As stock indexes make new all time highs, it's still a 7% world, not a 16% world

The current $SPX world, from Aug 2000 (market peak) to Dec 2023, dividends reinvested, average per annum return: 7.019% nominal.

The previous world of similar length, Apr 1977 to Aug 2000: 16.246% nominal.

Remember that no one even dates the bull market conditions of the past starting from 1977. The Reagan bull began in the summer of 1982. But even from 1977, it was a completely different, better world for investors.

The rate of nominal return per annum was 2.31 times better in that world.

Investing $100 per month in the previous world produced over $258k. Investing $100 per month in the current world has produced only $103k.

The following Vanguard mutual funds have inception dates in the year 2000. They reflect the same reality.

I show nominal average annual return since inception for each fund in 2000 through 12/31/23, per Vanguard.

Performance in red beats average SPX nominal 7.019% since 2000, but none by much. Remember that through 12/31/23 stocks generally were only recently buoyed by exceptional returns, after a down year last year. $VTSAX, the total stock market index, was up a whopping 26.01% in 2023.

VIGAX 8.21 Growth Index

VFIAX 7.62  500 Index

VTSAX 7.90  Total Stock Market Index

VEXAX 8.22  Extended Market Index

VSGIX 8.93  Small Cap Growth Index Inst.

VESIX 4.47  European Stock Index Inst.

VSMAX 9.01 Small Cap Index

VBAIX 6.70  Balanced Index Inst.

VBIAX 6.57 Balanced Index

VPKIX 3.40  Pacific Stock Index Inst.

VVIAX 7.18 Value Index

VEMIX 6.37 Emerging Markets Stock Index Inst.

VIPSX 4.49  Inflation Protected Securities

 

These are but a shadow of the former things which obtained in the previous world.

Dramatic price action today for 30+ years old Vanguard Treasury funds

VFISX inception date 10/28/1991 New all time low price set today 09/26/2023 close : $9.71

VFITX inception date 10/28/1991 All time low price: $9.57 on 11/21/1994 Price 9/26/2023 close: $9.59

VUSTX inception date 5/19/1986 New all time low price set today 9/26/2023 close: $7.88 

  

 

US Treasury yields pushed to new cycle highs last week despite another Fed interest rate pause

 Cash was about the only thing which did better week over week on Friday. Treasuries and bonds generally took a beating, as did stocks.

The UST yield curve aggregate closed up a net 1.27% week over week on 9/22, to an average of 5.0707692, the highest Friday close yet for this cycle.

Yields in the aggregate made a new high for this cycle on Thursday, for an average of 5.0915384. 

Here's the year-to-date performance for key categories using some commonly used Vanguard funds:

Treasury Market VFISX 0.66% VFITX -0.70% VUSTX -5.57%;

Investment Grade Market VFSTX 2.08% VFICX 1.32% VWESX -0.83%; 

Total Bond Market VBTLX -0.03% (+0.44% previous week);

Cash VMFXX 3.58% (3.48% previous week);

Total Stock Market VTSAX 12.95% (16.45% previous week).

 

 

If you haven't saved enough for an emergency, it's on you, and borrowing money for an emergency when you have it is another stupid thing which is on you

Two stupids don't make a smart.

 

“It’s a terrible idea to take money out of your 401(k),” said Ted Jenkin, a certified financial planner and co-founder of oXYGen Financial, based in Atlanta. ...

Households should weigh all their options for cash before resorting to tapping a 401(k) plan, said Jenkin, a member of CNBC’s Advisor Council.

For example, households without an emergency fund might be able to free up money for a relatively small short-term cash need by canceling or reducing membership plans, or by selling little-used or unneeded items on Facebook Marketplace or a garage sale, he said. A short-term loan or home equity line of credit would generally also be better than tapping a 401(k).

More.

There's nothing like paying a steep price for a mistake to keep you from making it again. Only morons pay twice.

 

What else would you expect someone to say who makes his living selling retirement products?

 

The traditional 60/40 portfolio is now down only 13.76% in 2022 through November, not adjusted for inflation north of 6%

Total stock market index, VTSAX:  -14.51% through November

Total bond market index, VBTLX:  -12.64% through November

This is a bitter anniversary of fear, and a day of loathing

Exactly 35 years ago tonight this fund marked its all time low at $8.34 when stocks crashed 20% in one day, October 19, 1987.

It happened because it was a flight to safety, the US long bond being the safest haven in the world. Prices move inverse to yields. The price crashed because everyone plowed into it, and the yield soared to 10.25% as a result. As such, the all time price low is meaningless for bonds, but full of meaning for stocks.

At $8.49 tonight, however, the price is just $.15 higher than it was 35 years ago, but for an entirely different reason.

In 1987 the price crashed due to stock market fear; in 2022 it's due to bond market loathing, in particular, loathing of existing US debt which pays too little for the risk being taken. At 4.15% tonight, yield on the long bond has a long way to go to credibility. More importantly, the market is SHOUTING that trillions of dollars of existing US debt pays its holders a reprehensible sum.

People should think hard about what that means.

Faith in America hangs in the balance and is found wanting.

 

 

The traditional 60/40 portfolio is down 20.77% ytd

 VTSAX is down 24.89% through 9/30.

VBTLX is down 14.59% through 9/30.

And don't forget to subtract all-items inflation of 6.14% from Nov 2021 through Aug 2022!

Headlines are popping up advocating safe havens in cash and short-duration US Treasury securities, but you'll still lose in those relative to inflation, just not as much.

What a great job the Democrats have done this year! Destroying the bond market wasn't on my bingo card for 2022, even though the high and rising prices for bonds has been a deal-breaker for me for a long time.

The Democrats' green war on energy has consequences.

Is real war next?

