See how to use time to profit from low interest rate fear.
This part three of this report that shows how to profit from investing in a scenario that I don’t think we have ever stumbled across before.
Fear is pushing the US stock market higher.
Normally fear pulls markets down and greed pushes them up. Normally fear based appreciation only comes via hoarding… when panic is the ruling emotion.
The low interest rates paid on most currencies are making the US dollar and US stock markets increasingly poor values.
You can read part one of this report Profit From Fear – Part II here.
In 1915, when I realized that low interst rates might hang around for awhile, I created the Purposeful Investing Course (Pi) and set up my own portfolio based on the course.
From January 2016 to April 2018 my equity investing plan was simple and worked really well.
The strategy was to invest equally in ETFs that represented indices of good value, non US dollar equity markets.
The idea was based on the fact that the good value markets were selling at 1.35 times book and paid an average yield of 3.34% compared to the US market selling at 2.77 times book and paying a yield of only 2.15%.
Here were the market valuations in 2016.
That strategy worked like magic through May 2018. The logic was sound and the markets behaved as common sense said they should. I was able to accumulate good value shares at bargain prices and have increasing capital gains potential because eventually, value always rules markets. Plus I was being paid double the yield of the US market.
Beginning January 2018, the US dollar rose from 89 to 98 (10%) versus the US dollar Index.
The stronger US dollar, along with a host of other factors, attracted more demand to the US stock markets.
In 2018 markets everywhere sagged, but the rising greenback helped US markets recover more and faster at the expense of the good value markets.
The chart of my personal Pifolio of good value markets shows that they have not recovered as well as the US market… yet.
The word YET is important and we’ll see why in a moment.
The recovery and superb performance of the US market today is very different from the exuberance in the year 2000.
The 2000 market mania came from GREED attached to incredible increased productivity created by new technology. The 2000 bubble was the DOTCOM bubble. Investors paid too much for shares because they believed to strongly in the rise of internet commerce. This was a typical overreaction to good news.
Today’s market highs are created by FEAR of low and negative returns in other forms of investment (such as bonds and CDs).
The US market and US dollar are overpriced because negative interest rates in other developed market currencies leave investors nowhere to go.
Our latest Purposeful Investing Course (Pi) lesson looked at how the collapse in global government bond yields since August 2019 is suggesting the world economy is sliding into recession over the next 12-24 months, if history is a guide.
The lesson featured the ENR Asset Management Advisory (1) that said:
An Upside-Down Sovereign Bond World
Many pundits claim the alarming trend of negative-yielding rates began in Japan. That’s not the case. The first country to sport a negative benchmark ten-year government bond yield was Switzerland back in January 2015. Japan followed in 2016, Germany and the Netherlands in the summer of 2016 and Denmark and Finland in the fall of that same year, according to David Rosenberg of Gluskin Sheff (Espresso with Dave, August 29). Eight other countries have followed since, including Ireland, Latvia, Slovenia, Slovakia, Belgium, Sweden, Austria and France. In the United States, benchmark 30-year Treasury bond have returned a stunning 27.6% total return in 2019 – the best calendar year since 2008 when it surged 34%.
An inverted yield curve, a phenomenon occurring when short-term bonds yield more than long-term bonds, has correctly predicted every recession since 1975.
Stocks can still rally amid an inversion, but eventually a bear market engulfs equities. The last such inversion occurred in 2005; by October 2007, the stock market peaked followed by a collapse in credit in mid-2008.
In late August, the 30-year Treasury bond yielded an all-time low of 1.95% — thirty basis points (0.30%) less than the Federal Funds rate. That’s unprecedented. As the dollar strengthens or at the very least, maintains its value vis-à-vis other currencies this year,
investors looking for a positive yield are heading to U.S. Treasury securities. Bonds aren’t cheap. But in a world where ‘breadcrumbs’ are the new normal for bond investors, T-bonds still look enticing compared to negative yields across most major government bond markets. In most major markets, negative-yielding bonds guarantee a capital loss at maturity as
investors pay for the privilege of lending to governments.
