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Post #53: Site “hibernation” by end of October 2018; site “(re)awakening” targeted ASAP

Post #53: Site “hibernation” by end of October 2018; site “(re)awakening” targeted ASAP  10/25/2018

Trade weighted US$: 90.69;  US 10-yr: 3.14%;  S&P 500: 2,701;  Oil: $67.28;  Gold: $1,230;  Silver: $14.64

Dear subscribers, dear readers, dear kindred spirits:

To my great chagrin, and with a very heavy heart, I will be suspending site publications for the foreseeable future by month’s end.  At the same time, the current site content will remain online, also for the foreseeable future.  Said is particularly apt given my “restart publications when possible” intention.

The reason is simple and straightforward: I keep spending a lot of time on site content without any compensation while I keep incurring considerable costs (the hibernation will cut costs by 50% – 60%). 

I can no longer afford to do this.  Commensurately, this will be my last post pending the manifestation of the inevitable global asset valuation reset that I have often referenced, and have tried to shed light on, via various publications (posts, reports, and YouTube videos — IF I record any new ones, they will appear on the site thanks to existing links) that extend back over three years. 

That reset, which I predict will go down in financial history books as the “mother of all resets,” should bestow upon me the resources with which to restart publications — including un-audited, theoretical performance calculations with the same theoretical portfolio — without “financial considerations.”  Frankly, and consistent with my publications, I believe such a reset will happen sooner rather than later.  In fact, it is way overdue and could commence at any time.  Overnight.  Literally.  They won’t “ring a bell.”

Caveat: I would be less than honest if I didn’t also state the obvious, namely that I have thought this for years.  Specifically, given our entrenched and increasingly destructive political, financial, and economic situations — both domestically (in America) and globally — our increasingly long-in-the-tooth asset (OECD nation) valuation disconnects/asset bubbles should have ended/popped years ago.  When I say bubbles, I’m referring to bonds, stocks, and real estate.  When I say “reset,” I’m referring to much lower future valuations (NPVs) of bonds, stocks, and real estate triggered by much higher interest/discount rates on the one hand, and what will likely prove to be markedly lower sustainable earnings power on the other hand.  Talk about a one-two punch.

Reversion beyond the mean (not to the mean), or asset valuation history, will come into sharp relief, once again.  This time, however, unprecedented levels of debt, unheralded pension underfunding, tougher demographics (aging), failing productivity (which is why we have out-sized debt growth in the first place), increasingly more difficult to access and progressively less affordable “24/7” energy, consistently more eviscerated property right protections, domestic litigation insanity (2.6x Europe’s), and a stark and ongoing decline in the rule of law are largely global realities that suggest an “unimaginable to many” valuation swing, from boom to bust, is in the cards.

This is both a huge risk for those that hold pricey assets bought at pricey valuation levels, and a historic, reset-based, strategic return opportunity that can be capitalized on in terms of portfolio allocations/re-allocations.  That is, if requisite re-allocations are accomplished prior to an overdue “reversion beyond the mean” bust as regards overvalued assets, which will provide the “intact funds” to purchase “bust valuation” assets as they become available.  Should you have an interest in more granularity beyond the links that I provide here, please see publications on this very topic and on related topics on the site.  The content selections offer considerable depth and quite some breadth.  

Moreover, please consider the pivotal role timeless and true save haven assets (not massively overvalued government bonds issued by bankrupt OECD governments!), namely physical precious metals in your possession purchased at attractive prices (AS IN RIGHT NOW, on October 25th, 2018!), are likely to play as Frankenstein Finance (financial repression) inevitably begins to fall apart at the ugly, sutured seams

As you do so, dwell on the fact that fiat money, especially the incredibly vulnerable, overvalued US dollar*, will be under mounting currency debasement pressure as central banks (CB), due to political realities and CB ownership interests, double-down on balance sheet expansion, thereby “saving” debtors as they continue to “screw” savers by revisiting ZIRP and even NIRP.  Trouble is, with global debt at peerless levels (nearly $250trn at last count) in both absolute and in percent of GDP terms, a creditor revolt is all but a given.  Translation: puny central banks/central planners, you will lose control, which interest rates at the long end will reflect, and with a vengeance.   Yes, Virginia, history will repeat

