Rosie May Be Right: Cash May No Longer Be Safe

David Rosenberg points out that financial repression could go on as long as 2018, here:

[T]he Fed said in its December post-meeting press release that it will not budge from its 0% policy rate until the U.S. unemployment rate drops to 6.5%. It is currently around 8%.

We have done estimates based on various assumptions and found that achieving this Holy Grail likely takes us to the opening months of 2018 or another five years of what is otherwise known as financial repression.

People think their money is safe in cash, but it isn’t.

Following on that, just compare cash in the form of Vanguard's Prime Money Market Fund with stocks in the form of Vanguard's Total Stock Market Index Fund over the last five years and you will see that while cash was relatively safe compared to stocks for the four years up to May 2012 with stocks mostly underperforming cash, since then stocks have firmly broken out, as of about May 31, 2012 (the dot on the chart grabbed from Morningstar).

The only problem is that with a Shiller p/e today of 24.26 it's an awfully rich time to be investing in stocks which have reached new all-time highs.

And the alternatives don't look very attractive either.

At this hour the gold/oil ratio stands at 15 indicating that relative to each other their prices may have normalized but both at high levels relative to the long term.

Housing prices also are at the far upper end of the long term trend prior to the bubble.

And the bond market is within 2% of its highest valuations and also remains expensive to buy.

In my humble opinion the smartest thing to buy under these conditions is any long term debt one may be carrying at a rate of interest higher than about 3.5%. To retire it one would have to deploy capital, i.e. savings, but you can hardly lock in say 6.25% for twenty or twenty-five years anywhere else more easily than by retiring a 30yr-mortgage taken out at that rate in 2007. Bonds have returned less than 5% annually over the last ten years, and one year returns have fallen below 3.5%.

Still, there is no substitute for savings.

The surest way to get a 10% return is to save one dollar of every ten earned.

What Do The FBI And The IRS Have In Common In March 2010?

How about a conspiracy against the president's political opponents?

Late March 2010 was when the FBI swatted the Hutaree militia for supposedly subversive activities, and now it turns out also when the IRS explicitly began targeting conservative groups for investigation. It was also the month ObamaCare was very controversially passed and some vandalism erupted in various places around the country.

It's clear the trigger was pulled way too early on the Hutaree militia. The government's case was still too weak at the time, and it subsequently fell apart in court, quite ignominiously for the FBI. The militia members were completely vindicated in court of conspiracy to overthrow the government. Only the charge of illegal possession of a fully automatic weapon stuck. Not even the bomb charges could be proven. The rationale for pulling the trigger early must have been as a shot across the bow of the right wing, so to speak, in the light of the vandalism across the country after ObamaCare passed. The coincidence of the raid on the Hutaree at the end of that week in March 2010 should not be discounted, especially now that it turns out that the IRS also began targeting conservatives in that same month in 2010, according to ABC News, here:

The targeting of conservatives by the IRS started earlier and was more extensive than the IRS acknowledged last week, according to a draft IRS inspector general report obtained by ABC News.

As we reported on “Good Morning America” this morning, the IRS began targeting “Tea Party or similar organizations” in March 2010. That was when the Cincinnati-based IRS unit responsible for overseeing the applications for tax exempt status starting using the phrases “Tea Party,” “patriots” and “9/12″ to search for applications warranting greater scrutiny.

The only other person I know to have called the government's response in the Hutaree affair a calculated response to ObamaCare violence at the time, other than yours truly, is Monica Crowley. But now it appears there is more to it than that, making it look more and more like Obama has been using other organs of government against the people who oppose him, with deliberation and in a coordinated manner.

And George Will, of all people, might as well be calling for Obama's impeachment.

Maybe it's time to subpoena the mayor of Chicago.

Forbes Magazine Calls Keynes A Dead White European Male

Some of us would beg to differ.

All kidding aside, Jerry Bowyer makes some great points about John Maynard Keynes, pederast, misogynist, anti-Puritan immoralist and devotee of the cult of the higher sodomy:

"Keynes was a man who exhibited what most of us would see as an almost pathological preference for exclusively male intellectual and sexual companionship specifically because of the great admiration for the male mind and disdain for the female one, who disapproved of the presence of women in his economics classes, who found women’s thinking patterns repugnant and who associated savings with feminine reticence. Is it really such an unforgiveable sin to take these facts and to surmise that his odd sexual views might be related to his odd economic views? Is it really right that anyone who suggests that they are connected should be drummed out of polite society?"

