Should You Borrow Gold?

Should You Borrow Gold?

Should You Borrow Gold? Gold does not bear interest which is why it has often been called a dead asset.

It costs to store it and with no income from the investment without selling it has always been one of the major obstacles to institutional investing in gold. Others have argued that central banks were the biggest lenders of gold and they did so to manipulate prices.

That myth has never stood the test of time for they were lending gold in up and down markets which never altered the natural cycle. In general, any entity which owns gold has always sought to lease it out to earn income.

The borrowers have been generally mines who may need to smooth their cash flow and will borrow gold to sell now which is replaced when the newly mined gold is refined and then used to repay the loan. Other borrowers have tended to be jewelry manufacturers who may be operating on a contract basis to buy gold and again need to borrow to smooth out the flow of manufacture.

Borrowing gold has normally been conducted at interest rates which are below that of borrowing cash because there are costs to physically deliver gold. Consequently, there have been also arbitrages on the interest rates between gold loans and cash loans. This is another whole new area of complexity. Therefore, the fact that gold loans have gone negative is indeed a reflection of lower demand from some industries like the jewelry trade as stores are locked down and people have lost their jobs and marriages have crashed.

If we look at the numbers from the Gold Council you will see that in 2019 new mine gold declined. The sharp rise in the gold supply is coming from people selling their old gold jewelry we called scrap. The rise in gold scrap is reflecting the decline in demand from the jewelry trade.

Indeed, the World Gold Council put out that the gold jewelry trade declined 6% in 2019. As the recession expands into 2022, the retail jewelry demand will decline rather than expand.

With retail down, this is contributing to gold lease rates moving negative.

So, the answer to the question of “Should You Borrow Gold?” is NO. However, you can profit handsomely whether Gold’s price rises or declines.  

InterAnalyst members are immediately notified of directional momentum in Daily, Weekly, and Monthly momentum charts with signals like the actual samples above.

Expanding Socialist Authoritarianism

Expanding Socialist Authoritarianism

Expanding Socialist Authoritarianism is getting far worse by the day and it appears that our Algorithmic Cyclical Models on War & Civil Unrest are simply on target, have started, and are expanding rapidly.

India is becoming confrontational against China and oppressing its own people which appears to be in a secret agenda with the Globalist Socialism Crowd trying to isolate China and force them to surrender their sovereignty to their new world order.

We see Germany moving to prohibit any more demonstrations which embarrassed the government in Berlin. In Greece, we have deep concerns that they are criminalizing free speech and authorizing the arrest any anyone who goes against COVID restrictions. Greece has banned international flights with the United States trying to put pressure on for the elections to also overthrow Trump which has become a European agenda. The US Embassy in Athens has warned Americans about travel to Greece that “Travelers should be prepared for the possibility that additional travel restrictions could be implemented by the Greek government with little or no advance notice.

What is really frightening is that the Democrats are taking on the policies advocated by Nazi-style views of Elizabeth Warren. It is one thing to read in history books about how oppressive governments became which led to World War II and to see it unfolding before our eyes.

The Socialists have created such a divide among the people this is doing monumental damage to the population turning brother against brother. In California, a woman threw a hot cup of coffee in the face of a man on the street who was not wearing a mask. This entire issue of masks and social distancing has created a mindset that being even close to anyone is dangerous. Many no longer shake hands.

This Expanding Socialistic Authoritarian is the very essence of how to destroy a working economy and a civilization.

Presidential Stock Market Direction

Presidential Stock Market Direction

The Presidential Stock Market Direction will be determined by who enters the White House. The “WHY  & HOW” is clear…

Presidential Stock Market DirectionThe recent MMT implies that a Presidential Stock Market Direction win by Biden will prove to be a complete joke. This would be much WORSE than Jimmy Carter who inspired the collapse of confidence in the dollar and government leading to the 1980 gold high. Capital will flee public assets and shift into private.

One the other hand, the worse of the economic crisis is external to the USA became many countries like Germany depend on selling to consumers outside their own country. The likelihood of a breakup of the EU and their idea of canceling currency and moving to perpetual bonds that would even wipe out pensions in Europe will push capital outside and into the US stock market.