Life can be a funny thing.  I’ve been “bootstrapping” it (and I have also had an extremely supportive family) trying to bang the valuation pots and pans.  Should I still have a stout, healthy pulse, which I fully expect will be the case, that reset that I keep referring to (I know, a bad word, but at least it’s just “one word”) will enable me to “chime back in” at a time when my food for thought will have much less urgency and much lower potential return prospects than are on offer today.   Like I said, life …   

In closing, I thought it only proper to let you know.  In addition, I also want to take this opportunity to thank my family in the strongest possible terms; without their help, I could have never given this a big push.  Plus, I’d like to thank one dear, nearly life-long friend, Doug, for his endless invaluable input, wisdom, sage advice, help, and solidarity.  Moreover, I’d like to thank my great webmaster; those that became subscribers; those that read/listened to my publications; those that thought highly enough of the overall site content to spread the word; and, most of all as regards the site, those “intellectual brothers” populating the ethical, constitutional corridors of my beloved alt media universe that a) I have been privileged enough to get to know and b) have seen fit to give my pieces invaluable lifts by providing DK Analytics post links on their precious digital real estate, i.e., on their sites.

Dan Kurz, CFA

* – How much would you pay for a heavily indebted, perpetually more indebted, perennially hugely negative free cash flow stock?  Well, America’s the corporation, and the dollar is its stock.  


This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.






Post #52: Given that the left still refuses to accept the 2016 US election outcome, we are in a very dangerous place

Post #52: Given that the left still refuses to accept the 2016 US election outcome, we are in a very dangerous place  10/13/2018

Trade weighted US$: 90.69;  US 10-yr: 3.2%;  S&P 500: 2,902;  Oil: $71.34;  Gold: $1,222;  Silver: $14.64

With 2018 midterm elections less than a month away, a return to more representative, less lawless government hangs in the balance:

Trump won and the Republicans are (still) in control of both chambers of Congress, but neither the Democrats, the media, Hollywood, the universities, Silicon Valley, K StreetWall Street, nor the administrative (deep) state have accepted the election results.  Quite the representative government and rule of law pummeling resistance.  Hillary Clinton’s and Barrack Obama’s Saul Alinksy rules for radicals playbook in action.  We see Alinksy’s mobster tactics at work everywhere.  Perhaps the conviction that the left refuses to accept the 2016 election result is best captured thusly:

  • The never-ending Trump Russian collusion witch hunt (if anyone colluded, it was felonious, traitorous Hillary Clinton — and I won’t mention Senator Feinstein’s Chinese chauffeur spy for some 20 years and all her and her husband’s crony Chinese deals). Mitch McConnell, are you listening?  Apparently so, for suddenly you are no longer obstructing the good part of Trump’s agenda, but greasing the skids for it.
  • The unending presidential impeachment threats despite Trump having violated no laws (again in stark contrast to many former Democratic power-brokers); if he had, Mueller’s band of high-powered Democratic operatives would have long discovered it.
  • The absolutely outrageous, “11th hour,” unsupported, and thus concocted allegations of Kavanaugh’s alleged sexual abuse 36 years ago (concluding remarks section) amounted to an ultimately unsuccessful effort to sabotage the election of an originalist/rule of law judge to the US Supreme Court.
  • The threats of impeachment against Justice Kavanaugh and Justice Thomas, should the Democrats retake the House, despite these justices’ impeccable lifelong records both on and off the bench.
  • Top-tier de facto promotion of race-baiting, civil unrest, and/or criminal behavior, from Ferguson, Missouri to Baltimore, Maryland to elected Democratic officials both inside and outside the halls of Congress.
  • And, if all else fails to “reverse the election” — 100% speculatively stated, but I believe rationally and fearfully so given “where we’re at” — then I wouldn’t put it past far-left Democrats, aligned with the deep state, to attempt to assassinate the very top national level Republican officials that are striving for a return to constitutional fidelity, both the elected and appointed variety.  That is, should all other attempts to effectively reverse the 2016 election fail, they will seek to uproot (what remains) of the constitutional order, if necessary by execution.  Why?  Because that liberty-shielding governing blueprint, and  the remaining allegiance to it, stand in the way of their despotic, collectivist path.  This is why the left despises the Constitution.  And this is why the constitutionalists that defend it must be “taken out” at any and all costs, by any means possible, from Trump, Kavanaugh, and Thomas character assassinations to the “real deal.”  At the end of the day, a coup against the Constitution, a nearly dead letter which the left wants to keep down and shred completely, once and for all, is in their sights.  They’ve been at it for over a century.  And they’re not about to stop now.  Which is what we are witnessing.

