Nature provides us the ability to store fat in the good times and burn it off when food is scare. We should heed nature’s way. If we eat through feast and famine, we gain more weight than we can carry comfortably and without risk. Government’s and their economists should take heed of this natural inclination as well. We cannot keep getting fatter and fatter without paying a price. Economies can’t just keep expanding without peril.
As economies boom and credit becomes easy… more and more people ignore credit’s risk. Inefficient businesses are allowed to start and survive.
Recessions should clear the unproductive, antiquated and unprofitable businesses, just as food reduction in winter should tighten our belt. The economic drawback cleans out the chaff and makes way for the new, the fresh, the more efficient in the next wave. up.
For example the graph below from Macrotrends.net (1) (red Xs are mine) shows how the S&P 500 stood still from 1986 to 1991 when a third of all US Savings and Loans went bust. The government did not bail them out, put their assets for sale through Resolution Trust. This clean out was followed by the next boom.
However… those who are heavily indebted, those who are not productive, those who do not evolve and are out of date, still get to vote and have political influence, so in the last two recessions, because the bankrupts were bigger with more political influence, the government helped the companies keep going by creating money out of thin air.
This avoided some hard times, but this policy leaves the economy filled with businesses that are in bad shape financially as well as ethically. There is a precedent that can helps us ee what this will means to the US economy in upcoming years.
Last week we reviewed the April 2021 ENR Asset Management April Market Outlook (2) with our Purposeful Investing (Pi) subscribers.
ENR is one of the very few SEC registered investment advisors that can help US investors bank and hold assets with non US banks. This month’s outlook shows how the US government is pushing a policy similar to Japan’s.
The Market Outlook said: “First thing in the executive summary: is a not that the United States is following the Japanese trend towards massive government spending, huge public sector deficits,debts,and ongoing central bank accommodation. This week, President Biden announced plans for another round of federal spending on infrastructure, estimated to cost $2 trillion;”
This can give us a vital clue as to how the US economy will grow if the government pursues its massive debt based spending program. This does not suggest especially good news from a growth point of view.
A review of statistics at Trading Economics (3) shows how Japan’s economy has fared since it started a massive government spending program in the 1990s. The results have not been spectacular. This is what we might expect from the end game of a mature market.
The graph below shows that Japan’s growth rate has only averaged 1.74% growth per annum from 1981 to 2020.
The Japanese economy and stock market were hotter than a fire cracker in the 1980s and into the early 1990s. At one time it was estimated that the property just in Tokyo was worth more than all the property in all of California!
Then the bubble burst and the Japanese government started a massive debt program to stimulate Japan’s industrialized, free market economy (the fourth biggest in the world). Japan has the largest electronics industry and the third largest automobile industry in the world. Japan’s economy is well-known by its efficiency and competitiveness in exports oriented sectors.
However much of Japan’s economy such as agriculture, distribution, and services have much lower productivity than in the US.
Rather than let the correction clean up these inefficiencies, the government bailed the system out. The Japanese stock market index has not done well versus the S&P 500 during this time since. (US top-Japan bottom)
The Market Outlook also looks at the state of the US market. It says: Despite the most expensive stock market since late 1999, investors continue to pile into U.S. equities in the first quarter. Q1 saw a big surge into S&P 500 Index ETFs, financial ETFs, emerging market ETFs, aggregate U.S. bond ETFs and value stock ETFs. Investors were net sellers of investment-grade and high-yield debt ETFs, gold ETFs, low volatility ETFs, consumer staple ETFs, quality stock focused ETFs, healthcare ETFs and long-term Treasury ETFs; Since the March 23, 2020 historical bull market advance, the S&P 500 Index and the MSCI World Index have recorded corrections of 9.6% and 4.3%, respectively. Although leadership has violently changed from Big Tech to cyclicals, financials, materials and small-caps, most investors continue to hold significant stakes in the largest technology companies; As of March 26, investor sentiment is the highest in years. The Citigroup Panic/Euphoria Model is now at an all-time record-high (see chart below). The American Association of Individual Investors shows the bull camp at 51% and the number of bears at barely more than 20%. That is an extreme.
The chart above suggests that US shares are substantially overbought. This warns of a correction.
So to does Keppler Asset management’s four year projections we looked at in the December 2020 Keppler quarterly review.
Keppler’s projections which have been highly accurate since 1994 suggest that the US stock market pricing won’t be much higher in 2024 than it is today. If these projections remain valid we should expect a major correction.
In December 2020 Keppler projected a much lower return over the next three to five years. Keppler’s projections had been quite high, but due to a sharp rise in each major market in the last quarter of 2020, caused the projection for every national index to drop by several percentage points compared to the September 2020 projections. The markets shot up so fast at the end of 2020 that they are simply not such good value at this stage.
The December 31, 2020 projection is that the KAM Equally Weighted World Index will see a compound annual total return estimate of 2.6% in local currencies. That projection is way down from the projection of 6.1% September 2020.
The upper-band estimate implies a compound annual total return of 7.4% (down from 11.1% in September 2020), while the lower-band estimate of indicates a compound annual total return of minus 3.0% (down from positive 0.4%). In other words global markets are overheated and won’t see significant growth in the 3 to 5 years ahead.