Keep in mind that this is a Monetary Crisis Cycle intermixed with a Sovereign Debt Crisis and this entire coronavirus nonsense has so accelerated the debt crisis that now the politicians fear what will happen if they lift the restrictions on paying rents and mortgages.

The politicians around the world have responded in such an exaggerated manner to this virus that they will NEVER admit a mistake. Thus, they must oppress the people and hence we have entered into rising authoritarianism for the next decade.

Although the US Market will have a Slingshot move will occur no matter the Presidential Stock Market Direction, US retirement shares market will follow Europe, so be prepared. Stay close to your Wealth Preserver and Maximizer Signals to prevent a potential retirement account wipeout as this election will become the most violent in our countries history, and it will continue to escalate through 2032.

Lockdown Tsunami

Lockdown Tsunami

Lockdown Tsunami #2 has just begun, and that is really bad news for the U.S. economy.

Lockdown Tsunami #1 resulted in the permanent closing of more than 100,000 U.S. businesses, colossal lines at food banks around the nation, and the loss of tens of millions of jobs.  Needless to say, this new wave of lock-downs will make things even worse, and some are speculating that this is precisely what Democrats want.

If the U.S. economy continues to fall apart as we approach the election in November, the thinking is that this will make President Trump look bad and will make it more likely that people will cast votes for Democrats.  But there is also the possibility that this could backfire in a huge way for the left.  If millions of Americans start to identify the Democrats as “the party of the lock-downs”, that could actually greatly help President Trump in November.

At this point, the battle lines are becoming quite clear.  President Trump and other top Republicans are strongly against more lockdowns, but Democratic politicians in many areas of the country are starting to institute them anyway.  In fact, we just learned that all schools in Los Angeles, San Diego, Atlanta and Nashville will be closed at the beginning of the new school year…

“Resisting pressure from President Donald Trump, three of the nation’s largest school districts said Monday that they will begin the new school year with all students learning from home. Schools in Los Angeles, San Diego and Atlanta will begin entirely online, officials said Monday. Schools in Nashville plan to do the same, at least through Labor Day.”

Other major cities are expected to follow suit.  Of course considering the quality of the education in most of our public schools, most of those kids won’t exactly be missing too much.

Ultimately, closing the schools won’t have too much of an economic impact, but shutting down most of the businesses in our largest state certainly will.  On Monday, California Governor Gavin Newsom announced a comprehensive lock-down for 30 California counties which account for “about 80 percent of California’s population”

“Newsom, a Democrat, announced during a press briefing that all bars across the state must close up shop and that restaurants, wineries, tasting rooms, family entertainment centers, zoos, museums and card rooms must suspend indoor activities.The governor also announced that all gyms, places of worship, malls, personal care services, barbershops, salons, and non-critical offices in counties on the state’s “monitoring list” had to shut down under the new order. The order affects more than 30 counties which are home to about 80 percent of California’s population.”

Newsom is a political opportunist, and I guarantee you that he wouldn’t be doing this unless he truly believed that it would help Democrats in November.

But I think that Newsom and other top Democrats have greatly underestimated how much the American people detest COVID-19 restrictions at this point.  We have been witnessing a huge backlash all over the country, and even though California is far more liberal than most other states, a backlash has been brewing there as well.

If the Democrats are not very careful, they are going to lose an election that they could have very easily won.

First of all, they should have never nominated Joe Biden.  It is obvious to everyone that he is physically and mentally declining at a very rapid pace, and videos of him “acting creepy” will be viewed millions upon millions of times over the coming months.  Democrats have known about Biden’s creepy behavior for many years, but they decided to give the nomination to him anyway.

Secondly, most top Democrats have refused to strongly denounce the rioting, looting and violence that have happened around the nation, and this is going to push a whole lot of people toward the Republicans.

Thirdly, the backlash against these new lockdowns is going to be directed primarily toward Democrats.  If Democratic politicians push too far, this will be an issue that deeply hurts them in November.

But despite all of these mistakes, it is possible that the Democrats could still come out on top, because Trump and the Republicans are making lots of political mistakes as well.

If Trump wants to make a comeback in the polls, he really needs to fully embrace an anti-lock-down message, because that would strongly resonate with tens of millions of voters.