Perhaps the conviction that the left refuses to accept the 2016 election result AND what it has in mind is best summed up below:

Hillary Clinton: You ‘cannot be civil’ with Republicans, Democrats need to be ‘tougher’

WASHINGTON – Hillary Clinton says the time for civility is over.

After the bitter and partisan fight over the confirmation of Supreme Court Justice Brett Kavanaugh, the former secretary of State and 2016 Democratic presidential candidate declared that President Donald Trump has undermined the integrity of the nation’s highest court and that it’s time for Democrats to be “tougher” with their opponents, in an interview with CNN published Tuesday.  “You cannot be civil with a political party that wants to destroy what you stand for, what you care about,” Clinton told CNN’s Christiane Amanpour. “That’s why I believe, if we are fortunate enough to win back the House and or the Senate, that’s when civility can start again.”

Guarded hope:

Nevertheless, allow me to ask you this: what can possibly be better, more uplifting, or sexier (besides sex itself) than learning about the peerless proclamation and codification of individual freedom (which required/requires a civil society and personal responsibility to function) attained by the Founders (via the Declaration) and the Framers (via the Constitution) of this greatest freedom protecting republic ever designed?  And I state this despite imperfections, most especially sustaining slavery (which was addressed by ethical men thanks to the Declaration’s ideals) in order to have greater critical mass with which to declare independence against the most powerful nation in the world at that time.  The answer: the only thing better than learning about freedom is enjoying it. 

But enjoyment can only be sustained if understanding is widespread enough.  Hello effective civics courses as one such platform, the most important being sustained parental guidance and wisdom. In short, hello education versus indoctrination or demagoguery — hello “charter schools?”

Specifically, widespread citizen awareness and appreciation is required that a) freedom was secured at an extremely high cost in blood and treasure and thus needs to be cherished and nurtured, b) that eternal vigilance and possibly risky intervention will be required to maintain freedom, and c) that true freedom (as per the “negative rights” that restrict government’s imposition on to natural rights also known as the Bill of Rights, which depend on stout enumeration of limited power, separation of powers, federalism, and sound money as a foundation) is an incredible — and incredibly uncommon – state!  

This is especially true given that once very rare freedom is lost, status quo tyranny of one or another sort inevitably resurfaces.  Sometimes would-be despots stoke Balkanization; in America’s case, they seek unbridled third world amnesty and a related property rights transfer that will result in one-party government, such as in Sacramento, California, from “coast to coast.”  One party government is tyranny. 

If one-party government fails, the left has also been pursuing widespread civil strife and even anarchy, which is threatening to establish itself right before our eyes in numerous OECD nations, not just in America.  The left has been pursuing these dual strategies with increasing vigor and success for decades, which is is a prelude to one or another sort of tyranny and widespread citizen impoverishment.  The despots’ mantra is always the same demagoguery: we need to “save the people from themselves.”

Arguably, the fact that civics is still taught effectively to about 25% of US public school students represents a small ray of hope and a much-needed positive kick in the pants given the de facto collectivist, pro-amnesty takeover of most of the educational establishment, the media, and Hollywood.  In admittedly quite overstated terms, a “the Flag that was still there” revelation, but only if massive third world amnesty and the ever increasing teaching, language, financial, and Balkanization challenges can be capped in short order, else our society and culture will have been completely overturned not by war, but by immigrant love.

Couple this with the laudable fact that Florida and select other state public school students still start each school day with a “national family bonding,” “liberty and justice for all” Pledge of Allegiance, and you at least have a bit of “structural daylight” at shining into long “orchestrated darkness,” which is the antithesis of transparency, equality before the law, freedom, and a sustainable federalist, representative, constitutional (rule of law) republic.  

In a related sense, if only we could get back to sane, “digestible,” English as the only official language, US culture-centric, meritocracy-based, non-property transferring immigration before it is too late.  Clearly, if the Dems regain power at the federal level at the upcoming election, that is the beginning of the end of Trump’s attempt to return the US to a “meritocracy-based” immigration policy.  That is, if it is not too late already, given the huge, largely un-assimilated, citizen property-transferring Latino constituency that is increasingly populating this land, and how threateningly well former Colorado governor Dick Lamm’s infamous plan on “how to destroy America” has worked — as codified and materially enabled through the 1965 Hart-Celler Act.