The US market will see the worst results of all the major markets into 2024. Keppler’s projections show negative 3-5 year total returns for the MSCI USA Index for the first time since 2000.
The failure of US government involvement to create exciting growth (governments can be helpful in avoiding a free fall, but are rarely leaders in moving along growth) would be a reason for the pull back in US share prices.
We are looking at the April 2021 projections in our Pi course now.
Stress Less Investing
The stock market has always been the best place of places to protect and increase wealth over the long haul. Yet it’s also been the worst place to lose money, a lot of it, quickly.
There are only three reasons why we should invest. We invest for income. We invest to resell our investments for more than we had invested. We invest to make our world a better place.
The goal of investing should be to stabilize our security, bring feelings of comfort and the elimination of stress!
We should not invest in social networked protests that guarantee loss. This is like burning our houses down in protest.
If we want to change the world, we should invest in good equities that bring profit and use the extra wealth to create something beneficial for mankind.
We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.
This is why my core stock portfolio consists of 16 shares and this position has hardly changed in five years. During this time we have been steadily accumulating the same Top Value ETFs and have traded only a few times.
The study below shows how a value based model portfolio that dates back to 1969 has outperformed almost every stock market in the world.
The US market has not been even close to the top performer over the long term.
The DQYDJ Dow Jones Industrial Calculator (1) shows that an investment in the Dow Jones (with dividends reinvested) has risen at an average of 10.74% over the last 50 (51 actually) years.
That’s 10.74% is pretty good, but an analysis of 51 years performance of all the developed stock markets shows that (using country indices as hypothetical investments) investing in the top value (not top performing) markets would have returned 12.5%.
The chart below shows the analysis.
An annual return of 12.5% compared to the 10.74% US return is a 1.76% per annum difference. This may not seem like much,
In the long term the difference is huge. Calculations from the investor.gov site (2) shows that $10,000 invested at the 10.74% compound rate turns $10,000 into $1,817,734.62 in 51 years.
Wow, that sounds pretty good until you look at the results of the 12.5% rates. $10,000 grows to $4,062,362.22!
Investing in the top value (not the top return) markets earned $2,244,627.60 EXTRA!
$4,062, 362.22 means you would have $2,244,627.60 MORE by investing in good value markets versus $1,817,734.62 earned investing in the US market. That almost 125% more money!
Here are the best value developed markets at this time (as of end of March 2021).
No matter how we look at it, over time, value investing always wins!
Our portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi). I call these shares my Pifolio. The course shows how to use the value analysis of Keppler Asset Management to create a portfolio of ETFs that cover undervalued stock markets. I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.
In my opinion, Keppler is one of the best market statisticians in the world. Numerous very large fund managers use his analysis to manage billions of dollars in funds. However because Keppler’s roots are in Germany (though he lives and operates from New York) all of his funds are registered for the European Union citizens, Americans cannot normally access his data.
I was lucky to have crossed paths with Michael over 25 years ago, so I am one of the few Americans who receive this data so I can share it with Pi subscribers.
The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return. Keppler looks at these numbers and takes market’s history into account.
Michael Kepler CEO Keppler Asset Management.
Michael’s analysis is rational, mathematical and does not worry about short term ups and downs. Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) markets.
This is an easy, simple and effective approach to zeroing in on value. Little time, management or guesswork is required. You are investing in a diversified portfolio of good value indices.
A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment. This eliminates the need for hours of research aimed at picking specific shares. It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries. Investing in the index is like investing in all the shares in the index. You save time and gain incredible diversification because all you have to do is invest in the ETF to gain the profit potential of the entire market.
To achieve this goal of diversification the Pifolio consists of Country Index ETFs.
Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that track an index of shares in a specific country. ETFs do not try to beat the index they represent. The management is passive and tries to emulate the performance of the index.
A country ETF provides diversification into a basket of equities in the country covered. The expense ratios for most ETFs are lower than those of the average mutual fund so they provide diversification and cost efficiency.
Here is the Pifolio I personally held at the beginning of 2021. There have been no changes since.
70% is diversified into Keppler’s good value (BUY rated) developed markets: Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.
30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: China, Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.
There is one trick Pi subscribers learn about China which is different from the rest of the funds.
iShares Country ETFs make it easy to invest in each of the MSCI indices of the good value BUY markets.
For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF that tracks the investment results of the MSCI Germany Index. The fund invests at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.
iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.
There is an iShares country ETF for every market in our Pifolio.
This year I celebrate my 53rd 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.
How you can create your own good value strategy.
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 part of your course 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.
Save $124.50 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 that down to $174.50 in this special offer. Plus I am reducing annual renewals from $299 to only $99.
I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use. I call this strategy Purposeful Investing (PI). 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 get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.
Enroll in Pi. Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past five years right away, plus numerous updates over the next year.
#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.
#2: I guarantee to send you monthly updates that are based on a study of every share in 46 stock markets around the world. These updates will show the values, the earnings of all these markets and categorize each market as Top Value (buy), Neutral Value (hold) or Poor Value (sell)
#3: If you are not totally happy, simply let me know. I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.:
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
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 five years so you can back track if you desire. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
Subscribe to a Pi annual subscription for $174.50 and receive all the above.
Your subscription auto renewal will only be $99 a year from now, if you renew, but you can cancel at any time.