The Great Long Term Investment Grade Bond Debacle of 2022

Safe havens aren't supposed to do this.

Long term return for VWESX since inception in 1973 near the end of 2018 reached north of 8%.

In 2022 ytd return is -27.28%.

The whole spectrum of bonds as represented by VBTLX is down ytd 14.79%.

Traditional investors with a 60/40 portfolio are down over 20% through yesterday because stocks and bonds both are falling.

Cash is king again.

 

Two conditions need to develop before buying bonds

. . . the trend in the bond market . . . still looks bearish. ...

As yields rise and inflation eases, the relative allure of bond payouts becomes attractive, in absolute and relative terms vs. other assets.

James Picerno, here. 

Yields are indeed rising, but prices are still falling, so no, not quite yet. Bond prices ought to stabilize when inflation finally eases, and so far prices haven't stabilized.

VWESX is instructive.

There's just a handful of years back in the 1980s where the average price of this very long term investment grade bond fund had been below $8 like the current price is today.

That's one reason why Jeffrey Gundlach rightly says that bonds are "wickedly cheap".

But VWESX only just got there on September 20th, hitting $7.99. We're down to $7.88 this weekend.

Meanwhile yields across this investment grade spectrum are bunched up in the fours, with only about 55 basis points difference between the shorts and longs, and intermediates effectively paying the same as or more than longs.

Prices on the longs need to fall a lot more before making them more attractive than intermediates if you are going to settle for only similar yield.

After all, the long term average return of investment grade longs is north of 7.5%, not in the fours.

But what the hell do I know?

Invest, or don't, at your own risk.

Index fund flows in 2014 may indicate the top is in, or nearly in

Seen here:

The impact of index funds has been revolutionary. When John Bogle, the founder of Vanguard, introduced the first vehicle designed to passively track the performance of a stock index about 40 years ago, it was derided as “Bogle’s Folly.” Today the fund’s successors, at Vanguard and elsewhere, hold $2 trillion in assets. ...

Actively managed funds still hold a majority of total stock fund assets, 63% at the end of September. But in the first nine months of 2014, actively managed stock funds attracted $2.5 billion, while $173 billion found its way into index funds, or 98.6% of the total.

This flood of money into index funds came after the market already had recorded substantial gains. [James] Stack contends that such lopsided affection for passive investing — and the lack of concern for risk that he infers from it — hints at an approaching top, as does the evidence of history.

“Generally, the times when index investing reaches the highest popularity are in aging bull markets or near market peaks,” he says.

Vanguard's VTSMX Makes New All Time High At 46.67 Today, 53rd And Final New High Of 2013

What a year for this fund: an average of one new high a week, plus one.

Vanguard's VTSMX Now The World's Biggest Mutual Fund, Edging Out PIMCO Total Return

From the story here:

For the year, the Pimco Total Return Fund has had outflows of about $33.2 billion. The fund, which is managed by Pimco co-founder and co-chief investment officer Bill Gross, is still the world's largest bond fund [at $248 billion], Morningstar said.

The Vanguard Total Stock Market Index now holds the title of world's largest mutual fund with $251.1 billion, according to Morningstar.

In Passive v. Active Management, Vanguard Is The Winner And Still Champion

So says Robert P. Seawright, here:

[O]ne of every three dollars invested in mutual funds and exchange-traded funds through the first four months of ... 2012 has gone to Vanguard, according to Morningstar Inc. (and as reported by Investment News).  Investment in Vanguard so far this year is roughly $65 billion, nearly four times more than the next closest mutual fund company – PIMCO.  In ETFs, year-to-date through the end of April, Vanguard had gathered $21.6 billion, while BlackRock’s iShares collected $13.3 billion and State Street added $7.2 billion. As always, Vanguard focuses on passively managed index funds and ETFs. 

David Stockman Agrees With John Bogle: Everything is Overvalued

In an interview reproduced here, I find myself pleasantly surprised because David Stockman says many agreeable things, especially this:

TGR: Will the mayhem stretch into the private sector?

DS: It will be everywhere. Once the bond market starts unraveling, all the other risk assets will start selling off like mad, too.

TGR: Does every sector collapse?

DS: If the bond market goes into a dislocation, it will spread like a contagion to all of the other asset markets. There will be a massive selloff.

I think everything in the world is overvalued—stocks, bonds, commodities, currencies. Too much money printing and debt expansion drove the prices of all asset classes to artificial, non-economic levels. The danger to the world is not classic inflation or deflation of goods and services; it's a drastic downward re-pricing of inflated financial assets.

Vanguard's Jack Bogle Admits No Assets Are Undervalued

Well, that's putting the best construction on it.

What he means to say is, Most assets are dearly priced.

Dollar cost averaging into stock index funds right now is buying at very high prices with the Shiller p/e near 20, when the mean is more like 16.

Oil is about $80 per barrel vs. $20 in the go-go days, gold is $1,586 the ounce vs. its last peak of $800 in 1979, and the price of the Vanguard Total Bond Index is at historical highs around $11.

People who own these things are nervous because the prospect for considerable increase in price is improbable, for various reasons. Some wonder when to sell. Many more have bought and will hold as they have been taught to do. How many people do you know who ride it on up, and ride it on down? Well, can you afford to do that facing retirement? What if the next leg down is really big? Let's say a retest of the 600 region of the Standard and Poor's 500 Index, and we bump along down there like Japan for another seven years.

People who don't own these things are also nervous, because what they do own, if they own anything like cash and real estate, is declining in value and is returning nothing. They wonder when to buy the other things, and don't especially believe it when people like Mr. Bogle tell them they've got to invest in the markets at these prices.

What would you expect him to say, under the circumstances, Don't buy my funds?

He sells good stuff, but maybe you should wait for a sale, and be patient with what you do have, and try to find a way.

Read him, here.