Retirement

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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Illinois Governor Talks Taxes In Budget Address

Illinois Governor Bruce Rauner (R-Winnetka) gave his third budget speech on Wednesday, saying the following regarding taxes:

As for revenue, we’ve always said that we’d consider revenue if it comes with changes that create jobs and grow the economy.

The current Senate proposal calls for a permanent increase in the income tax rate but offers only a temporary property tax freeze in exchange. That’s just not fair to hard-working taxpayers across the state.

We need a permanent property tax freeze in Illinois, just like the one the House passed last month. Over time, as our economy grows and revenues expand, any increase in the income tax could be stepped down – dedicating future surpluses to taxpayers, not more government spending.

The current Senate proposal would expand the state’s sales tax to cover everyday services, and raise taxes on food and drugs. We’re open to a broader sales tax base to mirror neighboring states like Wisconsin, but let’s make sure it’s best for the people of Illinois, not for the lobbyists in Springfield. We cannot raise taxes on people’s groceries and medicine – just as we cannot tax people’s retirement incomes. We can find a way to balance the budget without hurting lower-income families and fixed-income seniors…

(Editor’s note: Bold added for emphasis)

In short, Governor Rauner appears to be open to raising the state income tax rate as long as a permanent property tax freeze is implemented. Furthermore, Rauner looks to be open to expanding the state sales tax to various services, but is against raising taxes on food, medicine, and retirement income.

You can read the entire budget address on the Illinois Government News Network website here.

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

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Rich Dad Author Robert Kiyosaki: 2016 Market Meltdown ‘Right On Schedule’

The last time I blogged about Robert Kiyosaki, the American entrepreneur, educator, investor, and author of The New York Times best-selling book Rich Dad Poor Dad talked about precious metals in a January 27, 2016, GoldSeek.com Radio interview. From his exchange with host Chris Waltzek:

WALTZEK: People taking a longer-term perspective, picking up some precious metals. You get that diversification. You can sleep a little more soundly at night. And you also know that you’re getting silver at 66 percent off, gold 40-45 percent off the highs. So where’s the risk there?
KIYOSAKI: The risk is not having it. And that’s why I’m laughing about Saturday Night Live and I can’t tell Fox from Saturday Night Live because those guys are a bunch of cartoons up there now. And those are the guys you’re going to count on for your economy? Give me a break. I mean, right now I trust in gold and I trust in silver. I don’t trust the stock market. I don’t trust the Fed. I don’t trust our leaders. I don’t trust the EU to not come apart. You have Puerto Rico in serious trouble. I mean how many other things have you got out there? And you look at the national debt- it’s now $20 trillion. If you want to believe Saturday Night Live characters then you just keep believing. But I’d rather have gold and silver.

The author of the recently-released Second Chance: for Your Money, Your Life and Our World also informed listeners he got out of stocks “fully” last March.

Last week, I spotted a piece about Kiyosaki on MarketWatch.com. Barbara Kollmeyer reported on March 23:

Fourteen years ago, the author of a series of popular personal-finance books predicted that 2016 would bring about the worst market crash in history, damaging the financial dreams of millions of baby boomers just as they started to depend on that money to fund retirement.

Broader U.S. stock markets are recovering from the worst 10-day start to a year on record. But Robert Kiyosaki- who made that 2016 forecast in the 2002 book “Rich Dad’s Prophecy” – says the meltdown is under way, and there’s little investors can do but buy gold or silver and hope the Federal Reserve slows the slide.

Kiyosaki is convinced: The pullback he predicted is happening.

“We’re right on schedule,” he said in a recent interview with MarketWatch…

(Editor’s note: Bold added for emphasis)

Kollmeyer added later:

Kiyosaki told MarketWatch that the combination of demographics and global economic weakness makes the next crash inevitable — but the Fed could stave it off with another round of quantitative easing, which might stimulate the economy…

“The big question [whether] we do ‘QE4,’” said Kiyosaki. “If we do, the stock market will come roaring back, but it’s not rocket science. If we stop printing money, it crashes; if we print money, it goes up. But, eventually, it’s all going to come down.”

(Editor’s note: Bold added for emphasis)

To combat the crash, Kiyoski still places his trust in gold and silver, among other things. From the piece:

He thinks investors should own some gold or silver, based on the view that central banks will just have to print money to get out of the next crisis and precious metals are often deployed as a perceived hedge against inflation. Some investors, meanwhile, might look for investments geared toward income, such as rent payments or dividends, rather than appreciation.

“If you know what you’re doing and are investing for cash flow, baby boomers — or any investors — may see some gains,” he said. “But for those whose wealth is tied up in the [equity] markets, it’s more like gambling than investing.”

(Editor’s note: Bold added for emphasis)

An excellent interview of Kiyosaki by MarketWatch, which you can read in its entirety over on their website here.

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. 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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Quote For The Week

“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history…

For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.”

-American businessman, investor, and philanthropist Warren Buffett, taken from his just-released annual letter to Berkshire Hathaway shareholders

As someone who followed the billionaire investor on a regular basis as Editor of Investorazzi.com, “Tracking the World’s Greatest Investors,” I find the mainstream media all too happy to disseminate Buffett’s optimism when the economic picture isn’t looking too pretty.

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

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Signs Of The Time, Part 92

To reintroduce this special series of posts on Survival And Prosperity, I’ve got a two-fer for readers this week.

When I opened up my Internet service provider’s home page last Friday, one of the featured articles that day included a graphic of a man grasping his head in frustration with the following text below it:

“What to do if your 401(k) is tanking”

Something tells me this piece received a lot of views.

