Natural Resources

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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Marc Faber: ‘Most Attractive Assets In My View Are Gold Shares And Oil And Gas Shares’

Swiss-born investment advisor/money manager Marc Faber was on the phone with the CNBC TV show Trading Nation last Wednesday. The publisher of the monthly investment newsletter The Gloom Boom & Doom Report talked investment strategy, and shared the following with viewers:

My view is that in June, [the Federal Reserve] will not move, that they will not increase rates. And that the market will begin to perceive that the Fed wants to support asset markets, which they have stated on numerous occasions before. And that in that environment, gold, which from now on may correct maybe 5 percent or so, will start to move up again. I think an investor should understand, we don’t know how far central banks will move around the world. We need to be diversified. To own some real estate makes sense. To own some equities makes sense. To own some cash and bonds probably makes sense. And to own some precious metals makes sense. The most attractive assets in my view are gold shares and oil and gas shares. I think they still have significant upside potential this year.

(Editor’s note: Bold added for emphasis)


“Marc Faber on investment strategy”
CNBC Video

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. 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 contained herein.)

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Jeremy Grantham: U.S. House Prices ‘Might Beat The U.S. Equity Market In The Race To Cause The Next Financial Crisis’

Last night I finally got the chance to read the latest quarterly investment letter from “crash prophet” Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $99 billion in client assets). Grantham divided up May’s installment (covering the first quarter of 2016) into two parts. Part I, “Always Cry Over Spilt Milk,” was a recap of a paper he wrote six months ago. Part II was entitled “Updates,” in which Grantham provided these investing nuggets:

The tone of the market commentators back in January, when I was writing my last quarterly letter, seemed much too pessimistic on global stock markets, particularly the U.S. market, and I said so.

This relative optimism was an unusual position for me and the snapback in these markets has validated, to a modest degree, my thinking at the time. I still believe the following: 1) that we did not then, and do not today, have the necessary conditions to say that today’s world has a bubble in any of the most important asset classes; 2) that we are unlikely, given the beliefs and practices of the U.S. Fed, to end this cycle without a bubble in the U.S. equity market or, perish the thought, in a repeat of the U.S. housing bubble; 3) the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500, about 10% above current levels, and would normally require a substantially more bullish tone on the part of both individual and institutional investors; 4) it continues to seem unlikely to me that this current equity cycle will top out before the election and perhaps it will last considerably longer; and 5) the U.S. housing market, although well below 2006 highs, is nonetheless approaching a one and one-half-sigma level based on its previous history. Given the intensity of the pain we felt so recently, we might expect that such a bubble would be psychologically impossible, but the data in Exhibit 1 speaks for itself. This is a classic echo bubble – i.e., driven partly by the feeling that the substantially higher prices in 2006 (with its three-sigma bubble) somehow justify today’s merely one and one-half-sigma prices. Prices have been rising rapidly recently and at this rate will reach one and three-quarters-sigma this summer. Thus, unlikely as it may sound, in 12 to 24 months U.S. house prices – much more dangerous than inflated stock prices in my opinion – might beat the U.S. equity market in the race to cause the next financial crisis

(Editor’s note: Bold added for emphasis)

Note that bit about “the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500.” 2,300 remains the same threshold from the last time I blogged about Jeremy Grantham on Survival And Prosperity (it had been 2,250 prior to this). As I type this, the S&P 500 is at 2,064.

In addition to U.S. stock and housing prices, Grantham talked about crude oil. From the newsletter:

My belief remains that a multi-year clearing price for oil would be the cost of finding a material amount of new oil. This appears to be about $65 a barrel today, and costs are drifting steadily higher as the cheapest old oil is pumped. My guess is that the price of oil will indeed be as high as $100 a barrel again within five years

(Editor’s note: Bold added for emphasis)

Once again, another insightful installment from the British “crash prophet.”

You can read the entire piece on GMO’s website here (.pdf format)

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. 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 contained herein.)

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Jim Rogers: ‘I Am Looking For More Investments In Asia And In Russia’

Regular readers of Survival And Prosperity know that well-known investor, author, and financial commentator Jim Rogers is bullish on Asia (China in particular) and Russia. As recent as April 6, I blogged about a GoldSeek.com Radio interview (released April 1) in which the former investing partner of George Soros said:

I own Chinese renminbi. I own Chinese shares… I bought recently some Russian government short-term bonds in rubles.

He added later:

There are other places I’m looking at but I’m really not very active at all. I’m mainly just watching the world unfold. Be knowledgeable, be worried, and be prepared.

That last sentence is indicative of a lot of what Rogers has been sharing with the investing public lately.

