. While the value of cash is adjusted for purchasing power in terms of acquiring goods or services in the future, the impact of inflation on cash as an asset concerning reinvestment may be different since asset prices are negatively impacted by spiking inflation. In such an event, cash gains purchasing power parity in the future if assets prices fall more than inflation rises.

While cash did lose relative purchasing power, due to inflation, the benefits of having capital to invest at low valuations produced substantial outperformance over waiting for previously destroyed investment capital to recover.

We can debate over methodologies, allocations, etc., the point here is that “time frames” are crucial in the discussion of cash as an asset class. If an individual is “literally” burying cash in their backyard, then the discussion of loss of purchasing power is appropriate. Alternatively, if the holding of cash is a “tactical” holding to avoid short-term destruction of capital, then the protection afforded outweighs the loss of purchasing power in the distant future.

8-Reasons To Hold Cash

Over the last 30-years, I have that while a “rising tide lifts all boats,” eventually the “tide recedes.” I made one simple adjustment to my portfolio management over the years which has served me well. When risks begin to outweigh the potential for reward, I raise cash.

The great thing about holding extra cash is that if I’m wrong I make the proper adjustments to increase risk in portfolios. However, if I am right, I protect investment capital from destruction and spend far less time “getting back to even” and spend more time working towards my long-term investment goals.

Here are my reasons having cash is important.

1) We are not investors, we are speculators. We are buying pieces of paper at one price with an endeavor to eventually sell them at a higher price. This is speculation at its purest form. Therefore, when probabilities outweigh the possibilities, I raise cash. 

2) 80% of stocks move in the direction of the market. In other words, if the market is moving in a downtrend, it doesn’t matter how good the company is as most likely it will decline with the overall market.

3) The best traders understand the value of cash. From Jesse Livermore to Gerald Loeb they all believed one thing – “Buy low and Sell High.” If you “Sell High” then you have raised cash. According to Harvard Business Review, since 1886, the US economy has been in a recession or depression 61% of the time. I realize that the stock market does not equal the economy, but they are somewhat related. 

4) Roughly 90% of what we’re taught about the stock market is flat out wrong: dollar-cost averaging, buy and hold, buy cheap stocks, always be in the market. The last point has certainly been proven wrong because we have seen two declines of over -50%…just in the past two decades! Keep in mind, it takes a +100% gain to recover a -50% decline.

5) 80% of individual traders lose money over ANY 10-year period. Why? Investor psychology, emotional biases, lack of capital, etc. Repeated studies by Dalbar prove this over and over again. 

6) Raising cash is often a better hedge than shorting. While shorting the market, or a position, to hedge risk in a portfolio is reasonable, it also simply transfers the “risk of being wrong” from one side of the ledge to the other. Cash protects capital. Period. When a new trend, either bullish or bearish, is evident then appropriate investments can be made. In a “bull trend” you should only be neutral or long and in a “bear trend” only neutral or short. When the trend is not evident – cash is the best solution.

7) You can’t “buy low” if you don’t have anything to “buy with.” While the media chastises individuals for holding cash, it should be somewhat evident that by not “selling rich” you do not have the capital with which to “buy cheap.” 

8) Cash protects against forced liquidations. One of the biggest problems for Americans currently, according to repeated surveys, is a lack of cash to meet emergencies. Having a cash cushion allows for working with life’s nasty little curves it throws at us from time to time without being forced to liquidate investments at the most inopportune times. Layoffs, employment changes, etc. which are economically driven tend to occur with downturns which coincide with market losses. Having cash allows you to weather the storms. 

Importantly, I am not talking about being 100% in cash. I am suggesting that holding higher levels of cash during periods of uncertainty provides both stability and opportunity.

With the fundamental and economic backdrop becoming much more hostile toward investors in the intermediate term, understanding the value of cash as a “hedge” against loss becomes much more important. 

Given the length of the current market advance, deteriorating internals, high valuations, and weak economic backdrop; reviewing cash as an asset class in your allocation may make some sense. Chasing yield at any cost has typically not ended well for most.

Besides, what’s the worse that could happen?

Exclusive Interview: Peter Boockvar

Last week, I visited with Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group and Editor of The Boock Report. He previously was the Chief Market Analyst for The Lindsey Group, a macro economic and market research firm started by Larry Lindsey. Prior to this, Peter spent a brief time at Omega Advisors, a New York-based hedge fund, as a macro analyst and portfolio manager. Before this, he was an employee and partner at Miller Tabak + Co for 18 years where he was recently the equity strategist and a portfolio manager with Miller Tabak Advisors.

Peter and I cover a wide range of topics from the market, the coming recession, the impact and risks of higher rates, and the Federal Reserve.