The first wave of lockdowns certainly didn’t stop the spread of the virus, and more lockdowns will not stop it from spreading either.  And now three separate scientific studies have shown that COVID-19 antibodies disappear very, very rapidly, and that means that a vaccine is not going to end this crisis and we will never reach a point of “herd immunity”.  So we are going to have to find a way to function effectively as this virus circulates around the globe year after year, because it isn’t going to go away.

We simply cannot shut down the economy every time the number of cases starts to surge again.  The damage that we have already done to the U.S. economy has been incalculable, and now these new lockdowns will do even more damage.

But the WHO continues to insist that more restrictions are needed in Lockdown Tsunami #2…

“Let me be blunt, too many countries are headed in the wrong direction, the virus remains public enemy number one,” WHO Director General Tedros Adhanom Ghebreyesus told a virtual briefing from the U.N. agency’s headquarters in Geneva. “If basics are not followed, the only way this pandemic is going to go – it is going to get worse and worse and worse.”

What would the WHO have us do?

Would they like us to all lock ourselves in our homes indefinitely?

The WHO keeps touting a future vaccine, but if COVID-19 antibodies disappear after just a few months, there is no way that a vaccine is going to end this pandemic.

And many Americans will never, ever take any COVID-19 vaccine under any circumstances.

As I discussed in an article that I posted earlier, it looks like we are just going to have to accept the fact that COVID-19 is going to be around year after year.

It is easy for the “experts” to tell us that everyone should just stay home, but the price tag for the first wave of lockdowns was astronomical.  Thanks to all of the emergency measures that Congress passed, the U.S. government ran a budget deficit of 864 billion dollars in the month of June…

The US budget deficit surged to a record-breaking $864 billion in June, the Treasury Department said on Monday. The increase is the product of the federal government’s efforts to combat the corona-virus pandemic and its economic fallout. The government collected about $240 billion in tax revenue in June, the Treasury said, and federal spending overall reached $1.1 trillion.

To put that in perspective, it took from the founding of our nation until 1980 for the U.S. government to accumulate a total of 864 billion dollars of debt.

And now we have added that much to the national debt in just one month.

We simply cannot keep doing this.

No matter what we do, COVID-19 is going to keep spreading, and we are going to have to learn how to deal with this virus for a very long time to come.

Lockdown Tsunami #2 is definitely not the answer, but unfortunately many of our politicians are convinced otherwise. So U.S. economic conditions will continue to deteriorate, and the economic depression that began earlier this year will continue through the end of 2020 and beyond. We encourage wealth and retirement account protection immediately because when the economy turns down, your retirement account will get wiped out but you family can be safe from collapse.

Source Contributor

Has The U.S. Economy Plunged Into A Depression?

Has The U.S. Economy Plunged Into A Depression?

“Face reality, and that means admitting that “the U.S. economy has plunged into a depression.”

This is already the worst economic downturn that America has experienced since the Great Depression of the 1930s, and we are right in the middle of the largest spike in unemployment in all of U.S. history by a very wide margin.

Of course, it was fear of COVID-19 that burst our economic bubble, and fear of this virus is going to be with us for a very long time to come.  So we need to brace ourselves for an extended economic crisis, and at this point, even Time Magazine is openly referring to this new downturn as an “economic depression”.

Needless to say, there will be a tremendous amount of debate about how deep it will eventually become, but everyone should be able to agree that our nation hasn’t seen anything like this since before World War II.

In order to prove my point, let me share the following 10 numbers with you…

#1 According to a study that was just released by the National Bureau of Economic Research, more than 100,000 U.S. businesses have already permanently shut down during this pandemic, and that represents millions of jobs that are never coming back.

#2 The Federal Reserve Bank of Atlanta is now projecting that U.S. GDP will shrink by 42.8 percent during the second quarter…

“A new GDP forecast from the Federal Reserve Bank of Atlanta for the three months through June estimates an unprecedented drop of 42.8 percent. The bank describes the data as a “nowcast” or real-time, compared with the official government report of GDP, which is dated. The first-quarter preliminary data, which showed a 4.8 percent dip, included a limited period of impact from COVID-19.”

#3 On Friday we learned that U.S. retail sales were down 16.4 percent during the month of April, and that is a new all-time record.