Much more here.

John Tamny's Libertarian Myopia On The Plan B Pill

John Tamny, libertarian ideologue extraordinaire, asks us to join him in complete denial about reality, here:

"[G]overnments don’t nor can they exist as our Nanny."

An awful lot of people chafing under Nanny Bloomberg in NYC would beg to differ with that statement.

Does it really need to be pointed out that the mayor of New York routinely acts like he's everyone's mother? I think Bloomberg would be just as amused as we are to learn that his own perception that he even exists is as mistaken as is our perception that he exists. The man does exist, and gets away with what he does because there are plenty of people in the world who want him to, at least in New York City. The fact of the matter is that there are plenty of people just like Bloomberg who are all too happy to accomodate those who want to be ruled. Lately these characters also want in the worst way to be president of the United States for some reason. Just because we wish these things were not so doesn't mean that they are not so. The assertions of success of five-year-plan after five-year-plan in the Soviet Union eventually bowed to reality, as must we.

This sort of denial of reality is what lies behind Tamny's analogy between teen use of alcohol and teen use of the plan B pill, which he evidently advocates not because it is necessarily good but because it is not preventable for the same reason we cannot prevent teen use of alcohol. But this is not the proper analogy. The proper analogy is between the alcohol and the sex, both of which are desirable for the sensations which they provide, which is why it is difficult to regulate them. The reality is that a profound difference exists between the alcohol and the plan B pill: the pill is designed to kill, while the beer is not.

The plan B pill provides no pleasure analogous to beer which makes us desire it, except of a psychological sort such as any medication or placebo may provide. For that reason alone it should be as easy to regulate as any other medication. It alleviates a condition like an aspirin does after too much beer, but it does so by taking a human life. The utility of it masks its gravity.

Deregulation of the plan B pill for minors stands in stark relief against the FDA's own labeling regulations: Warnings "to keep product out of children's reach" must appear on over-the-counter medications like aspirin bottles, they say. My bottle says,  for example, "Reye's syndrome: Children and teenagers who have or are recovering from chicken pox or flu-like symptoms should not use this product." My aspirin bottle even comes with a child-thwarting cap in compliance with the FDA regulations: "Many OTC medicines are sold in containers with child safety closures. Use them properly.  Remember—keep all medicines out of the sight and reach of children." Contrary to its own stated mission, the FDA will be placing the plan B pill in plain sight of them.

One would think that a libertarian, being consistent, would be calling also for the abolition of all such age restrictions on medications and on alcohol, if the plan B pill is to be allowed to minors. But that, too, is conspicuously missing from Tamny's argument, which is sort of what one would expect of the perpetual childishness of the libertarian. Johnny still can't tell the truth. 

If government really no longer has any interest in preventing young girls from murdering their unborn children, which is what the plan B pill debate is really all about, then we might as well disband police departments everywhere.

No wonder gun stores are running empty. The people know too many of us have given up just like Tamny.

Boston Herald Calls Obama And Company Biggest Bunch Of Liars Ever

Here:

"Surely there has never been a bigger bunch of liars than the crew currently occupying the White House and the now-departed secretary of state. The steady drip, drip, drip of the Benghazi scandal is now a torrent — one that cries out for a special congressional Select Committee to put it all together email by email, revelation by revelation and lie by lie. ... For eight months the lies have continued. ... There surely must be a special place in hell reserved for those who cried crocodile tears at the death of our ambassador after doing nothing to help keep him safe and everything to cover up the true nature of the attack."

The Anti-Gang-Of-Eight-Bill Lines Of The Day

"A huge amount of American social policy is directed to reducing the number of people in our country who have low levels of skills and education, and it would be bizarre to use our immigration policy to increase that number significantly. Between the temporary-worker program . . . and its increase in low-skill immigration, this bill envisions a very significant increase in that number."

-- Yuval Levin in National Review, here.

Oh well, no more bizarre than imposing new federal taxes on mortgages while we attempt to drive down interest rates to boost home ownership. The ancients called this carding wool into the fire or carrying water in a sieve, the fruitless, eternal occupations of the inhabitants of the infernal regions.

Welcome to hell.

Larry Kudlow Wants To Exploit Immigrant Labor To Help Business, Not People

Here:

The dynamic idea is that immigration significantly increases the size of the U.S. labor force, and that more workers mean more growth.

The labor force has shrunk because there are no jobs, not because there is insufficient labor. If you bring in more labor competition, all you will do is lower the wages available for such jobs as exist, and enrich the employers at the workers' expense.

