Energy

Jeremy Grantham: Avoid U.S. Stocks, ‘Heavily Overweight’ Emerging Market Equities

When I last blogged about “Crash Prophet” Jeremy Grantham right after Thanksgiving, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently overseeing $74 billion in client assets) had just mentioned in a Wall Street Journal interview that although U.S. stock prices were high, profit margins were also are unusually high, lending support to high valuations. In addition, low interest rates make equities more attractive than fixed-income investments. As a result, he didn’t forecast a crash is stock prices as much as a decades-long reversion to anywhere near the long-term average.

Now, regular readers of Survival And Prosperity know I like to read and pick apart Grantham’s quarterly letters on the GMO website. And his third quarter letter has just been released. Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, penned the following about U.S. equities in “Career Risk and Stalin’s Pension Fund: Investing in a World of Overpriced Assets (With a Single Reasonably-Priced Asset)”:

The trend line will regress back toward the old normal but at a substantially slower rate than normal because some of the reasons for major differences in the last 20 years are structural and will be slow to change. Factors such as an increase in political influence and monopoly power of corporations; the style of central bank management, which pushes down on interest rates; the aging of the population; greater income inequality; slower innovation and lower productivity and GDP growth would be possible or even probable examples. Therefore, I argue that even in 20 years these factors will only be two-thirds of the way back to the old normal of pre-1998. This still leaves returns over the 20-year period significantly sub-par. Another sharp drop in prices, the third in this new 20-year era, will not change this outcome in my opinion, as prices will bounce back a third time

Near-term major declines suggest a much-increased value of cash reserves and a greater haven benefit from high-rated bonds.

My assumption of slow regression produces an expectation of a dismal 2.5% real for the S&P and 3.5% to 5% for other global equities over 20 years, but also a best guess of approximately the same over 7 years.

(Editor’s note: Bold added for emphasis)

Grantham’s thoughts on where one might invest?

My conclusion is straightforward: heavily overweight EM equities, own some EAFE, and avoid US equities.

(Editor’s note: Bold added for emphasis)

Referring to an exhibit, he pointed out:

1) developed ex-US is well below its 20-year average and 40% below the US; and 2) Emerging is 65% below its high in 2007.

There were also these nuggets from the letter:

Pension funds should brace themselves for a disastrous 1% to 3% return in the next 10 years.

(Editor’s note: Bold added for emphasis)

And:

My view on Resources is that the cycle has turned, global economies are doing quite well by recent standards, and oil prices are likely to rise for three years or so.

(Editor’s note: Bold added for emphasis)

Yet another insightful letter from Grantham, which you can read here in its entirety on the GMO site.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented on the site.)

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Peter Schiff: Invest Overseas, Buy Commodities To Avoid Either U.S. Stock, Dollar Plummet

Turning to “crash prophet” Peter Schiff this afternoon, the CEO of Euro Pacific Capital was recently interviewed by Scott Gamm of TheStreet. Schiff, who correctly-called the housing bust and economic crisis last decade, echoed colleague Jim Rogers in warning about a future bear market in U.S. stocks. From the exchange:

THESTREET: Peter, it’s been an incredible record run here. And the levels we’re seeing now even with this slight pullback were record highs not too long ago. So, what do you say?
SCHIFF: Well, the bubble keeps getting bigger. Donald Trump called it himself as a candidate. He said it was a big, fat, ugly bubble. He was right then. He’s wrong now because now he denies it’s a bubble because he’s now the President and so it’s his bubble. And so he’d rather it be a bull market. But the valuations here really are extreme. The complacency is also extreme. I mean, investors are willing to pay very high prices and have very little worry (chuckle) that the stock market is going to go down. And people have very short memories. I’ve mean, we’ve had two major 50 percent declines in the stock market this century, since 2000. So we’ve had the market cut in half twice and it can easily happen again, yet nobody seems concerned. And I think one of the reasons is because the last two times the market went down the Fed was able to bail out investors to bet on one bubble by inflating a bigger one. So a lot of investors may have been conditioned to believe that even if the market implodes, if they hold on, they’ll get their money back. But the third time might not be the charm. It’s possible that the Fed can’t blow a bubble big enough to bail out investors this time…
THESTREET: So do you think that tide kind of turns in the next year?
SCHIFF: Hey, I don’t know. There’s no way to know. I mean, I think Donald Trump has nominated somebody who will try and do his best to keep the air in the bubble- cut rates, QE 4. But at some point, the market forces will overwhelm the Fed. The market will go down. And if it doesn’t go down the dollar will collapse instead. But either way, you’re going to see the real value of U.S. stocks come way down, whether it happens nominally or not. And I have a feeling that if the Fed prints enough money to prevent the market from going down dramatically, then the real losses will be even bigger because of the implosion of the U.S. dollar.