Earlier tonight I headed on over to MarketWatch.com where the main headline on their homepage screamed in big, bold letters:

“Recession risks warn of ‘severe’ drop in market”

Clicking on the link the article had this included with it:

“Most S&P 500 stocks could fall 50% or more if a ‘worst-case’ recession unfolds”

Definitely not the typical fare served up by MarketWatch, a wholly-owned subsidiary of Dow Jones & Company, Inc.

“Uncertain Times” indeed.

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. 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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Glenn Beck: ‘Something Bad Is Coming Our Way… Here’s What I Would Suggest You Do’

Echoing what Damian McBride, a former special adviser to British Prime Minister Gordon Brown, tweeted Monday was Glenn Beck. The American television/radio host and producer, political commentator, author, and entrepreneur told listeners yesterday on his radio program:

I believe there is something in our collective conscience, I believe there is something that is telling people all around, all around the globe, something bad is coming our way. And I think everybody feels it. So here’s what I would suggest you do. I would suggest that you have, you pay attention to what is in your 401(k). You make sure that there is some sort of stop on your 401(k) so you can’t just lose everything on your 401(k). That if you do have stocks you call your broker today and make sure that you have some sort of stop at 5 percent or 10 percent or whatever else you’re ready to risk. I would highly suggest that you have enough cash for a week. This is not the big crash. I just don’t believe that. Maybe it is- I don’t believe that. I’m always bad on timing, so seeing that I feel like it’s not, it probably is. However, there is going to come a time when things just stop working and they shut everything down. And they stop a run on the bank and everything else. And I don’t think we’re there. But, I would suggest that you have a week’s worth of cash on hand. And the only reason why you should have a week’s worth of cash on hand is in case they do at some point close the banks just to be able to stabilize the situation. Because that will happen at some point. I don’t think it’s happening today, but that will happen at some point. So you should have a week’s worth because what happens is, we have seen this happening now recently in other countries where they just limit the amount that you can take out. And so everybody just gets $200, you know, every couple of days you can have $200, but that’s it. I would just make sure that you have looked at your food storage, and your 72-hour food storage. If you’ve had gold or silver or whatever it is that you feel good about, you have those things on hand. Have you replenished your ammunition in your guns? How are you doing with God? Those are all the doomsday things to do, but if you have any of those unchecked on your list, I would make a point to start doing them today, because we are headed for trouble.


“Something Bad Is Coming | “The Glenn Beck Radio Program”
YouTube Video

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

(Editor’s note: 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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Rich Dad Author Robert Kiyosaki: ‘I’d Rather Have Gold And Silver And Guns And Bullets’

“Gold futures settled near a five-and-a-half week low on Friday, with expectations that the U.S. Federal Reserve will soon lift interest rates helping to send prices down for a fifth straight week…”

-MarketWatch website, July 24, 2015

“Gold is doomed”

The Washington Post website, July 25, 2015

Back in February, I blogged about Robert Kiyosaki, an American entrepreneur, educator, investor, and author of the New York Times best-selling book Rich Dad Poor Dad. Kiyosaki appeared on the Alex Jones Show on February 17, 2015, and warned viewers:

It doesn’t make me happy that I’m getting richer and richer, and I see my friends getting poorer and poorer. I’m very concerned right now about my generation- the Baby Boom generation, the biggest generation in history. And they bought that program of put all your money in a 401(k) and invest for the long term. Now, I wrote a book called Rich Dad’s Prophecy back in 2002. That was 13 years ago. And I said the biggest stock market crash in the history of the world was coming in 2016. I was kind of guessing. But unfortunately, I didn’t write it to be right. I wrote it out of concern. If I’m correct that in 2002 what I said the biggest market crash was coming in 2016, that means millions and millions of Baby Boomers, their kids, their grandkids, will feel the effect of that when their retirement savings are wiped out. I hope I’m wrong. But so far, my numbers look accurate and it’s holding course right now. So I don’t write because I want to be rich or poke fun or want to be righteous. I am rather concerned about my fellow citizens.

Kiyosaki revealed one way he was preparing for the crash while discussing his new book, Second Chance: for Your Money, Your Life and Our World. From the exchange:

I like silver personally. I love gold. I have a lot of gold and silver.

While there’s no shortage of precious metals bears these days, Kiyosaki remains bullish on gold and silver- in addition to two other “metals.” In a Palisade Radio interview uploaded onto YouTube on June 28, he told viewers:

You should buy gold and silver because eventually the tug of war between deflation and inflation, somebody’s going to quit, and I think it’s going to be hyperinflation. So that’s why gold and silver make sense to me…

So I’m pretty optimistic. I’m going to make even more money when the crash comes. But unfortunately, like I said, for those who are not prepared, gold and silver are probably the best investments. But you have gold and silver, two other precious metals, guns and bullets (laughing). The reason for that, I laugh about it, but my friend reminds me of this. He says you rich guys can buy gold and silver. Poor guys buy guns and bullets. So I can understand that mentality is this gap between the 1 percent and the 99 percent. I’d rather have gold and silver and guns and bullets. This is why I don’t live in California (laughing). I live in Arizona, where they already respect guns and bullets.


“Robert Kiyosaki: Biggest Stock Market Crash in History Coming in 2016 – June 28, 2015”
YouTube Video

According to Kiyosaki, 2016 to 2030 is “going to be very tumultuous.”

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

(Editor’s note: 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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Survival And Prosperity
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Christopher E. Hill, Editor

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