Still, it’s being reported that the CEO of Rogers Holdings and Beeland Interests, Inc. is actively looking for places to put his substantial “war chest” ($300 million estimated net worth) to work. Katya Golubkova wrote on the Reuters website last Tuesday:

Veteran U.S. investor Jim Rogers is looking at possible investments into Russian oil firm Bashneft (BANE.MM) and diamond miner Alrosa (ALRS.MM) as he aims to add more Russian assets to his portfolio, he told Reuters…

“If they (Bashneft and Alrosa) are not under sanctions, I will take a look – as I said, I am looking for more investments in Asia and in Russia but I am an American and I have to be a little bit careful.”

(Editor’s note: Bold added for emphasis)

Golubkova added:

He already has interests in Russian state airline Aeroflot (AFLT.MM), the Moscow Exchange (MOEX.MM) and fertilizer producer PhosAgro (PHOR.MM). He owns some exchange traded funds (ETFs) and is investing in Russian treasury bonds.

“I am looking for more investments in Russia. I am trying to buy into a Russian tourist company, I am optimistic about Russian tourism,” Rogers said, adding that he was also looking to buy more stocks of Russian agriculture companies

(Editor’s note: Bold added for emphasis)

A little over a year ago, I discussed an April 6, 2015, Reuters piece in which Yelena Orekhova and Olga Popova wrote:

Russia could now be “the right place at the right time” for investors, he said. His own portfolio consists largely of Russian shares, he said, among them fertiliser company Phosagro , airline Aeroflot and the Moscow Exchange…

About those “Russian government short-term bonds in rubles” mentioned a week-and-a-half ago, Rogers expounded in the April 12, 2016, Reuters article:

“If I got a chance I would probably buy more,” Rogers said, adding that he was only investing in Russian rouble bonds, not Eurobonds.

“I want to buy rouble bonds, I am more optimistic about rouble bonds than I am in Eurobonds. Rouble bonds have much higher yields.”

(Editor’s note: Bold added for emphasis)

Nice work by Reuters for staying on top of Rogers’ (potential) Russian investments.

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. 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 contained herein.)

Source:

Goubkova, Katya. “Veteran U.S. investor Rogers looks to add more Russia to portfolio.” Reuters. 12 Apr. 2016. (http://www.reuters.com/article/us-russia-rogers-idUSKCN0X90SC). 17 Apr. 2016.

Jim Rogers’ latest book…

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Project Prepper, Part 44: Backup Heating For House Update

Back on February 25, I started discussing backup heating for the house my girlfriend and I purchased in 2013. I blogged:

Last Friday, incredibly strong winds (max gust speed 62 mph) pummeled the Chicagoland area. Not surprisingly, we lost power for a few hours- along with the heat. As I lay in bed recovering from the flu and buried under the covers, I thought to myself, “It’s a good thing it isn’t that cold outside today considering its February in Chicago.”

Later on I started thinking about what my girlfriend and I would do if the electricity had been out for a longer stretch of time while the outside temperatures were more “seasonal.”

I decided to look into a backup heat source for the house once I was up and about again…

I initially thought a vent-free natural gas heater, installed on a basement wall adjacent to the utility room, was the solution. But as I wrote in my last “Project Prepper” entry:

I’m starting to like the idea of a natural gas-powered stationary (standby) generator above and beyond the vent-free heater. The standby generator would allow us to keep using the furnace to heat the house and run other essentials in the event of a power outage…

Now, our HVAC guy did come out to the house to discuss a new heating, ventilating, and air conditioning system for the structure- which my girlfriend and I subsequently agreed to purchase. But not before I confirmed the setup could be tied into a natural gas-powered stationary (standby) generator down the road. When asked if he knew someone qualified to install such a generator, he informed me his brother-in-law does such work. Nice.

In the meantime, while the Chicagoland winter was pretty tame this year (especially when compared to the last two), I’d still like to bridge the gap with some temporary backup heating setup until we can afford to buy a stationary generator. I’m leaning towards picking up a Big Buddy Portable Heater by Mr. Heater after reading a number of decent reviews about the product. From its “Description” page on the Mr. Heater website:

The Most Popular Portable Propane Heater in North America. This patented radiant 4,000-18,000 BTU Liquid Propane heater connects directly to two 1 lb. cylinders and is the perfect solution for heating enclosed spaces like cabins up to 400 sq. ft. An integrated fan increases the heating capacity of this unit, blending radiant and convection style heat to give you the best of both worlds. Two swivel regulators give you the ability to adapt usage from disposable cylinders to a remote gas supply with the purchase of a single hose and filter. To light the unit, simply push and rotate the knob. The built in Piezo sparking mechanism will take care of the rest. With the Oxygen Depletion Sensor (ODS) and accidental tip-over safety shut-off, you can be sure that you will enjoy years of comfortable indoor safe heat.

