Saturday, September 5, 2015

Is September 2015 the start of a great Stock Market Crash? End of 7 year cycle, and September is worst month

After a seven year strong stock bull market in the U.S.A. since 2009 with hardly any stock corrections, is September 2015 the beginnings of a great Stock Market Crash?

2015 is also likely the end of a surprisingly regular 7 year cycle.

  1. 1973: Oil Shock/Stocks Crash
  2. 1980: US Recession
  3. 1987: Stock Market Crash
  4. 1994: Bond Market Crash
  5. 2001: 9-11 / Stocks Crash
  6. 2008: Subprime / Stocks Crash
  7. 2015 EM / Stock Crash???
Do you notice the seven year pattern?

The fact that the economy goes in cycles in not surprising, so any stock market cycle such as this won't be that surprising.

The Great Unwind and False Prosperity?

Regarding this most recent cycle, the case can be made that as a way to recover from the 2008 Stock Market Crash, the Fed started lowering rates to virtually zero and started printing money like crazy with many Quantitative Easing programs (QE). Yet for around 7 years, the Fed didn't raise rates, and only recently stopped the QE programs.

For seven years, "Follow the Fed" was profitable, and going long in housing and stocks was profitable, as the Fed's policies boosted those asset classes. However, recently, the Fed stopped the Quantitative Easing programs and may be on the verge of raising rates.

But what happens when the Fed starts to unwind its positions? Will we start to see the effects of The Great Unwind?

Over the last seven years, the Fed induced asset boosting policies create a form of an artificial prosperity that will eventually be undone. All the imbalances that have been accumulated will finally end, and in order to correct, a Stock Market Crash, or a even a multi-year time correction (sideways for many years) might be needed.

The risks are high for some sort of event or a multi-year time frame where imbalances will be corrected. Future stock market annual returns for many years are likely going to be below long term averages.

Housing Market Bubble?

Over the last seven years, we have gone from housing recovery to a potential housing bubble. The median income to buy a home in the Bay Area, Northern California is $142,448.33. 

Public and Private Debt and too much spending:

Both government and consumer debt is increasing. Government Debt as a ratio of GDP is now 80% (and the total debt is around $18 Trillion). Private debt (including consumer debt and education loans) is approximating 260% of GDP.


China is also experiencing a stock market crash.

Also, China is holding a large amount of U.S. treasuries. There might be evidence that China is already dumping some of these?


Oil and commodities have been crashing, and some people have said that commodities and oil are leading indicators of an economy and the stock market.

CNBC's Ron Insana says:
"We already have evidence that the commodity crash has ominous portents for the rest of the world:

* Japan’s recession is deeper than previously thought.
* China’s demand for basic materials, amid a glut of uneconomic construction projects, appears to be plummeting.
* Russia’s ruble has collapsed and the country is on the brink, if not already in, a recession.
* India’s economic recovery is beginning to look shaky.
* Europe’s growth rate and inflation rate, for the next two years, were just revised downward by the European Central Bank, suggesting that Europe’s economic crisis is far from over. In fact, at least one former European leader with whom I recently spoke, believes the crisis in Europe may just be in its early stages.
* Brazil and other emerging market nations are struggling with a variety of issues, from recessions at home, to the rising value of the dollar, which is complicating how emerging markets conduct economic policies at home, given how closely their currencies are tied to the greenback."

A former advisor to Gordon Brown has urged people to stock up on canned goods and bottled water as stock markets around the world slide.
Damian McBride appeared to suggest that the stock market dip could lead to civil disorder or other situations where it would be unreasonable for someone to leave the house.
“Advice on the looming crash, No.1: get hard cash in a safe place now; don't assume banks & cashpoints will be open, or bank cards will work,” he tweeted.
“Crash advice No.2: do you have enough bottled water, tinned goods & other essentials at home to live a month indoors? If not, get shopping.
“Crash advice No.3: agree a rally point with your loved ones in case transport and communication gets cut off; somewhere you can all head to.”
 “We were close enough in 2008 (if the bank bailout hadn't worked),” he said. “and what's coming is on 20 times that scale”.

Does this former adviser know something we don't?

Time to sell stocks?

Risk is definitely high now. Seriously consider your asset allocation and your goals. Consider taking some profits, and sell some equities if possible. Build up cash reserves. Use any potential rallies to sell.

The future down cycle will eventually end, and there will be great investing opportunities at that time.

Monday, August 24, 2015

Newly Developed Stock Screener which uses the PEGY Ratio.

There's a newly developed Stock Screener at

There are many interesting filters there including Above Average Volume (for the day), Forward PE, EV to EBITDA Ratio, Beta as well as the PEGY Ratio.