(Editor’s note: Bold added for emphasis)

When asked about advice for investors as to where to put their money right now if they’re worried about U.S. stocks, the author of The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country told viewers:

People who are in the U.S. market are overlooking much better returns from much better valuation levels that are happening overseas. So I think people should take advantage of the overpriced U.S. stock market, the overpriced U.S. dollar, and sell, and move money abroad. Get into the international markets- developed and emerging. Get into the commodities space. Look at oil hitting a new two-year high again today. This is going on in commodities across the board. We are coming off of major bear markets. We’re in the infancy of new bull markets. And I think the dollar is about to get killed. This is the first year in many years now that the dollar is down. But I think it’s the first of many. I think the dollar could fall for the next 5 to 10 years in a major, major bear market taking the dollar to all-time record lows. And this will enable enormous profits for people who are invested outside the U.S. in the right currencies, the right assets, the right companies. That’s what I think we’re doing with our clients at Euro Pacific Capital and that’s certainly what I’m doing with my own money.


“Peter Schiff Slams Bitcoin, Federal Reserve and Antitrust Regulators”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented on the site.)

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The Green Suite Of Chicago Offering Window Farming For Beginners, DIY Solar Electricity Classes In March

Nick Conrad and The Green Suite of Chicago (first blogged about here in January 2014) will be offering instruction in “window farming” and solar electricity next month. From their website:

DIY Solar Electricity
Thursday, March 2, 2017
7:00pm -9:00pm
Green House Loft (map)

Class Info

Wouldn’t it be awesome to harness your own electricity from the sun? Solar energy is green, silent and a lot easier to build than you think.

This DIY class will cover the basics of electricity as well as how to design, build, and install your own solar panel system. In addition to solar electricity, we will discuss other sources of renewable energy such as wind and geothermal power. The class concludes with hands-on experience assembling part of an actual solar panel.

You will walk away from this course with the basic knowledge needed to start generating your own solar energy at home…and for a lot less money than you thought!

As I type this, 11 spots are still open for the class. Cost is only $30.

Regarding that window farming class:

Window Farming for Beginners
Sunday, March 5, 2017
3:00pm-5:00pm
Green House Loft (map)

Class Info

Have you always wanted to start a garden but don’t have the space or knowledge? Window farming is inexpensive and easy way to grow your own food right in your window! Constructed from recycled materials, window farms are perfect for small apartments with limited space.

The class consists of a 1hr introduction to the basics of hydroponics, window farming and seed cultivation followed by a thirty-minute workshop. In the workshop you will make a small hydroponic planter to take home with you. Each student should bring one empty plastic bottle. (12-32oz is best)

Anyone can learn how to grow fresh, organic food, hydroponically. Enroll today and you’ll learn how to grow your own food, save money and turn trash into treasure!

What to bring

Each student should bring one empty plastic bottle. (12-32oz is best)

As I type this, 11 spots are still open for the class. Cost again is only $30.

For more information about the instruction and how to enroll, head over to The Green Suite website here. You can also register for classes on the Dabble Chicago website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: Posting of information about any instruction is not to be construed as being a recommendation from this blog and its editor, unless specifically indicated. I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Northwestern Chicago Survival Expo In Grayslake On March 18-19

Any Chicagoland readers interested in attending a local prepper/survival expo next month? I spotted the following on the RK Prepper Shows website this cold Friday morning:

Northwestern Chicago Survival Expo

Tickets Now on Sale!

Are you ready for a natural disaster? Could you survive for days, weeks or months without power? If you have thought about what it means to prepare for the worst, the RK Prepper Shows Survival Expo is for you. Vendors will be on-site March 18th-19th at the Lake County Fairgrounds in Grayslake, IL. Long term food storage, solar power, bug-out kits, tactical gear and so much more will be available to purchase.

Hours:

Saturday Hours: 9-5pm
Sunday Hours: 9-4pm

Tickets:

Adults: $12, VIP: $14.50 – no line, no wait
Kids: $5, VIP: $7.50 – no line, no wait…

A “Medical Preparedness Workshop” headed-up by two authorities in the field of survival medicine will also be held in conjunction with the event:

Medical Preparedness Workshop*

Learn how to provide complete wound care with hands-on suture training, as well as stapling with Dr. Bones and Nurse Amy, medical preparedness experts from http://www.doomandbloom.net/.

*Extra Charge, class limited to 30, does not include tickets to the Prepper Show…

Joe Alton, M.D. (“Dr. Bones”) and Amy Alton, A.R.N.P., (“Nurse Amy”) are authors of the Amazon “Best Seller” The Survival Medicine Handbook: A Guide for When Help is Not on the Way, now in its second edition.

I own a copy myself. It’s chock-full (588 pages) of terrific information for dealing with most medical issues one might face in a survival situation.

Interested in checking out the Northwestern Chicago Survival Expo? Head on over to the RK Prepper Shows website here for more information.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: Posting of information about survival expos and instruction is not to be construed as being a recommendation from this blog and its editor, unless specifically indicated. I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Inflation Rises At Fastest Pace In 5 Years

It’s been some time since a Survival And Prosperity post focused on inflation.

I suspect I’ll be blogging about it more in the coming months.

Jeffry Bartash wrote on MarketWatch this morning:

Inflation rose in 2016 at the fastest pace in five years, as rising rents and medical care and higher gas prices put a squeeze on consumers.