What are the lessons from Japan’s ultra-low bond yields since the 1990s and Switzerland more recently since 2015? The outcomes are dire. When Japanization or Swissification is shorthand for a sluggish business cycle, credit and equity investors should question the earnings outlook, recalling that Japanese stocks underperformed bonds for most of the country’s ‘lost decade.’ Combined with the ongoing yield curve inversion in the United States, investors should be wary of making bold risky bets.
In anticipation of an economic downturn, I have moved an increasingly large share of my portfolio into US government bond ETFs.
The ENR Advisory reviews three such ETFs.
The Advisory says: Where to Find Safe Positive Yields
Outside of the global government bond market, investors still have opportunities to find a positive yield. Investment-grade corporate debt, high-yield bonds, convertible bonds and leveraged loans all continue to offer positive yields. However, with recession alarms sounding, we continue to recommend avoiding sub investment-grade securities or junk bonds. Credit spreads for riskier bonds have indeed risen over the last six weeks but still don’t provide enough yield coverage to compensate for rising credit downgrades – inevitable as this cycle ends. I’m frankly surprised we haven’t seen more credit downgrades this summer.
Another factor to consider is duration risk. Duration risk measures bond interest rate sensitivity; for example, if your average duration is ten years and rates rise 1%, you can expect to lose about 10% on your bond. With long-term Treasury bonds recording their best
annual returns since 2008, I’d reduce duration risk for new money coming into the market at these super low yields. Instead, consider an average duration in bonds no greater than seven years. The big bucks have already been made in long-term bonds, at least for now.
Emerging market USD bonds offer about 200 basis points or 2% more in effective annual yield (about 5.4%) compared to dollar-denominated intermediate-term Treasury and corporates. I don’t think that extra yield is worth the risk at this late stage of the cycle. If there’s a recession coming, you don’t want to own emerging markets.
1. Vanguard Tax-Exempt Bond ETF (NYSE-VTEB). The first place to look for income is tax free, if possible. The less tax Uncle Sam and friends receive from you, the better. Vanguard does a super job with VTEB. The Fund holds over 4,200 tax exempt bonds
with an effective duration of 5.4 years. VTEB is up 7.4% this year. The expense ratio is just 0.08% per annum accompanied by a 2.34% trailing 12-month yield. With trailing 12-month U.S. CPI at 1.8%, this leaves the investor with a positive real return.
2. iShares 3-7 Year Treasury Bond ETF (NYSE-IEI). A safer avenue to Treasuries now is to buy a portfolio of intermediate-term securities. IEI sports an expense ratio of 0.15% per year and yields an effective 2.05%. The Fund is up 6.7% this year. The portfolio
owns 100% U.S. Treasuries harboring an effective duration of 4.45 years. This is a conservative investment for those investors looking for some income. The yield, at 2.05% currently, is now more than 90-day U.S. T-bills.
3. iShares Intermediate-Term Corporate Bond ETF (NYSE-CIU). U.S. and international corporations have near-record debt levels after binging on cheap credit over the past decade. Many U.S. companies have also borrowed to finance share buybacks. Despite
high debt levels, the largest corporations should be able to service debts in a recession. This product provides wide diversification across U.S. investment-grade corporations with the Top Ten issuers including Bank of America, JP Morgan Chase & Co., Citigroup, Morgan Stanley and Apple, Inc. The annual expenses are just 0.06% accompanied by a trailing 12-month yield of 3.60%. The Fund’s effective duration is 6.21 years. In 2019, CIU has gained 13.6%.
Bonds are expensive. There’s no arguing this point. In the past, I’ve even pegged most fixed income securities as ‘bubble’ investments following tremendous gains since 1981. Most bonds since 2013 don’t provide real returns or cover the cost of annual inflation. But my tune changed late last year as signs of economic trouble loomed. Trade wars, credit inversions, expensive asset prices for U.S. stocks and bonds, and an ageing economic cycle all point to more volatility ahead.