The PEGY Ratio is an interesting way to evaluate whether or not a stock is growing at a reasonable price. For example, the PE might be high, but is there enough growth to justify paying for that price?

It is similar to the PEG Ratio but the PEGY Ratio includes the Yield. A PEGY Ratio of 1 or less is very good. Anything below 1.5 is still good.

PEG Ratio = (Price / Earnings) / ((5 Yr Growth %)*100)

PEGY Ratio = (Price / Earnings) / ((5 Yr Growth % + Yield %) * 100)

Here is the stock screener at

Tuesday, July 8, 2014

Historical Best Day of Month to Dollar Cost Average or Invest: UPDATED: 1950 to 2014

Historical Best Day of Month to Dollar Cost Average or Invest: Updated: 1950 to 2014

This article updates the previous "Best Day of Month to Dollar Cost Average".

1. This article now covers February 14, 1950 up to July 8, 2014.

2. The previous article used the Average S&P 500 methodology, which over weighed the S&P 500 when it is large (over 1500), and under weighed the S&P 500 when it was small (around 20 on the S&P 500 in 1950).

3. This article uses the "Percent Above 30 Trading Day Moving Average" methodology.   This way, whether the S&P 500 had a low value or high value, the results have equal weight.

4. To determine the best day of month to dollar cost average, choose the lowest "percent above 30 trading day moving average" value.


The Results:

The best two days of the month to dollar cost average are on the 26th (#1) and 25th (#2) with the lowest value of percent above 30 trading day moving average.

#3a: 19th    (0.20%)
#3b: 27th    (0.20%)
#4a: 10th    (0.22%)
#4b: 24th    (0.22%)

The rest of the values can be seen in the chart above.

Beginning of the Month Boost:

At the beginning of the month, the percent above 30 trading day moving average seems to be at its highest values.

One possible reason why is because of investment in 401k and retirement funds close to the beginning of the month, which pushes the S&P 500 up during this time.

Wednesday, July 2, 2014

"Don't Fight the Fed" is Wrong? What Is One Year Return After Rate Hikes or Rate Cuts?

A. There is a common Wall Street mantra: "Don't Fight The Fed".

When the Fed is pumping liquidity (reducing Fed Funds Rate, instituting Quantitative Easing (QE)), you should follow the market upwards.  If the Fed is taking away liquidity (raising Fed Funds Rate, and taking away Quantitative Easing), then be careful in the stock market.

This "Don't Fight the Fed" mantra seems to have worked very well since 2009, as the Fed cuts rates and institutes many Quantitative Easing programs, resulting in the stock market having a very good rally.

If the Fed starts to cut back on Quantitative Easing and raises rates, it is best to be careful in the market.

B. Is "Don't Fight the Fed" still Valid?

Since July 2000 (till July 2014), what is the one year future return of the S&P 500 every time the Fed has raised or cut the Fed Funds rate?   Does this validate "Don't Fight the Fed?"

The results are as follows:
1. The S&P 500 return one year after the Fed cuts rates (since July 2000) averages: -14.2%
2. The S&P 500 return one year after the Fed raises rates (since July 2000) averages: 10.1%

Based on the one year forward return after the Federal Reserve cuts or raises rates, the S&P 500 is up when the Fed raises rates, and the S&P 500 is down when the Fed cuts rates.

This is opposite of the mantra: "Don't Fight the Fed!"

C. There is a better correlation using another metric: The actual Fed Funds Rate

Since the "Don't Fight the Fed" doesn't seem to work, is there a better metric to determine whether the one year S&P 500 forward return would be positive or negative?

After researching the data, it isn't whether the Fed is cutting rates or raising rates, but the actual Fed Funds rate plays a big role in the S&P 500 forward return:

The results are as follows:

Since July 2000, the S&P 500 return one year after the Fed changes rates (up or down) or announces a QE program when:

1. Fed Funds Rate is less than or equal to 1%:  13.1%
2. Fed Funds Rate is between 1% and 2% (not including 1%): -1.9%
3. Fed Funds Rate is between 2% and 3% (not including 2%): -8.9%
4. Fed Funds Rate is between 3% and 4% (not including 3%): -7.1%
5. Fed Funds Rate is between 4% and 5% (not including 4%): -6.3%
6. Fed Funds Rate is between 5% and 6% (not including 5%): -2.1%

Based on this, the actual Fed Funds rate seems to have a better correlation with the S&P 500 one year forward return.   The best one year S&P 500 forward return is when the Fed Funds Rate is less than 2%.   Fed funds rate greater than 2% has a more negative one year forward S&P 500 return.