The consumer price index jumped 0.3% in December, the government said Wednesday…

A string of sharp gains since late summer helped drive up inflation by 2.1% for the full year, marking the biggest increase since a 3% gain in 2011

(Editor’s note: Bold added for emphasis)

Bartash added:

For now it doesn’t look like inflation will wane soon. Gas prices rose again in January and many economists predict that aggressive stimulative measures by the new Trump administration could lead to even higher inflation

(Editor’s note: Bold added for emphasis)

Jeffrey Sparshott added over on The Wall Street Journal website late this afternoon:

The latest figures- driven in part by an uptick in energy prices- suggest a four-year stretch of historically low inflation could be ending

While details remain uncertain, the president-elect has pledge lower taxes and more infrastructure spending. That could lead to faster economic growth and accelerating inflation

(Editor’s note: Bold added for emphasis)

As to what this might mean for interest rates, Fed Chair Janet Yellen spoke to the Commonwealth Club of California this afternoon. Ann Saphir reported on the Retuers website:

With the U.S. economy close to full employment and inflation headed toward the Federal Reserve’s 2 percent goal, it “makes sense” for the U.S. central bank to gradually lift interest rates, Fed Chair Janet Yellen said on Wednesday…

The Fed chief said that she and other Fed policymakers expected the central bank to lift its key benchmark short-term rate “a few times a year” through 2019, putting it near the long-term sustainable rate of 3 percent

(Editor’s note: Bold added for emphasis)

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Bartash, Jeffry. “Inflation climbs at fastest pace in 5 years, CPI shows.” MarketWatch. 18 Jan. 2017. (http://www.marketwatch.com/story/inflation-climbs-in-2016-at-fastest-pace-in-5-years-cpi-shows-2017-01-18). 18 Jan. 2017.

Sparshott, Jeffrey. “U.S. Inflation Gauge Tops 2%, Supporting Fed’s Plan to Raise Rates.” The Wall Street Journal. 18 Jan. 2017. (http://www.wsj.com/articles/u-s-consumer-prices-up-2-1-in-december-from-year-earlier-1484746534). 18 Jan. 2017.

Saphir, Ann. “Fed’s Yellen says ‘make sense’ to gradually raise interest rates.” Reuters. 18 Jan. 2017. (http://www.reuters.com/article/us-usa-fed-yellen-idUSKBN1522VH). 18 Jan. 2017.

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Fox News’ Sean Hannity Lays Out Closing Argument For Election Day

“In my mind, tomorrow is an important day. The answer couldn’t be more clear. So if you’re in a swing state. If you’re in Florida. If you’re in Ohio. If you’re in Iowa, Pennsylvania, Wisconsin, Minnesota, Michigan, Colorado, New Mexico, Nevada. If you’re in Maine’s second congressional district. North Carolina. We need you. It’s up to you. You can decide tomorrow to save America from the declining state it is in and stop this downward spiral. That’s what this election is about. Tomorrow night, if Hillary Clinton is elected, those who didn’t support Donald Trump, voted for Hillary, or NeverTrumper, I’m telling you right now. You own her Supreme Court. You own her unvetted refugees. You own her tax increases. You own her open borders. You own ObamaCare. And you own her ‘energy independence.’ You will own it.”

-Sean Hannity, American radio/TV show host, author, and conservative political commentator, on the Fox News TV show Hannity Monday night


“Sean Hannity: If Hillary wins, you own it”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Marc Faber Suggests Gold Should Make Up 25 Percent Of Portfolio

Earlier this month, I blogged about how Swiss-born investment advisor/money manager Marc Faber informed CNBC TV viewers he holds physical gold stored in safe deposit boxes.

Last Thursday, the publisher of the monthly investment newsletter The Gloom Boom & Doom Report talked more about the shiny yellow metal at a CFA Institute seminar in Chicago. Gail MarksJarvis reported on the Chicago Tribune website on July 22:

Faber told the investment professionals gathered in Chicago that they shouldn’t be prejudiced against gold. Although the typical investment pro keeps less than 1 percent of his or her portfolio in gold, Faber suggests 25 percent. He sees it as protection from a dangerous combination of tremendous government debt and massive bond-buying by central banks globally trying to fight off recession with near-zero interest rates…

(Editor’s note: Bold added for emphasis)

MarksJarvis also noted that “Doctor Doom,” as he’s often referred to by the financial news media, thinks there may be value in precious metals mining stocks.

This shouldn’t come as a surprise to regular Survival And Prosperity readers. I blogged back on May 24 about Faber’s statement the prior week to a CNBC TV audience that gold shares are one of “the most attractive assets in my view”- the others being oil and gas stocks.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented on the site.)

Source:

MarksJarvis, Gail. “‘Gloom, Boom & Doom’ economist pushes for gold.” Chicago Tribune. 22 July 2016. (http://www.chicagotribune.com/business/columnists/ct-marksjarvis-column-marc-faber-money-doom-0724-biz-20160722-column.html). 26 July 2016.

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Survival And Prosperity
Est. 2010, Chicagoland, USA
Christopher E. Hill, Editor

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