#4 U.S. factory output was down 13.7 percent last month, and that was the worst number ever recorded for that category.

#5 U.S. industrial production fell 11.2 percent last month, and that represented the worst number in 101 years.

#6 On Thursday, we learned that the number of Americans that have filed initial claims for unemployment benefits during this pandemic has risen by another 2.9 million, and that brings the grand total for this entire crisis to 36.5 million.  To put that number in perspective, at the lowest point of the Great Depression of the 1930s only about 15 million Americans were unemployed.

#7 According to the Federal Reserve Bank of Chicago, the real rate of unemployment in the U.S. is now 30.7 percent.

#8 According to a survey Fed officials just conducted, almost 40 percent of Americans with a household income of less than $40,000 a year say that they have lost a job during this crisis.

#9 One study has concluded that 42 percent of the job losses during this pandemic will end up being permanent.

#10 According to a professor of economics at Columbia University, the U.S. homeless population could rise by up to 45 percent by the end of this calendar year.

We have never seen economic numbers this horrifying, and more awful economic numbers are coming in the months ahead.

At this point, things are so bad that even Fed Chair Jerome Powell is openly admitting that he doesn’t really know how long this new economic downturn will last…

“This economy will recover…We’ll get through this. It may take a while. It may take a period of time. It could stretch through the end of next year,” Powell said during a rare televised interview that aired on “60 Minutes” Sunday night. “We really don’t know. We hope that it will be shorter than that, but no one really knows.”

In the months ahead, there are a few sectors that you will want to keep a particularly close eye on, and one of them is the commercial real estate market.  The following comes from Zero Hedge

“Fast forward to today, coronavirus outbreak, and the ensuing lockdown, has essentially frozen the commercial real estate market. Buildings that were once used for restaurants, offices, hotels, spas, and or anything else that is classified non-essential have seen soaring vacancies.

This is single handily sending the commercial property market into chaos. As vacancies soar, tremendous downward pressure is being put on almost every asset class tied to commercial real estate.

The latest TREPP remittance data compiled by Morgan Stanley showed a quarter of all commercial mortgage-backed securities (CMBS) could be on the verge of default.”

I am personally convinced that we are on the precipice of the greatest commercial real estate implosion in American history.

As the dominoes tumble, it is going to send wave after wave of devastation through the financial industry, and it is going to make the subprime mortgage meltdown of 2008 look like child’s play.

But at least bankruptcy lawyers will have plenty of work.  Last week we learned that J.C. Penney filed for Chapter 11 bankruptcy protection, and of course the bankruptcies that we have seen so far will just be the tip of the iceberg.

I think that politicians all over America are going to deeply regret overreacting to COVID-19, because nobody is going to be able to put the pieces back together now that our economic bubble has burst.

Sadly, very few people understood how shaky our debt-fueled economic “boom” was, and ultimately it didn’t take that much to push us into a new economic depression.

And now every additional crisis that comes along is just going to escalate our economic troubles.  This is going to be one very long nightmare, and there will be no waking up from it any time soon.

Even before COVID-19 came along, homelessness had become a massive problem in many of our major cities, and now tent cities are rapidly multiplying in size.

There is going to be so much economic pain in the months ahead, and it could have all been avoided if we had made much different choices as a nation.

But we didn’t, and so now we all get to pay the price.

Mr. Snyder wrote this article and I respect his opinion. I am not taking issue with his story, but he is a respected conservative voice in a world of noise.

So, I ask you, what if he is correct in his judgment and collapse is coming sooner than later?

Are you prepared for what is going to happen to your retirement and investment account values?

Are you sheltered from those accounts declining 40%? 50%, 60%, or more.

The Wealth Preserver Membership can protect your account from any stock market collapse. Please know that until it does collapse, your investments continue to grow as usual. 

P/E Ratio: The Over/Under Value Market Indicator

P/E Ratio: The Over/Under Value Market Indicator

In section 5 of yesterday’s post I quickly introduced an investment topic called the Shiller P/E (CAPE).

This is the most significant, proven, long-term directional indicator that has ever existed for long-term stock market direction.

It is not a daily or weekly trading system but can certainly help you know which direction the market is moving as it reaches a top or bottom.