Many commentators have dismissed the fall in yields and rise in negative-yielding debt as proof of a bond ‘bubble.’ But it’s not a reflection of investors’ irrational exuberance and instead, symptomatic of a wake-up call for politicians to act to prevent a deflationary global economic downturn. I’m not sure central banks can deflect trade wars and the resultant consequences of tariffs. Instead, it might be time for some countries, like Germany, for example, to cut taxes. Others might consider fiscal relaxation to delay the economic reckoning. These include Canada, France, the Nordic countries and others.
Here’s My Plan
The logic of value is undeniable… a fact of reality that applies to all things of nature.
Take a wild animal walking. It will always move along the path that requires the lowest expenditure of energy. The animal will naturally seek level paths and avoid tangles and brush.
If a rich food source appears the animal will move off the easy track… as long as the added energy from the food exceeds the output to get it. The animal will, in greed, even reduce its caution… as many wild things attracted to a pile of bait put out by a hunter, have learned the hard way.
If attacked by a predator the animal will move, in panic, uphill through bracken, thorns and bramble, even though a lot more energy is required.
The animal in greed and fear will expend inefficient amounts of energy, but eventually the animal will return to the most economical path.
This is nature and the simple words that apply are: fear… greed… value… timing… balance.
I see the divergence of good value markets versus the US market as an opportunity but don’t have a clue when the fear of plunging stock markets will overcome the fear of low yields.
My plan is to keep five years of liquidity in top rated bond ETFs, so I can accumulate all other funds in good value investments without having to sell a thing.
This allows me to wait out the timing in the markets without disrupting the balance between my liquidity needs and the need for my investments to outpace inflation.
Each of us has our own liquidity…income… capital… appreciation formula to workout. The numbers are not always easy to make compatible, but if you keep the three basic factors in mind, value… timing… balance, you’ll have a much better chance of maintaining financial stability.
I hope you have a good time, creating time for your good value investments to work.
Investing Beyond the BoomWarren Buffet once warned against the Cinderella effect.
He said “Don’t be fooled by that Cinderella feeling you get from great returns. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know the party must end but nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”
Cinderella may have lost a shoe when she fled the party to meet a midnight curfew. We can lose much more when we rush from a crashing stock market.
Most investors face emotional dangers that build in rising markets.
Almost everyone feels good.
But the clock of economic reckoning is ticking.
No wants to see it. Nothing rises forever and especially… not everything at the same time.
Yet no one wants to leave the party until the end.
But many edge closer to the door.
When the clock chimes there could be a stampede even though leaving in a hurry may be the worst way to go.
Here are seven steps that can help avoid this risk.
- Choose investments based on markets instead of shares.
- Diversify based on value.
- Rely on financial information rather than economic news.
- Keep investing simple.
- Keep investing costs low.
- Trade as little as possible.
- Make the decision process during panics automatic.
One strategy is to invest in country ETFs that easily provide diversified, risk-controlled investments in countries with stock markets of good value. These ETFs provide an easy, simple and effective approach to zeroing in on value. Little management and less guesswork is required. The expense ratios for most ETFs are lower than those of the average mutual funds. Plus a single country ETF provides diversification equal to investing in dozens, even hundreds of shares.
A minimum of knowledge, time, management or guesswork are required.
The importance of…
Keeping investing simple is one of the most valuable, but least looked at, ways to avoid disaster. Simple and easy investing saves time. How much is your time worth? Simple investing costs less and avoids fast decisions during stressful times in complex situations where we are most likely to get it wrong.
Fear, regret and greed are an investor’s chief problem. Human nature causes investors to sell winners too soon, and hold losers too long.
Easy to use, low cost, mathematically based habits and routines help protect against negative emotions and impulse investing.