D. Data Points:

Date Fed Funds Start Fed Funds End Fed Funds Diff S&P S&P Date + 1 year S&P + 1 year Return
7/3/2000   6.5 1469.54 7/3/2001 1234.45 -16.0%
1/2/2001 6.5 6 -0.5 1283.27 1/2/2002 1154.67 -10.0%
1/31/2001 6 5.5 -0.5 1373.73 1/31/2002 1130.2 -17.7%
3/19/2001 5.5 5 -0.5 1170.81 3/19/2002 1170.29 0.0%
4/17/2001 5 4.5 -0.5 1191.81 4/17/2002 1126.07 -5.5%
5/14/2001 4.5 4 -0.5 1248.92 5/14/2002 1097.28 -12.1%
6/26/2001 4 3.75 -0.25 1216.76 6/26/2002 973.53 -20.0%
8/20/2001 3.75 3.5 -0.25 1171.41 8/20/2002 937.43 -20.0%
9/14/2001 3.5 3 -0.5 1037.77 9/14/2002 889.81 -14.3%
10/1/2001 3 2.5 -0.5 1038.55 10/1/2002 847.91 -18.4%
11/5/2001 2.5 2 -0.5 1102.84 11/5/2002 915.39 -17.0%
12/10/2001 2 1.75 -0.25 1139.93 12/10/2002 904.45 -20.7%
11/5/2002 1.75 1.25 -0.5 915.39 11/5/2003 1051.81 14.9%
6/24/2003 1.25 1 -0.25 983.45 6/23/2004 1144.06 16.3%
6/29/2004 1 1.25 0.25 1136.2 6/29/2005 1199.85 5.6%
8/9/2004 1.25 1.5 0.25 1065.2 8/9/2005 1231.38 15.6%
9/17/2004 1.5 1.75 0.25 1122.2 9/17/2005 1237.91 10.3%
11/9/2004 1.75 2 0.25 1164.08 11/9/2005 1220.65 4.9%
12/13/2004 2 2.25 0.25 1198.68 12/13/2005 1267.43 5.7%
2/1/2005 2.25 2.5 0.25 1189.41 2/1/2006 1282.46 7.8%
3/21/2005 2.5 2.75 0.25 1183.78 3/21/2006 1297.48 9.6%
5/2/2005 2.75 3 0.25 1161.17 5/2/2006 1313.21 13.1%
6/29/2005 3 3.25 0.25 1199.85 6/29/2006 1272.87 6.1%
8/8/2005 3.25 3.5 0.25 1223.13 8/8/2006 1271.48 4.0%
9/19/2005 3.5 3.75 0.25 1231.02 9/19/2006 1317.64 7.0%
10/31/2005 3.75 4 0.25 1207.01 10/31/2006 1377.94 14.2%
12/12/2005 4 4.25 0.25 1260.43 12/12/2006 1411.56 12.0%
1/30/2006 4.25 4.5 0.25 1285.19 1/30/2007 1428.82 11.2%
3/27/2006 4.5 4.75 0.25 1301.61 3/27/2007 1428.61 9.8%
5/9/2006 4.75 5 0.25 1325.14 5/9/2007 1512.58 14.1%
6/28/2006 5 5.25 0.25 1240.12 6/28/2007 1505.71 21.4%
9/17/2007 5.25 4.75 -0.5 1476.65 9/16/2008 1213.6 -17.8%
10/30/2007 4.75 4.5 -0.25 1531.02 10/29/2008 930.09 -39.3%
12/10/2007 4.5 4.25 -0.25 1515.96 12/9/2008 888.67 -41.4%
1/18/2008 4.25 3.5 -0.75 1325.19 1/17/2009 850.12 -35.8%
1/29/2008 3.5 3 -0.5 1362.3 1/28/2009 874.09 -35.8%
3/17/2008 3 2.25 -0.75 1276.6 3/17/2009 778.12 -39.0%
4/29/2008 2.25 2 -0.25 1390.94 4/29/2009 873.64 -37.2%
10/7/2008 2 1.5 -0.5 996.23 10/7/2009 1057.58 6.2%
10/28/2008 1.5 1 -0.5 940.58 10/28/2009 1036.19 10.2%
11/25/2008 Start QE1 Start QE1 0 857.39 11/25/2009 1110.63 29.5%
12/15/2008 1 0.25 -0.75 868.57 12/15/2009 1107.93 27.6%
3/31/2010 End QE1 End QE1 0 1173.27 3/31/2011 1325.83 13.0%
11/3/2010 Start QE2 Start QE2 0 1197.96 11/3/2011 1261.15 5.3%
6/30/2011 End QE2 End QE2 0 1320.64 6/29/2012 1362.16 3.1%
9/13/2012 Start QE3 Start QE3 0 1687.99 9/13/2013 1687.99 0.0%

Sunday, June 29, 2014

SDIV: Global, High Dividend Exchange Traded Fund (ETF), Good Diversity.