The Shiller (CAPE) P/E Ratio is now famous, yet forgotten because most Financial Advisors either keep it under wraps or have never been taught its true power. Essentially, a high P/E means Over Priced stocks.

The chart below is the Shiller P/E Ratio dating back to 1880.

As you can see, the median P/E since 1880 is 15.77 and that is enough data to understand that historically investors over the last 140 years have recognized that a share of company stock should be roughly 16 times its earnings.

In clearer terms, if a company made $1, its share price should be $15.77.

Horrible Investor Value

Now, take a look at the chart above to view the Over Valued and Under Valued P/E Levels.

When the Shiller (CAPE) is 20 and above, stock prices are too high for a long-term buy and hold strategy. Performance will likely remain poor for up to 20 years.

Most importantly, any time the P/E rose above 20, it eventually and ALWAYS back down below 10, typically below 7, before it bottomed.

As you can see in the image below, when the Shiller P/E Ratio rises above 20, it can take many years for values to get back down. The year of the great depression brought the P/E back in line within 4 years. However, outside of great depression, it takes up to 20 years or longer to get stocks back to a fair price.

Our current period dating back to the 1999 top is still declining back to fair prices. Here’s the point: Buying the stock market when the CAPE P/E Ratio if the S&P500 index is above 20 is an immense risk of little to no return on your money.

Great Investor Value

Now, when the Shiller (CAPE) hits 10 or below, then it is an amazing time to Buy and Hold the market indexes or any stock of value. Historically, a P/E of 4 – 7 will allow you to to perform extremely well over the next 7 – 20 years. In fact, you will perform 10,000% – 30,000% or better. That is what buying at the right P/E price point will do for you.

For a little clarification, had you invested $10 in the S&P500 on January 1, 1985 (P/E ratio of 10.36), today you would have over $3,500! Not bad for timing with the Shiller P/E!

So lets look to see if this is a great time to be a Buy and Hold Investor like in 1985?

Reviewing the same chart (below) modified to include colors indicating when to invest for optimum Buy and Hold performance.

Avoid Buy & Hold investing if the Shiller P/E value is within the Red area.  This area has proven to deliver returns similar to bank accounts if you deduct inflation from the return. Not good.

However, if the Shiller P/E ratio value is within the Green area, you can buy the S&P 500 Index and make significant long term returns.

Great Investor Value

Now, when the Shiller (CAPE) hits 10 or below, then it is an amazing time to Buy and Hold the market indexes or any stock of value. Historically, a P/E of 4-7 will allow you to to perform extremely well over the next 7 – 20 years. In fact, you will perform 10,000% – 30,000% or better. That is what buying at the right P/E price point will do for you.

For a little clarification, had you invested $10 in the S&P500 on January 1, 1985 (P/E ratio of 10.36), today you would have over $3,500! Not bad for timing with the Shiller P/E!

So lets look to see if this is a great time to be a Buy and Hold Investor like in 1985?

Reviewing the same chart (below) modified to include colors indicating when to invest for optimum Buy and Hold performance.

Avoid Buy & Hold investing if the Shiller P/E value is within the Red area.  This area has proven to deliver returns similar to bank accounts if you deduct inflation from the return. Not good.

However, if the Shiller P/E ratio value is within the Green area, you can buy the S&P 500 Index and make significant long term returns.

The point of this entire article is to let compare where we are today relative to 140 years of real data. 

Significantly, every single time there “was a significant crash or two” associated with the decline back to value. Here is reality:

At a Shiller P/E Ratio of 26.97, we are not nearly as high as 44 in 1999. But, just to get back to a normal Shiller P/E bottoming area below 10, the stock market will have to drop by 62% from here!

27 – 10 = 17

17 / 27 = -62% 

If you are a Buy & Hold Investor, you should know that based on history dating back to 1880, you are NOT  positioned for strong buy and hold returns. In fact, you are dreadfully positioned right now though 2032. 

Can you afford a 45%-60% decline back to value. Its progressing to that as you read this historical lesson.

You must find a strong, well proven, historically accurate system that allows you to invest when the markets are moving up, on the sideline when the markets head down, and back in when they head up again.