Clearly, hope, while “smelling the coffee” and making an “enlightenment” difference locally to those on the fence or willing to listen/comprehend while we vote for constitutionalists (this November will be a watershed election in the US) and encourage others of like minds to also vote for constitutionalists, is more important than ever.   This is particularly true given where we may be headed — and possibly really, really soon — namely toward an irreconcilable civil split, possibly even a civil war.  Why?  Because the left refuses to accept the 2016 election.  At any and all costs.  Seriously.

Moreover, a “liberty, revisited” call to arms is especially apt if we dwell on the fact that a stout, vocal, committed minority can effect huge, constructive change.  For flavor, consider that only about 30% of the American colonists were willing to have a go at an all-powerful industrial and military nation led by a despotic British King, yet look at the terrific outcome and the US Constitution that ensued, which has outlasted any other, by far, however marginalized by sustained and spreading infidelity.

And, unlike last time, this time around we have the Founders’ (Declaration) and the Framers’ (Constitution) manuals – the invaluable frameworks upon which individual freedom, happiness, and widespread, unequaled success and prosperity were built – ready to dust off and revisit.   Yet, soberingly, this time around the “enemy is from within.”  Translation: it’s much easier to fight an external foe than an internal cancer.  But what choice is there for freedom-loving people, especially as America is the only nation that is based on a Declaration manifested in a Constitution whose goal it is to strictly ring fence governmental power while simultaneously protecting against “mobocracy.”  The resulting blueprint strictly limited and enumerated powers.  It gave us separation of powers: let the mighty fight, check, and balance out each other other instead of us.  It bestowed upon us federalism: power was mainly domiciled in the states that gave birth to the nation.  It gave us sound money, thereby preventing politicians from buying votes from an empty purse (redistributionism) while limiting cronyism.  And, as insisted upon by the state-based Framers when they signed the Constitution, the first amendments spelled out natural-rights that can’t be voted on, today known as the invaluable Bill of Rights.

If America loses liberty (freedom married to responsibility), then how is the rest of the world going to either keep theirs or establish it in the first place?

To avoid losing what’s left of an ever shrinking circle of individual liberty, in November 2018 the Republicans must hold the Congress, but especially the House, where impeachment emanates. Otherwise, it is highly likely that the US government will fall into a diabolical, endlessly intimidating, paralyzing political abyss wherein the impeachment of Trump will be pursued relentlessly, and a return to the rule of law for all citizens will be either highly threatened of dashed, potentially for good. 

Investment implications:

As mentioned elsewhere both in posts and in videos, the currently extremely elevated level of political uncertainty, on top of huge financial and economic challenges, is particularly threatening to those with property (invested capital or savings).   Today’s reality should impel investors to insist on steep risk premiums when purchasing bonds or stocks (and, by extension, real estate).  Stated differently, bonds should offer very high yields, stocks should sport very low P/Es, and real estate ought to provide stout bargains (rental income should pay for ongoing mortgage outlays and take a good-sized bite out of maintenance costs) if they are to be purchased.  In short, the utter opposite of today’s pervasive bond, stock, and real estate bubbles.

And if the erstwhile representative, federalist, constitutional republic known as the United States gets a new “rule of law” lease on life, it will only happen IF unconvicted felons, which appear to have occupied numerous positions of great power in the US federal government, from cabinet posts (such as both former secretaries of state and both DOJ heads of the former Obama administration) to heads of extremely powerful agencies such as the IRS, the CIA, and the FBI, are indicted and tried: 

For absolutely outrageous “over-the-top” flavor, consider Hillary Clinton.  The felonious former secretary of state destroyed massive amounts of evidence while gravely violating classified information security protocols with her private servers, and thus gravely threatened national security.  Yet, she was effectively exonerated by former FBI head Comey, who had the temerity to a) usurp judicial power and b), at the 14-minute mark of his self-righteous July 5th, 2016 tirade on this matter, warn that “everyday” Americans, in contrast, would be held accountable: “this is not to suggest that in similar circumstances, a person who engaged in this activity would face no consequences!”  (When there are two sets of laws, one for the mighty who stand above the law, another for the rest of us who have to abide by the law, a society by definition cannot have the rule of law.)