Sorry pal, more workers means even less opportunity for the Americans already unemployed. The last thing this country needs is more cheap labor undercutting the people who are already here and out of work.

We're all against you, Kudlow! 

The Guaranteed 10% Investment Return

For every ten bucks you earn, save one.

Gold/Oil Ratio Falls To 14.96, Slightly Favoring Gold For First Time Since 2008

Gold is presently trading at 1436.60 in after hours trading, oil at 96.04.

We haven't had a buy gold signal like this since 2008, but it's way too early to really say we should buy gold now. A sustained ratio below 15 is required, and this is just the first week of many weeks required below 15 to say buy gold without qualification.

Still, noteworthy.

Jim Cramer Sucks: Vanguard's Total Market Index Vaults To 41.02

Up 147% since the March 2009 low of about 16.60.

Don't forget, Jim Cramer told you on NBC, the Obama network, the Monday morning after TARP was signed the previous Friday in early October 2008, to sell if you needed your money in five years.

His statement materially contributed to more panic selling and the market lows. Within weeks the market plunged even though TARP was supposed to restore confidence.  By the following April the percentage of the public claiming to own stocks had fallen a full five percentage points from the previous April before the crisis began, according to Gallup, an unprecedented decline of confidence. And the decline has continued another full five percentage points since then.

Let's look at the lows by year as reported by Vanguard, remembering that on Friday, October 3, 2008 VTSMX, a proxy for the total market, closed at 26.62, before Cramer opened his big yap:

Nov. 20, 2008 = 18.00 (a decline of 32% from October 6 when Cramer said "sell"; thanks Jim)

Mar.  9, 2009 = 16.43 (over 38% down after Cramer opened his yap; what's another 6 points, huh?)

Jul. 2, 2010 = 25.36 (this low is already back up to within less than 5% of the pre-Cramer level)

Oct. 3, 2011 = 27.16 (this low for the year firmly 2% above the pre-Cramer level)

Jan. 4, 2012 = 31.75 (this low for the year almost 20% above the pre-Cramer level).

In other words, you had all your money back in three years to the date, despite the damage Cramer caused.

But what if he had just shut up? And what if we just hadn't listened?

Looks Like An Awful Lot Of People Stupidly Took Jim Cramer's Advice In 2008

The percentage of the population claiming stock market ownership plunged dramatically between April 2008 and April 2009 by five points, and has continued to decline by more than a point per year since then as of April 2013.

Jim Cramer told everyone to sell in October 2008 on NBC's Today Show after the panic of September, saying to do so "if you needed your money in five years". Well, if you had just left your money in the market, you'd be sitting pretty right now, four and a half years later. Since March 2009 the broad market is up over 140%, and since October 2008 to March 2013 your real rate of return in the S&P500 index has been +11.88% annually.

Gallup has the story and graph here.

American investing behavior over the long haul is a contrary indicator.

Net Credit Market Debt Contraction In Two Sectors Is Repressing GDP

The domestic financial sector continues net negative in credit market debt outstanding, $3.27 trillion below the October 1, 2008 peak, as of October 2012.

And the household mortgage sector continues net negative in credit market debt outstanding, $1.22 trillion below the January 1, 2008 peak, as of October 2012.

These broken sectors for credit expansion have been large, important channels through which trillions in "money" has historically been created in the economy but no longer is, destroying GDP growth in the process. Until these channels are repaired, or replaced, total credit market debt outstanding will not double every 6-11.5 years as it has since the Second World War, and GDP will not recover to its historic 20th century levels.

TCMDO last doubled between 1999-2007

The level at which total credit market debt owed last doubled starting from 1949 was $49.8 trillion in July 2007. Five years later, in July 2012, the level was only $55.7 trillion when arguably it should have been already $74 trillion.

Something has gone horribly wrong with credit expansion in the United States, and the financial and housing sectors remain ground zero for the problem.

For When "Incompetent" Just Doesn't Convey How You Feel

(see them all, here)

Vanguard Prime Money Market Fund 3yr Return: 0.05% Annually

That figure is not inflation-adjusted, which if it were would mean sizeable negative returns.

Meanwhile the S&P500 Index for the 13 years since 2000, adjusted for inflation, is up 0.05% annually:

Stocks Have Barely Beaten The Lowly Money Markets From The March 2000 Highs

For the full thirteen year period since March 2000 (when the S&P500 reached the last of six annual new high watermarks going back to 1995) to March 2013 (when the index had firmly revisited the 1500 level) stocks have barely beaten the performance of the lowly money markets.