Take control of your investing. Make decisions based on data and discipline, not gut feelings. The Purposeful investing Course (Pi) teaches math based, low cost ways to diversify in good value markets and in ETFs that cover these markets. This course is based on my 50 years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.
Enjoy Repeated Wealth With Pi
Pi’s mission is to make it easy for anyone to have a strategy and tactics that continually maintain safety and turn market turmoil into extra profit.
One secret is to invest with a purpose beyond the immediate returns. This helps create faith in a strategy that adds stickiness to the plan.
Another tactic is to invest with enough staying power so you’re never caught short.
Never have to sell depressed assets during periods of loss.
Lessons from Pi are based on the creation and management of Model Portfolios, called Pifolios.
The success of Pifolios is based on ignoring economic news (often created by someone with vested interests) and using financial math that reveals deeper economic truths.
One Pifolio covers all the good value developed markets. Another covers the emerging good value markets.
The Pifolio analysis begins with a continual research of 46 major stock markets that compares their value based on:
#1: Current book to price
#2: Cash flow to price
#3: Earnings to price
#4: Average dividend yield
#5: Return on equity
#6: Cash flow return.
#7: Market history
This is a complete and continual study of almost all the developed major and emerging stock markets.
This mathematical analysis forms the basis of a Good Value Stock Market Strategy. The analysis is rational, mathematical and does not worry about short term ups and downs.
This strategy is easy for anyone to follow and use. Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.
Learn how to invest like a pro from the inside out.
At the beginning of 2019 my personal Pifolio is based on select ETFs in the Keppler Developed and Emerging markets. My Pifolio is invested in Country ETFs that cover seven developed and three emerging markets:
Don’t give up profit to gain ease and safety!
Regardless of economic news, these markets represent good value and have been chosen based on four pillars of valuation.
- Absolute Valuation
- Relative Valuation
- Current versus Historic Valuation
- Current Relative versus Relative Historic Valuation
When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy. You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets). This analysis looks at the price to book, price to earnings, average yield and much more.
You also receive two special reports.
In the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich. Some of my readers made enough to retire. Others picked up 50% currency gains. Then the cycle ended. Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview. He said: Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!
I did well then, but always thought, “I should have invested more!” Now those circumstances have come together and I am investing in them again.
The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar. The two conditions are in place again!
30 years ago, the US dollar rose along with Wall Street. Profits came quickly over three years. Then the dollar dropped like a stone, by 51% in just two years. A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.
This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago. The trends are so clear that I have created a short, but powerful report “Three Currency Patterns for 50% Profits or More.” This report shows how to earn an extra 50% from currency shifts with even small investments. I kept the report short and simple, but included links to 153 pages of Good Value Stock Market research and Asset Allocation Analysis.
The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000). There is extra profit potential of at least 50% so the report is worth a lot.
This report sells for $29.95 but in this special offer, you receive the report, “Three Currency Patterns for 50% Profits or More” FREE when you subscribe to Pi.
Plus get the $39.95 report “The Silver Dip” free.
With investors watching global stock markets bounce up and down, many missed two really important profit generating events over the last two years. The price of silver dipped below $14 an ounce as did shares of the iShares Silver ETF (SLV). The second event is that the silver gold ratio hit 80, compared to a ratio of 230 only two years before.
In September 2015, I prepared a special report “Silver Dip 2015” about a silver speculation, leveraged with a British pound loan, that could increase the returns in a safe portfolio by as much as eight times. The tactics described in that report generated 62.48% profit in just nine months.
I have updated this report and added how to use the Silver Dip Strategy with platinum. The “Silver Dip” report shares the latest in a series of long term lessons gained through 40 years of speculating and investing in precious metals. I released the 2015 report, when the gold silver ratio slipped to 80. The ratio has corrected and that profit has been taken and now a new precious metals dip has emerged.
I have prepared a new special report “Silver Dip” about a leveraged speculation that can increase the returns in a safe portfolio by as much as eight times.