If the full extent of US government lawlessness is exposed by virtue of the unindicted officeholder felons being convicted and then tried, complete disclosure regarding the federal government’s GDP-eclipsing $21trn of unaccounted for spending is forced (instead of swept under the ruling mob’s rug under the pathetic moniker of “national safety nondisclosure”), and those that perpetrated the unappropriated, and thus unconstitutional, spending are brought to justice, investor confidence in the US legal system and in its currency will be crushed.  By extension, US assets will be sold on a huge scale, driving down the value of those assets and the dollar in which they are based.  For a nation that a) requires roughly $600bn in foreign funding to cover its net annual trade deficit,  b) owes the rest of the world (ROW) $8.6trn, and c) has long counted on the ROW to finance a material portion of an expansive federal government deficit (a sizable portion of what the Fed didn’t monetize and lacking domestic savings couldn’t cover) that has averaged approximately $1trn a year for a decade (if measured by the average annual growth in US government debt), this is no academic matter.    

Such a dramatic cleansing would also be an overdue “cleansing,” which only a sustained Republican majority in both the Senate and the House combined with a functioning Department of JUSTICE could trigger, i.e., if they are “clean enough” and “un-intimidated enough”  at the key decision-making levels (Mitch McConnell? Paul Ryan? Jeff Sessions?) to even contemplate doing the politically unthinkable, but rule-of-law essential.  Given how incredibly deep and broad the US federal government core rot is (why else has no one been indicted on either side of the political aisle?), this is not an idle concern.

Such a cleansing would be an arguably last chance for America to shed its current de facto, but largely still unrecognized, banana republic (versus representative, rule of law republic) status.  And, once again, that lacking recognition constitutes the fleeting opportunity for investors to sell overvalued US investment-grade assets purchased at or near bubble valuation levels — investors that purchased investment-grade US assets at mere fractions of today’s prices/valuations should stay put, because they have already locked in attractive P/Es and yields and a “hold” policy here will prevent sizable tax hits for non-tax-sheltered investors.  In any event, boom will turn to bust, whether “US patriots” are able to force cleansing or whether the sustained corruption and criminality drive the country into an ever deeper political, financial, and economic ditch with progressively lower levels of investor confidence.

Either way, terrific bargains will beckon, although a cleansing would likely trigger an even faster and deeper “reset” of asset values.  In the meantime, buy some portfolio insurance.  Get out of high purchase price paper assets and derivatives of same that won’t be able to perform; recall 2008 and non-performing banks.  Remember the Long-Term Capital Management collapse in 1998 that almost triggered a global financial meltdown.  Buy timeless capital preservation and purchasing power protection assets, unloved and deeply undervalued, in OECD fiat currency terms, gold and (especially) silver.  

Dan Kurz, CFA

This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.

Post #51: some youtube queries related to a recent video tied into post #47

Post #51: some youtube queries related to a recent video tied into post #47  10/4/2018

Trade weighted US$: 90.11;  US 10-yr: 3.2%;  S&P 500: 2,902;  Oil: $7463;  Gold: $1,206;  Silver: $14.67

Allow me a somewhat different post. 

A gent shared the following with me on the heels of my most recent youtube video titled “Financial and economic challenges juxtaposed against bubble valuations:”

“What are your thoughts on a collapsing bond market in a rising interest rate environment?  Is it difficult to sell Treasuries when buyers know that the bonds will fall in value as the next higher interest rated bond series will have better returns?  I ask this because if money stays away from the massive bond market, where will it go?  Will it keep flowing into the stock market?  Even if it is precarious?  Such an unknown future.  And I assume the value stocks you mentioned would have to have minimal exposure to interest rates?”


My two-stage 10/4/18 youtube response was as follows, with stage one directly below (I’d be remiss if I didn’t tell you that I tidied up and slightly improved my response here, but the message and most of the text is essentially what you can find on my youtube channel response — trust, but do verify, as the GREAT Ronald Reagan said):

Hi Mike: thank you for your observations.  I apologize for my somewhat tardy response. Under the hopeful moniker of “better a bit late than never,” let me take a few stabs at your questions, which are very apt/topical.

In so doing, I’d like to refer to the stagflationary 70s as a understated preview of coming attractions. In that era, and as mentioned in the video you kindly reference and as I also referred to in a few posts, we actually had US stocks lead US Treasuries into the crapper.

Let me see if I can position the great  chart that I reference into place below (, figure 8):


I am back down here. Hope this chart copy/paste effort works on youtube. Life is an adventure! My bigger point: falling stocks could ultimately “lead” falling bonds higher, as in the era (the 70s) I believe we are likely to revisit, but on steroids this time around.