You will do vastly better that Buy & Hold if own a Monthly, Weekly, or Daily professional trade signal platform that will help guide you through the next 20 years. Your membership will put you light years ahead of everyone else who is Buying and Holding at precisely the wrong time as history has proven.

We will help get you to where you want starting today following simple Green and Red lights.

The P/E Ratio Is Screaming At You

The P/E Ratio Is Screaming At You

The P/E Ratio Is Screaming At You so today I am laying the groundwork for tomorrows post. So lets get started and learn about the P/E Ratio.

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. P/E ratios are used by investors and analysts to help determine the relative value of a company’s shares in an apples-to-apples comparison.

It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. The ubiquitous P/E ratio is typically the first metric investors learn on their journey towards financial freedom.

One of the biggest mistakes I see new investors make is their use of the P/E ratio because the P/E ratio has some significant drawbacks that you should be aware of before we teach you the profitable and proven benefits of this indicator.

Today, lets cover 5 points the ratio will not teach us and tomorrow we will learn precisely how it can tell us which direction the markets are going shortly. 

What the P/E Ratio Teaches us is vitally important so first we have to quickly learn what it does not teach us. 

1. Price is not a good measure for what a company is worth

The first issue with the P/E ratio is the ‘P’ part of the formula. Typically, the ‘P’ stands for the share PRICE which corresponds to the market capitalization of the company. But there’s a problem with using only market capitalization. Market cap only represents the contribution of equity shareholders. Which means it doesn’t include any debt or cash on the balance sheet.

If you want to know the true worth of a company surely you need to include debt and cash? To do so, it’s better to use an alternative such as enterprise value which is the market cap, plus total debt, minus cash. Often, the market cap of a company will be similar to the enterprise value but sometimes it can be vastly different. GE, for example, has a market cap of over $52 billion but it’s enterprise value is more than double that at $111 billion. If you use market cap you get a lower P/E ratio than if you used the enterprise value. So by substituting market cap with enterprise value the formula immediately becomes more useful.

2. EPS is not a good measure of company earnings

Just like the ‘P’ in ‘P/E’ is inadequate, the ‘E’ part of the formula is also misleading. Typically, the ‘E’ represents earnings per share which is usually reported as the trailing twelve month EPS or in other words the net profit over the last 12 months.

The problem here is that EPS or net profit contains many different components and is therefore not necessarily a good indication of the real profitability of a company. For example, net profit is reported after accounting procedures such as depreciation and amortization.

These techniques are often used to massage the books, by inflating profits and pushing out losses. On top of that, net profit may include interest and tax payments, both of which are individual to the company and not necessarily useful for observing what profit a business is actually making.

So instead of using EPS or net profit, a better option is to use EBITDA which stands for earnings before interest, taxes, depreciation and amortisation. In other words, it is the true earnings before all those components have made their mark. And so, instead of using the trusted P/E, which is market cap divided by EPS you can see it’s better to use a more comprehensive formula such as enterprise value divided by EBITDA.

3. P/E ratios are lagging metrics

Now we’ve looked at the limitations of the formula, you should understand that P/E ratios (like most financial metrics) are inherently misleading because they are lagging metrics. To put it plainly, when you plug in the earnings part of the formula you are typically using past data, typically the trailing 12 month EPS (or EBITDA).

Clearly, the problem with this is that the last 12 months of earnings are not necessarily predictive of the next 12 months. For example, consider a company that has a market cap of $1 billion and in the last twelve months reported net profit of $100 million. That would give it a P/E ratio of 10 which historically would make it cheap and an attractive buy.

But consider that the last 12 months were, in fact, a stand out year for the company based on a series of unusual economic events unlikely to occur again. And in fact, the company usually makes only $20 million a year, not $100 million. With a net profit of only $20 million, the P/E ratio would be 50 which is historically a high and unattractive multiple.

In other words, the stock is priced at 10 times last year’s earnings but 50 times next year’s earnings. The stock either needs to decline in price to bring the P/E back to a more realistic level or it needs to grow its earnings in line with last year’s stand-out numbers.

Either way, you can see that buying the stock based on last year’s earnings is a flawed strategy because it doesn’t consider future earnings or the historical earnings average.