Had you invested $10,000 in, say, the Vanguard S&P500 Index Fund, VFINX, you would have reaped an extra $3,900.02 (39%).

But the same amount invested in Vanguard's Prime Money Market Fund, VMMXX, would have netted you $3,370.96 (33.7%).

Charts from Morningstar using Vanguard data:

Cyclically-Adjusted p/e Above 20 Forecasts Near-Zero 10yr Returns

As discussed here by Mark Hulbert:

Where does the CAPE stand today?

It currently is at 23.3, which is 41% higher than its historical average. While the CAPE’s current level is not as high as the 40+ readings that were registered at the top of the internet bubble, it does not bode well for the next ten years. On average over the last century, the S&P 500 has produced a 10-year inflation-adjusted return of close to zero whenever the CAPE has been above 20.

To be sure, note carefully that this is a 10-year forecast. Even if it turns out to be accurate, it doesn’t mean the market will decline in a straight line between now and 2023. It wouldn’t be inconsistent with this forecast for the market’s impressive recent rally to continue for a while longer, for example.

politicalcalculations.blogspot.com

Hulbert is right. On March 1, 2000 the Shiller p/e stood at 43.22. For the thirteen years from March 2000 to March 2013, your return in the S&P500, adjusted for inflation and with all dividends re-invested, as been exactly +0.05% per annum.

Sort of like investing in a money market fund right now.

Ouch.

By the way, the Shiller p/e this morning stands at 24.14.

GLD is down to 1062 metric tons yesterday

So says Reuters, here:

"Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell a further 0.3 percent to 1,062.30 tonnes or 34.15 million ounces on Monday - the lowest since August 2009."

Barack Obama: The Social-Democratic Philistine Who Embraces The State . . .

"WE GOT YOUR MONEY!"

. . . and fears the people.

Barack Obama, disappointment to true believers everywhere, here at Ohio State University, May 5, 2013:

"Unfortunately, you've grown up hearing voices that incessantly warn of government as nothing more than some separate, sinister entity that's at the root of all our problems. Some of these same voices also do their best to gum up the works. They'll warn that tyranny [is] always lurking just around the corner. You should reject these voices. Because what they suggest is that our brave, and creative, and unique experiment in self-rule is somehow just a sham with which we can't be trusted."

Friedrich Engels, March 18, 1891, here:

"And people think they have taken quite an extraordinary bold step forward when they have rid themselves of belief in hereditary monarchy and swear by the democratic republic. In reality, however, the state is nothing but a machine for the oppression of one class by another, and indeed in the democratic republic no less than in the monarchy; and at best an evil inherited by the proletariat after its victorious struggle for class supremacy, whose worst sides the proletariat . . . cannot avoid having to lop off at the earliest possible moment, until such time as a new generation, reared in new and free social conditions, will be able to throw the entire lumber of the state on the scrap-heap. Of late, the Social-Democratic philistine has once more been filled with wholesome terror at the words: Dictatorship of the Proletariat."

Aren't Keynesianism and Homosexuality Equally Forms Of Psychological Rebellion?

"Despite his Cambridge education, aristocratic manner and wealth, Keynes was also an outsider in his own way. He was an aesthete who enjoyed describing himself as an 'immoralist,' a leading member of that sparkling circle of British intellectuals known as the Bloomsbury group that defied Victorian mores in both art and love. Keynes was married but was also homosexual, a fact that automatically put him in defiance of social convention.

"Keynes's rebellion against economic orthodoxy, as he explained himself, was not derived from the political discontents of socialism and class conflict. It was based on a psychological insight: capitalism was ripe for unprecedented abundance, universally distributed, if only human society could get beyond the stern dogma of the Protestant ethic, the Calvinist ethos that insisted self-denial and suffering were good and necessary for the human spirit. Save for the future, the Calvinist creed taught, and you will be rewarded in the long run and certainly in heaven. 'In the long run,' Keynes observed, 'we are all dead.' Enjoy the here and now, he insisted. Pleasure is good. Suffering is mostly unnecessary."

-- William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Touchstone, 1989), p. 318.

Funniest Chart Ever From The St. Louis Federal Reserve

Someone had a fat finger on the "zero" when updating the not-seasonally-adjusted full-time jobs data for this chart on Friday morning.

The result: 66.48 billion full time jobs in the US in December 1969!

Alas, our country has fallen from a great height indeed.