Are you looking for a single ETF or mutual fund to help give you great diversification and a high dividend?  You should consider an international ETF which produces a high dividend.  SDIV, an ETF (Exchange Traded Fund) from Global-X Funds, does that.

As of June 2014, the 12 Month Dividend Yield is 6.01%.   The Total Annual Fund Operating Expense is 0.58%.     

In terms of country breakdown, 25.81% is invested in the United States, 17.85% in Australia, 9.14% in Canada, 8.14% in France, 7.69% in the U.K., 6.01% in Singapore, and so on.

In terms of industry, Financials occupies 20% of the portfolio, REITs (Real Estate Investment Trusts) 15%, Utilities 13.5%, Telecom Services, 12.2%, Mortgage REITs 10.6%, Energy 9.2%, Industrials 5.03%, Consumer Discretionary, 4.8%, Health Care 2.8%, Materials 2.7%, and Info Tech at 2.1%.  

SDIV could be a great way to get high dividend diversification.   And if you can find SDIV in a commission free program by your broker, you could invest in SDIV cheaply (because you have no commission fee) in an automatic investment plan where you invest some regular sum at regular intervals.   Watch your reinvested dividends (especially in a high dividend ETF), grow.   Experts often say that reinvested dividends is a great way to grow your money.

Tuesday, November 20, 2012

Is USA Doomed to Repeat 1921-1945: Prosperity, Depression, Totalitarianism, World War?

Is the USA Doomed to Repeat 1921-1945: Prosperity, Depression, Totalitarianism, Major War?

In a previous post, we speculated that there is an 84 year cycle which includes an 84 year Major War Cycle.

In 1921 to 1929, we had the Roaring Twenties, a time of great Prosperity.  There was great economic prosperity, the stock market had a large runup, and the 1920s was a decade of increased consumer spending and economic growth.  The Federal Reserve expanded credit, and set rates very low, and more people started buying on margin.

The Roaring Twenties was also a time of new products and technologies including Mass Production and Henry Ford's Model T, and the creation of infrastructure such as highways and expressways, funded by the government.  (Federal Income Taxes were created in 1913).

No one could see what would come on October 29, 1929, Black Tuesday, a Great Stock Market Crash on Wall Street, signalling the beginning of the Great Depression which lasted around 1929 to 1939 (or middle of the 1940s).

During this time of the Great Depression, there was a rise (in Europe) of more Fascist, Totalitarian regimes such as the rise of the Nazi Party in Germany from 1933 to 1945.

And the rise of Nazism helped start World War 2 (from 1938 to 1945).

Is it happening now?

2013 will be the 84th anniversary of Black Tuesday, the Major Market Crash in 1929.  There has been research and observation showing that there is a logical reason for the 84 year cycles, and it has to do with four distinct generations in a major 84 year cycle.

We've had great Prosperity (in the mid 1990s and the early 2000s), which reminds of the Roaring Twenties.

And there are many economic signs pointing to a long term economic stagnation, collapse or depression.   We may not be in the run of the mill downturn.  Demographics are against the U.S. as the Population is Aging, and there are less people to support an ever increasing dependent population, and this aging population has been shown to correlate with the Stock Market's Price to Earnings Multiple.

In addition, since the United States Federal Debt to GDP Ratio is now 100% and growing, there will be a long term debt overhang. There is a study by Carmen Reinhart (Peterson Institute for International Economics, NBER, CEPR), Vincent Reinhart (Morgan Stanley) and Kenneth Rogoff (from Harvard University and NBER) that shows those cases in history where debt to GDP exceeded 90%, experienced suboptimal growth lasting an average of 23 years.

Depressions can lead to Totalitarian Regimes (it may happen in other places such as Europe, which is going through their own economic upheaval including problems in the Eurozone, Spain and GreeceEven France had their credit rating reduced).

Finally, everything can culminate in a major war.

Possible Schedule:

Start Yr End Yr Past Event Start Yr End Yr Event
1921 1929 Roaring Twenties 1995 2013 Prosperity
1929 1939 Great Depression 2013 2023 Depression
1933 1945 Nazism 2017 2029 Totalitarianism
1938 1945 World War 2 2022 2029 Major War