4. P/E cannot be used for unprofitable companies

Divide any number by a negative and you end up with another negative. And so is the problem when using the P/E ratio for any company that reports negative earnings (of which there are many!). Consider, for example, the market cap for Uber which is currently $56 billion. And consider the latest 12-month EBITDA which was -$8.2 billion. 56 divided by -8.2 results in a P/E ratio of -6.8. So if low P/E ratios are good then Uber must be outrageously cheap.

But of course, we know it isn’t because the negative P/E doesn’t tell us anything. All it tells us is this company hasn’t reported any profit in the last 12 months. In other words, the P/E ratio for any unprofitable company is meaningless, except perhaps to say that this is a stock that may not provide any return unless it can soon get itself profitable. In a similar vein, the P/E ratio has limited ability when used to compare across industries.

Low growth industries such as conglomerates or utilities typically command lower P/Es which cannot be compared to other industries such as tech stocks which often have high P/Es or negative P/Es. Essentially, the P/E ratio is limited in its ability whenever the main consideration is growth or profitability.  

5. The Shiller P/E Ratio

The cyclically-adjusted price-to-earnings (CAPE) ratio of a stock market is one of the standard metrics used to evaluate whether a market is overvalued, undervalued, or fairly-valued.

This metric was developed by Robert Shiller and popularized during the Dotcom Bubble when he proved (correctly) that equities were highly overvalued. For that reason, it’s also casually referred to as the “Shiller PE”, meaning the Shiller variant of the typical price-to-earnings (P/E) ratio of stock.

It’s most commonly applied to the S&P 500, but can be and is applied to any stock index. The main benefit is that it is one of several broad valuation metrics that can help you determine how much of your portfolio should reasonably be invested into equities based on the current relationship between the price you pay for them and the value you get in return in the form of earnings.

Robert Shiller demonstrated using 130 years of backtested data that the returns of the S&P 500 over the next 20 years are strongly inversely correlated with the CAPE ratio at any given time.

In other words, whenever the CAPE ratio of the market is high, it means stocks are overvalued, and returns over the next 20 years will likely be poor. In contrast, whenever the ratio is low, it means the stocks are undervalued, and returns over the next 20 years will likely be good.

Are we under, over, of fairly valued in May 2020?

In tomorrows post we will analyze precisely where we are valued as a market and how InterAnalyst can help you maximize your portfolio growth now.

 

Here’s When The Bear Market Rally Ends

Here’s When The Bear Market Rally Ends

This Bear Market Rally is still not complete but should be shortly and Here’s When The Bear Market Rally Ends.

We are actually still in a bear market rally with today clearly being another ‘green’ day, it is likely the rally will continue until the herd jumps in again.

It is not uncommon what-so-ever to re-touch near a 50% level during voracious bear markets, however, at this point you can actually argue the market is more over-valued now given the environment than when the Standard & Poor’s was near 3400 ironically enough.

The markets are already trying to price in a possible slowdown in the COVID-19 pandemic. But, even if the Pandemic miraculously disappeared today, the massive economic shock won’t disappear anytime soon.

Major indices all over the world have already plummeted into Bear Territories and the recent rally is simply a correction. In fact, if you look at previous bear markets, you will find plenty of temporary Bullish rallies within the larger Bearish move.

So, do not get emotionally carried away by the bull run right now. Shortly, we will be dealing with bad economic data, a bigger than 2008 recession (likel):
  • Falling Output. Less will be produced leading to lower real GDP and lower average incomes. Wages tend to rise much more slowly or not at all.
  • Unemployment. The biggest problem of a recession is a rise in cyclical unemployment. Because firms produce less, they demand fewer workers leading to a rise in unemployment.
  • Higher Government Borrowing. In a recession, government finances tend to deteriorate. People pay fewer taxes because of higher unemployment and they need to spend more on unemployment benefits. This deterioration in government finances can cause markets to be worried about levels of government borrowing leading to higher interest rate costs. This rise in bond yields may put pressure on governments to reduce budget deficits through spending cuts and tax rises. This can make the recession worse and more difficult to get out of. This was particularly a problem for many Eurozone economies in the aftermath of 2009 recession.
  • Hysteresis. This is the argument that a rise in temporary (cyclical) unemployment can translate into higher structural (long-term) unemployment. hysteresis
  • Falling asset prices. In a recession, there is less demand for buying fixed assets such as housing. Falling house prices can aggravate the fall in consumer spending and also increase bank losses. This fall in asset prices is particularly a feature of a balance sheet recession (e.g. 2009-10) recession.
  • Falling share prices. Lower profits lead to lower levels of share prices.
  • Social problems related to rising unemployment, e.g. higher rates of social exclusion.
  • Increased inequality. A recession tends to aggravate income inequality and relative poverty. In particular, unemployment (relying on unemployment benefits) is one of the largest causes of relative poverty.
  • Rise in Protectionism. In response to a global downturn, countries are often encouraged to respond with protectionist measures (e.g. raising import duties). This leads to retaliation and a general decline in trade which has adverse effects.