• 4,000, 9,000, or 18,000 BTU per hour
• For use with propane gas
• Heats up to 400 sq. ft.
• Single control start knob
• Hi-Med-Low heat settings
• Swivel regulators
• Automatic low oxygen shut-off system (ODS)
• Accidental tip-over safety shut-off
• Connects to two 1 lb. cylinders
• Connects to a 20 lb. cylinder with optional hose
• Fan operates on 4 – D batteries or AC adapter, both sold separately


“Big Buddy- Operation and Accessories”
YouTube Video

I like the fact that the device can be used for emergency home heating. From its product page on Amazon.com:

The Big Buddy Propane Heater by Mr. Heater is the latest evolution in portable heat-with the capacity to heat up to 400 square feet. It combines radiant heat comfort with fan-powered convection heat for maximum heating efficiency, providing safe, reliable heat anytime. Use it for emergency situations, workshops, garages, storage buildings, construction trailers, barns, tents, patios, porches, cabins, fishing shanties, truck caps, barns — anywhere you want to stay warm. May also be used inside your home in case of a power outage

(Editor’s note: Bold added for emphasis)

Some more research is required on my end. Still, it’s nice knowing there might be a temporary backup heating option available for the house until a stationary generator can be put into play.

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

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Marc Faber: ‘We Can Have A Relatively Strong Rally’ In U.S. Stocks Before Further Decline

Swiss-born investment advisor/money manager Marc Faber was on the CNBC TV show Squawk Box last Wednesday talking about U.S. stocks and where he thought they were heading. He shared with viewers:

I’d like to point out that the market in February became extremely oversold. And from this extremely oversold position, we can have a relatively strong rally. First of all, a lot of momentum stocks- they got hit very hard say in the first four weeks of the year. They are oversold, they can rebound. And secondly, many stocks are down 25 to 30 percent from their highs in 2015. And say the oil sector can could rebound by say 10-20 percent. So that could drive the market up to maybe around 2,050. But I don’t necessarily see new highs. And if new highs happen, they will happen with very few stocks participating…


“Dr. Doom: Oil sector could rebound 10-20%”
CNBC Video

Further out, the publisher of the monthly investment newsletter The Gloom Boom & Doom Report predicted:

We can have now a decline where stocks become oversold, then a rally, and then a further decline. And that’s what I would expect globally, because the global economy is slowing down very considerably.

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. 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 contained herein.)

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Project Prepper, Part 43: Standby Generator For Heat, Other Essentials

In last week’s “Project Prepper” post, I blogged about backup heating for the house my girlfriend and I purchased in 2013.

You may recall I talked about how strong winds knocked out power- and heat (electricity needed for furnace blower)- for a couple of hours late last month. I wrote:

Later on I started thinking about what my girlfriend and I would do if the electricity had been out for a longer stretch of time while the outside temperatures were more “seasonal.”

I decided to look into a backup heat source for the house once I was up and about again…

As we already use a natural gas furnace, I initially thought a vent-free natural gas heater would be a good backup heat source. Based on that initial research I did, I still think it is.

However, I’m starting to like the idea of a natural gas-powered stationary (standby) generator above and beyond the vent-free heater. The standby generator would allow us to keep using the furnace to heat the house and run other essentials in the event of a power outage. David Agrell reported on the Popular Mechanics website on January 25, 2013:

Standby generators offer a steadfast solution to extended outages. Unlike portable generators, they’re installed permanently on a concrete pad in your yard and will provide uninterrupted backup for days. That’s because they’re connected directly to your home’s electrical panel and powered by an external fuel supply, such as natural gas, liquid propane, or diesel. Smaller, air-cooled essential-circuit units… are slightly larger than portable generators and can energize just a few circuits at a time. Larger, liquid-cooled whole-house systems will do just as their name suggests—they’ll comfortably power an entire home…


“Standby Generator”
YouTube Video

According to the Generator Buying Guide (February 2016) on the Consumer Reports website, stationary generators range from roughly 5,000 to 20,000 watts and cost from $5,000 to $10,000. Yikes! Add to that the cost of professional installation. Plus there’s this from the folks over at Consumer Reports:

Guess What: You Need a Transfer Switch

What’s that, you say? Well, the short answer is that it links the stationary or portable generator to your circuit panel in one cable. Skipping it could cause appliances to fry, endanger utility workers, and damage the generator.

We recommend that you have a pro install it, and it could cost from $500 to $900, with labor…

Other items that might need to be addressed include:

• Maintenance
• Municipal ordinances
• Noise
• Physical placement

I get it. This would be somewhat of a complex and costly project to carry out.

Still, at first glance a natural gas-powered stationary (standby) generator looks to fit our anticipated needs better than just a vent-free heater for backup heating.

I’ll bring up the subject again after looking into it some more.

Stay tuned…

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

Source:

Agrell, David. “Should You Buy a Standby Generator?” Popular Mechanics. 25 Jan. 2013. (http://www.popularmechanics.com/home/how-to/a8523/should-you-buy-a-standby-generator-14880060/). 3 Mar. 2016.

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Survival And Prosperity
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Christopher E. Hill, Editor

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