Plus, and this is the biggest aspect of all, in my view, we are going to have a monetary crisis when investors realize that there is no escape from monetary debasement purgatory.  That is, as I hope I said fairly well, bonds are ultimately reflections of the soundness of the currencies in which they are based. With the Potemkin village dollar about to smell the “emperor wears no clothes” coffee (there is no sustainable growth/productivity, there is are no sustainable interest rate increases possible given our winded, big government, mis-allocated, heavily-indebted, regulatory and litigation-mired economy), the most overvalued junk currency of all is going to take a big, big hit.

I don’t think there will be a recovery for a long, long time (it took decades to get into this mess, and you don’t get out of it in a Trumpster N.Y. minute, for God’s sake!) from the upcoming hit. Other nations, esp. those with mercantilist trade policies, will move to weaken their currencies relative to the dollar, which means they too will likely engage in (MORE) monetary debasement as well.

Thus, I don’t think, with $250trn in global debt (or almost) and some $16trn in central bank balance sheet expansion, that we’ve seen anything yet! Which brings me back, admittedly in a round-about but hopefully still logical way, to your question. Where will all the money go that’s sitting in bonds (a huge chunk of the $250trn).  Well, part of the answer is that a lot of it will be destroyed in an era of rising interest and, thus, discount rates (relates to stocks and RE and leases).

We all know what happens to the value of government and corporate bonds when the market suddenly (it usually happens pretty fast, and then keeps on truckin’) requires greater risk protection (against insolvency and inflation, which is a stealthier form of insolvency “until it isn’t,” hello Venezuela, Turkey, etc.).  Investors’ bond holdings collapse in market value, in line with their capital, unless they want to wait until maturity, if it is a somewhat solvent debtor, to get their “debased” bonds back while forgoing market interest rates in the process as they remain “locked in.”

Same goes for stocks. The printing press can levitate bond and stock values beyond any semblance of price discovery or rational valuations (which price in constructive odds of earning a real return and capital preservation).  This IS precisely what we’ve been seeing for the past decade. When this no longer works, i.e., the printing presses either run in reverse (Fed QT) or when the central banks start up their electronic printing presses in untold, even more currency destructive lines led by the Fed, then at some point confidence in fiat currencies is lost, and bonds take a hit, and another hit, and then it feeds on itself until we go into manic low bond values, manic high bond yields.

Point being: when you invest money, you no longer have money, you have bonds and stocks (and RE) based in a fiat currency –hell, you no longer have money when you deposit in a bank, save for a stub, but that’s another dangerous story. In any event, my point is that the value of those assets can shift dramatically for a host of reasons, from perception to reality, from boom to bust. Thus, when you go to sell and thus go back into cash (which really isn’t if it gets deposited in a bank account, buy select short-term OECD gov’t debt instead), you may only have a fraction of the money back which you invested. It’s exactly the above which I think will happen.

Most, or at least many, investors will get stuck in the reset take-down of bond and stock values. Their unrealized gains will turn into unrealized losses. So their reallocation firepower will be much reduced. As will their net worths. But in the process, I am firmly convinced that the HUGE global creditor constituency will pummel bond and, by extension, stock valuations (the trigger being currency or monetary crises uncorked by USD destruction).

If only 1% or 2% or 3% of creditors get worried and begin to sell, that’s from a few trillion dollars to nearly $10trn looking to sell. Add this to the $10trn plus in new global debt (and between $2trn and $2.5trn, if not $3trn, including the net trade deficit, in new aggregate American debt BEFORE an even weaker economy) and a Fed throwing another $600bn into the even bigger bond fire sale nearly straight ahead of us, and I can’t help but think that we are going to have massively lower bond prices/hugely higher yields before all too long.  (Confession: I have been saying this for quite a while.)

Said is ESPECIALLY apt as soon as investors can no longer assume (pretend) that financial repression has worked, and that we can get out of currency debasement (QE, ZIRP, NIRP) purgatory after all. In a related manner, the buck and US government bonds may have a brief and oh-so-erroneous flight to safety tailwind.  But this time around, for all the above reasons, I believe it will prove very fleeting, which will then serve to reinforce the downward pressure on both the buck and US bonds, which will spread globally as we inevitably slide into an even more pronounced global currency devaluation contest for political reasons.

