The roots of the current inflation, even stagflation, has been growing and we can see daily how the erosion of our purchasing power is accelerating.
We can see the roots of the problem in the news day.
The uncertainty of how further COVID outbreaks will affect the global economy is bad enough, but this is no longer the biggest inflationary driving force.
Look at the news in the Wall Street Journal for just one day and you’ll see the challenges our spending power faces now!
One October 18 Wall Street Journal headlines reads: “Supply-Chain Bottlenecks, Elevated Inflation to Last Well Into Next Year, Survey Finds”. (1)
Economists see supply constraints, labor shortages as bigger risks to economy than Covid-19, WSJ survey finds.
Uncomfortably high inflation will grip the U.S. economy well into 2022, as constrained supply chains keep upward pressure on prices and, increasingly, curb output, according to economists surveyed this month by The Wall Street Journal.
The economists’ inflation projections are up dramatically from July, while short-term growth outlooks are lower.
Economists on average see inflation at 5.25% in December, just slightly less than the rate that has prevailed since June. Assuming a similar level in October and November, that would mark the longest inflation has been above 5% since early 1991.
Most economists expect it will take until thesecond quarter of 2022 or later for supply-chain slowdowns to recede.
When do you expect supply-chaindisruptions to largely have receded?
“It’s a perfect storm: supply-chain bottlenecks, tight labor markets, ultra-easy monetary and fiscal policies,” said Michael Moran, chief economist at Daiwa Capital Markets America.
Another Wall Street Journal article on the same days shows that worker shortage and rising prices are causing labor costs to go up. Increased labor costs add to the inflationary self reinforcing death (of purchasing power) spiral.
The WSJ article is entitled “Unions Push Companies as Workers Stay Scarce” (2).
Union leaders say pandemic frustrations spur ‘new militancy’; critics warn that work stoppages could backfire
Union leaders are pressing to increase their ranks and secure gains for their members as workers demand more from their employers and companies struggle with labor shortages and snarled supply chains.
A walkout by production workers for farm and construction machinery company Deere DE 0.91% & Co. that began Thursday followed recent stoppages at snack producer Mondelez International Inc., commercial truck maker Volvo and breakfast-cereal giant Kellogg Co. Labor leaders elsewhere this year have worked to unionize Starbucks Corp. SBUX -0.38% baristas and Amazon.com Inc. AMZN 3.31% warehouse workers, so far with mixed success.
Union officials said workers are motivated by lingering frustration over their hours, pay and concerns for their health as some have held front-line jobs through the Covid-19 pandemic. Employees this year have pushed for higher wages, expanded benefits, safer workplaces and added staffing.
We can see the erosion of our money’s purchasing power beginning as far back as 1999. Inflation had been low and interest rates started to drop.
The interest rate chart from tradingeconomics.com (3) shows how interest rates have fallen.
Interest rates had been between 5% and 10% through the 1980s, but took a hit during the 1999 dot.com stock market crash. The government pushed rates down to stimulate the economy.
This also cut government debt service cost way down. I believe that the politicians liked that! They could make more promises paid for with borrowed dollars (your money and mine).
The inflation statistics of course fit into the “lies, damned lies and statistics” pattern. So while interest rates dropped seriously, prices did not go down but actually went up, probably more than the stats suggested.
This has all been hitting our purchasing power. In 1990 a $100,000 certificate of deposit created about $7,000 of income. By 2000 the same deposit earned $5,000. 2010, maybe $1,500, 2020, perhaps $1,000. In short it made capital useless, unless it was deployed with risk.
The chart below from www.finance.yahoo.com (4) shows that those who could afford volatility and short term risk could jump in the stock market. Even then, if an investor invested and held the S&P 500 it took 13 years (from 2000 to 2013) for them to begin making a profit. Plus at times (twice) the investment was down 50% or more. It takes a well balanced (and liquid) investor to ride through such severe storms.
History suggests that we’ll see some more corrections like this.
The increased risk to gain sufficient spending power on our investments needs to be weighed into our purchasing power loss calculations.
This can be a good time for those who have the liquidity and fortitude to hang in through stock market ups and downs.
Yet the reality is that to maintain our spending power we have to increase risk or work harder.
In the Wall Street Journal article mentioned above (1) there is a video about how cheese has maintained its price despite rising prices elsewhere.
In that cheese video, one small boutique cheese maker summed up what’s going on when he said, “Fewer of us are working longer hours to make the same stuff.” That’s another sign of purchasing power loss.
We should also not rely on breathtaking growth in the stock market to offset purchasing power loss in the four or five years ahead.
Once a quarter we send Purposeful Investing Course (Pi) subscribers a 79 page value analysis of all the developed stock markets in the world.
Last week we sent the Autumn 2021 analysis that shows how markets overall have reached a point where a strong correction should be expected.
Let there be no doubt. There will be a correction. When? That’s the only question.
No one really knows the exact timing, but we should not expect spectacular returns from Wall Street overall for the next four years.
The math does not look good.
The chart below shows Keppler Asset Management’s entire real-time forecasting history for the KAM Equally Weighted World Index, starting at the end of 1993.
Keppler’s math based analysis has been quite accurate and the September 2021 review suggests that over the next four years to September 30, 2025, the Equally Weighted World Index will see a compound annual total return estimate of 0.2% in local currencies—up from -0.8% three months ago.
The upper- band estimate implies a compound annual total return of 4.8% (up from 3.8% three months ago), while the lower-band estimate indicates a compound annual total return of minus 5.3% (up from minus 6.2% last quarter).
This is a global back drop. Some markets will do better. Other markets will do worse.
Another Keppler chart in the Analysis shows the values that support each market.
Based on this chart we can see that Denmark and the USA are the two priciest markets. The buy markets offer far better value and long term their prices are likely to catch up to the costly markets or the expensive markets will price down.
There may be a serious stock market collapse or we may see volatility and sideways motion. In either case, over the next four years we shouldn’t expect the kind of results we have seen from 2013 until now.
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.
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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.
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