You also learn from the Value Investing Seminar, our premier course, that we have been conducting for over 30 years. Tens of thousands of delegates have paid up to $999 to attend. Now you can join the seminar online FREE in this special offer.
This three day course is available in sessions that are 10 to 20 minutes long for easy, convenient learning. You can listen to each session any time and as often as you desire.
The sooner you hear what I have to say about current markets, the better you’ll be able to cash in on perhaps the best investing opportunity since 1982.
Tens of thousands have paid up to $999 to attend.
This year I celebrated my 52nd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.
Stock and currency markets are cyclical. These cycles create extra profit for value investors who invest when everyone else has the markets wrong. One special seminar session looks at how to spot value from cycles. Stocks rise from the cycle of war, productivity and demographics. Cycles create recurring profits. Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.
The effect of war cycles on the US Stock Market since 1906.
Bull and bear cycles are based on cycles of human interaction, war, technology and productivity. Economic downturns can create war.
The chart above shows the war – stock market cycle. Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine, production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet. The military technology shifts to domestic use. A boom is created that leads to excess. Excess leads to correction. Correction creates an economic downturn and again to war.
Details in the online seminar include:
* How to easily buy global currencies, shares and bonds.
* Trading down and the benefits of investing in real estate in Small Town USA. We will share why this breakout value is special and why we have been recommending good value real estate in this area since 2009.
* What’s up with gold and silver? One session looks at my current position on gold and silver and asset protection. We review the state of the precious metal markets and potential problems ahead for US dollars. Learn how low interest rates eliminate opportunity costs of diversification in precious metals and foreign currencies.
* How to improve safety and increase profit with leverage and staying power. The seminar reveals Warren Buffett’s value investing strategy from research published at Yale University’s website. This research shows that the stocks Buffet chooses are safe (with low beta and low volatility), cheap (value stocks with low price-to-book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios). His big, extra profits come from leverage and staying power. At times Buffet’s portfolio, as all value portfolios, has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.
Use time not timing.
Time is your friend when you use a good value strategy. The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.
A 45 year portfolio study shows that holding a diversified good value portfolio (based on a good value strategy) for 13 month’s time, increases the probability of out performance to 70%. However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.
Learn how much leverage to use. Leverage is like medicine, the key is dose. The best ratio is normally 1.6 to 1. We’ll sum up the strategy; how to leverage cheap, safe, quality stocks and for what period of time based on the times and each individual’s circumstances.
Learn to plan in a way so you never run out of money. The seminar also has a session on the importance of having and sticking to a plan. See how success is dependent on conviction, wherewithal, and skill to operate with leverage and significant risk. Learn a three point strategy based on my 50 years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.
The online seminar also reveals the results of a $80,000 share purchase cost test that found the least expensive way to invest in good value. The keys to this portfolio are good value, low cost, minimal fuss and bother. Plus a great savings of time. Trading is minimal, usually not more than one or two shares are bought or sold in a year. I wanted to find the very least expensive way to create and hold this portfolio so I performed this test.
I have good news about the cost of the seminar as well. For almost three decades the seminar fee has been $799 for one or $999 for a couple. Tens of thousands paid this price, but online the seminar is $297.
In this special offer, you can get this online seminar FREE when you subscribe to our Personal investing Course.
Save $468.90 If You Act Now
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription. Plus you receive FREE the $29.95 report “Three Currency Patterns for 50% Profits or More”, the $39.95 report “Silver Dip” and our latest $297 online seminar for a total savings of $468.90.
Enroll in Pi. Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away.
#1: I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.
If you are not totally happy, simply let me know.
#2: I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.
#3: You can keep the two reports and Value Investing Seminar as my thanks for trying.
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Silver Dip” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.
Subscribe to a Pi annual subscription for $197 and receive all the above.
Your subscription will be charged $299 a year from now, but you can cancel at any time.