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Exclusive Interview: Chris Martenson

I recently spent some time with Chris Martenson from Peak Prosperity about the market, the economy, and the “Great Reset” which is approaching.

Chris Martenson, PhD (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion, and co-founder of PeakProsperity.com (along with Adam Taggart). As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar: The Crash Course which has also been published in book form (Wiley, March 2011). It’s a popular and extremely well-regarded distillation of the interconnected forces in the Economy, Energy and the Environment (the “Three Es” as Chris calls them) that are shaping the future, one that will be defined by increasing challenges to growth as we have known it. In addition to the analysis and commentary he writes for his site PeakProsperity.com, Chris’ insights are in high demand by the media as well as academic, civic and private organizations around the world, including institutions such as the UN, the UK House of Commons and US State Legislatures.

The interview has been broken down into 3-chapters for your viewing consumption.

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Exclusive Interview: Daniel LaCalle

My interview with Daniel LaCalle on everything from Central Bank policy, interest rates, market risk, and the future of economic growth.

Read more from Daniel Lacalle at D-Lacalle.com

Daniel Lacalle is a PhD in Economy and fund manager. He holds the CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).

  • Chief Economist at Tressis SV
  • Fund Manager at Adriza International Opportunities.
  • Member of the advisory board of the Rafael del Pino foundation.
  • Commissioner of the Community of Madrid in London.
  • President of Instituto Mises Hispano.
  • Professor at IE business school, IEB and UNED.
  • Ranked Top 20 most influential economist in the world 2016

Why This Earnings Season Is Less-Euphoric Than The Last

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Is The U.S. Adequately Prepared For The Next Crisis


Why You Can’t Fix A Debt Problem With More Debt


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Exclusive Interview: Doug Kass

My interview with the brilliant Doug Kass on the recent market rout, his views on the world, economic growth, and earnings outlook going into next year. We also talk bonds, market cycles, and why the bull market remains at risk.

You can subscribe to Doug’s excellent commentary at Real Money Pro

Doug cut his teeth as an investigator and truth-teller as a member of “Nader’s Raiders,” Ralph Nader’s crusaders for consumer protection and safety. In fact, he co-authored Citibank: The Ralph Nader Report with Ralph Nader and the Center for the Study of Responsive Law.

Kass started his investment career as a housing analyst at Kidder, Peabody in 1972 after receiving his bachelor’s from Alfred University and his MBA in Finance from the University of Pennsylvania’s Wharton School.

After holding a number of senior positions at brokerages, hedge funds and other institutions for the next three decades, he launched his own hedge fund, Seabreeze Partners Management, where he is President.

At Seabreeze, and as the top investor at Real Money Pro, Doug Kass identifies big winners again and avoids nasty losses by challenging Wall Street’s conventional wisdom.

He’s appeared in the New York Times, Wall Street Journal, Bloomberg, Barron’s, The Washington Post, The New York Post, CNBC and most major financial media.


Why The Dominant Investor Is The Most Dangerous


Three Ways To Most Gainfully Spend Time As An Investor


How To Navigate A Market Dominated By Passivity


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VLOG: Rising Rates Send A Warning & Why It Matters

While it has been stated that rising interest rates don’t matter, the reality is that they do. I take a deeper look at the impact of higher rates across the financial and economic spectrum and the warning that rates are currently sending to investors.

Orignal Article: Did Something Just Break?



 

VLOG – Why $1 Million Ain’t What It Used To Be

Clarity Financial Chief Investment Strategist Lance Roberts reviews the ugly truth behind numbers revealing that being a millionaire doesn’t quite have the same cache it did 30-years ago.

Also, why buy and hold investing, while it will make you money, won’t meet your financial goals in the future.


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VLOG – Are Markets Set To Soar Like 1992?

Clarity Financial Chief Financial Strategist Lance Roberts reviews the history of stock valuations, the CAPE, and how what happened in the early ’90’s is relevant to investors of the twenty-teens.

Orignal Article: Party Like It’s 1992


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VLOG – Why Smart Investors Should Fear An Inversion

Clarity Financial Chief Investment Strategist Lance Roberts shows why the danger of asset bubbles in every investment class is part of a recipe for reversal as the bond yield curves begin to invert…and what that means for your money.

Original Forbes Article By Jesse Colombo

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VLOG – Markets Diverge From The U.S.

Clarity Financial Chief Investment Strategist Lance Roberts examines the divergence of world markets to the U.S. and discusses the message they may be sending to investors.

VLOG – A Shift In Valuations & Investor Perspectives

Clarity Financial Chief Investment Strategist Lance Roberts examines stock valuations vs investor sentiment, and agrees with Prof. Robert Shiller’s assessment that investors have become complacent to the risk of higher valuations.