These factors are not at the top of the news yet cycle right now. But I assure you that when the Corona-Virus takes a back seat to the Presidential Election, the reality will set in and we will witness a new test of the bottom.

So, such rallies as the one we are seeing now will be sold aggressively and markets will plummet into fresh lows. Until a 50%-55% drop has happened, we can’t start thinking about bottom formation.

Conservative investors should continue to follow the Wealth Preserver signals as is proven historically, the signals will protect you from every market crash that matters.

As for Daily and Weekly traders, they should follow their Wealth Maximizer and Maximizer Pro signals according to the Pro’s 5 Minute Secret.

Another Leg Down?

Another Leg Down?

We have seen a hefty relief rally but does Another Leg Down loom? For those who are Wealth Maximizer Pro members, you have caught the nice profitable rally, contratulations.

I am seeing some “disturbing” signs that the market is very close to re-testing the lows that we previously have made, or, will it form another leg down loom?.

At the very least, it is 98% certain we will come to test the lows around 2250 at any moment in time. It is possible that we have another final leg down, and I believe that we likely will.

It is important for you to remain patient instead of panic buying and falling into bull trap.

During this last leg down, simultaneously, Gold and Silver will likely sell-off for liquidity reasons. People are now and will continue to liquidate their hidden savings.

Here’s why we know that the last leg down is coming:

The VIX remains incredibly elevated (60+) despite big pops in the markets and has not subsided. This tells you another sell-off is looming. Whats more, it’s supported by many other technical and fundamental factors.

For the market to continue up and ignore these factors would be unprecedented.

Prepare for another drop to the eventual bottom.

Crono-Crash & The Slingshot

Crono-Crash & The Slingshot

Livio,

I exited with the Wealth Preserver on the on March 2nd.  The last couple of bullish days brought to mind the Slingshot, are we there and have we missed the first 2 days. In your recent Celente video post you mentioned we’re entering into a global depression which may be even worse than the Great Depression.

Before all that happens is it possible we see DOW tumble another 5K-10K?

There seems to be an incredible amount of liquidating-at-all-costs mentality at the moment. I worked on an equity desk during the 2008 crisis, and currently at a very small non-bank FX dealing desk and have never seen anything like this. Your feedback is always appreciated.

Thanks,
Victor

“Great Question Victor.

The simple answer is NO.

The worst-case scenario appears to be testing the reversal technical line in the 15,000 level and do not see a drop to 5-10K. That is way too far for a slingshot. 

I see the slingshot build and breakout to new highs by 2023.

However, let’s tale a look at history to guide us on recovery times with similar drops to our current CronoCrash. 

Look at the two charts below.

What you see is that it took 65 months from the 2007-2009 Crash to get back to even.

The 1987 Crash appears to be a likely type of pattern from a timing perspective to our current Crono-Crash. That was a 53% decline and took 24 months to break even.

The 2000 -2003 Bear Market was a 3 year 54% decline and took 81 months to break even. 

If we were to fall on par with those declines, we would be looking at a drop to the mid-15000 level.

Because InterAnalyst members s stepped aside (red signals)  for most of the Corona-Crash, they will miss all those months of recovery just to get back to even.

More importantly, while everyone else is back to even, those who stepped aside will be 100% – 400% ahead of those buy and hold investors who did not step aside of the Corona-Crash.

As for the future, when we get back in (green signal) we could reach the test of just below the 40,000 level happening in 2024.

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