So where will the rapidly vanishing “invested money” go for shelter, for capital preservation, for solvency protection, for inflation protection?  I can only speculate, just like everybody else.  But I would speculate the following:

  1. I think investors will reallocate into very short-term OECD gov’t bonds with some semblance of solvency because there are no bail-in risks, because there are no solvency risks (printing presses can repay you), and because there are no bond value implosion risks associated with long bonds with huge valuation exposure to rising interest rates, particularly hugely rising interest rates. (Ironically, as govt’s cost of financing on the long end will rocket higher, they will likely be able to tap into oversubscribed short-term financing, which they will need given how much larger their deficits will become.)
  2. I think investors will shift into real scarcity assets, led by scarce ag and scarce dense energy assets. These are not only vital to sustaining life for 7.2bn plus people, but these assets underpin the leveraged output that allows us to generate income in the first place (fossil fuel exploitation).
  3. I think investors will seek the only true save havens, physical gold and silver (no paper crap, because it is an un-backed scam of criminal proportions).
  4. I think people will try to take what they can out of an imploding global asset bubble in bonds, stocks, and RE and “flee” into economically viable local businesses, which have often been starved of capital in a crony capitalist world, as our world is going to get a lot larger again. I think investors, at least at the margin, will do this for a whole host of holistic, quality of life, ethical, and bottom line reasons, including greater control.

In closing (almost), and sorry about the length of this — I may just try to leverage this into a post! — everything happens at the margin, Mike, as we both know. Prices are determined at the margin. Just ask central banks and their “10-year old tail wags the dog” puts. When perception changes, be it based on the Fed’s QT effort, or that the central bank tail will be overwhelmed by the $250trn global creditor dog, bond NPVs/valuations — and everything tied to them, and I mean everything — can change quite quickly (sorry, grandma), whether you are in Australia or in Germany or in Japan or in Canada or in America.  Most important, in my view, is that  you are in the right kind of “investment grade” bonds, namely short-dated ones, which won’t get whacked by the upcoming global interest rate surge.

Let me see if I can copy/paste a Fed chart on the US 10-yr bond into place below here to try to drive home the quite quickly point as people forget what happened in the 70s or 80s, or just weren’t around, like your oldster but lovin’ it author, Dan (Hope this all works, and that I didn’t just charcoal an hour or two, because as of tomorrow I’m off to my substitute teaching “moonlighting” for three consecutive weekdays, so I will be a bit Internet shy for a while).  Oh yes, and that chart!  Please see below.  And take a look at how fast the rate climbed from 8.8% to 12.6%, or from 10% to 15.4%!  How does in less than a year sound?!


My second-stage youtube response, also from earlier today, was as follows:

Sorry, Mike, missed one thing — you’d think that my “over the top” response would have at least captured everything!  Here goes: I think value stocks will also get hit, should interest rates/discount rates rise smartly (what I believe is in store). But, given their shorter lower P/Es/de facto shorter durations, they should get hit significantly less than growth stocks.

In post #47 I go into this at some length. I also offer a NPV calculation for both value and growth stocks. One is at a lower discount rate (today’s), and one is at a higher discount rate (I believe tomorrow’s). The rising interest/discount rate “hit,” which is more of an indicative effort than a precise calibration given the “dismal science” and given assumptions that are intelligent guesses based on human nature and not on the immutable laws of nature/physics, is as follows:

My value stock example (links provided in post) would decline by 38%, the growth stock (linked to the Russell 2000) would shrivel by 48%. Point being: unless you’ve purchased great investment grade stocks at a fraction of today’s prices years ago which currently offer you very low P/Es (based on your purchase price) and very juicy dividends (based on your purchase price), you should consider “letting go” and facing tax consequences as applicable given your jurisdiction.

In my opinion, which is based on our political, financial, and economic landscape juxtaposed against bubble valuations, most stocks are going to get clocked.  Widespread bargains should be available within years, if not substantially sooner (as in perhaps months), that will likely remind us of the 70s stagflation valuations.  I’m referring to metrics (doesn’t that new age word sound so cool?) such as P/Es of 6 or 7, E/Ps of 14 or 15, and dividend yields of 8% plus.

Hope this lighter than usual post provides some useful questions courtesy of a fine, knowledgeable gentleman by the name of Mike (questions that you may also be pondering) as well as some worthy of your time” attempts to address them by yours truly.  I also hope that this unconventional piece puts a little smile on your face or elicits a “yup, that’s true” response once or twice as you read it.  

Dan Kurz, CFA

This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.