Juggling Dynamite

The Willshire 5000 is considered the definitive US stock index reflecting the market cap of most publicly traded companies headquartered in America (3,691 as at 2015).  As such, it includes the majority of common shares and REITS traded through the New York Stock Exchange, NASDAQ and AMEX.  And as shown here since June 2014, the Willshire has been tracing out a pretty classic-looking topping pattern since late 2014.

At the same time, US bond yields seem to agree with the Willshire’s woozy outlook.  As shown below, the spread between 5 and 30 year US Treasuries has been flattening since 2014 as well. We noted a similar pattern and growth-non-confidence-vote from the treasury market leading into the recessions and stock bear markets of 2001 and 2007.  Noteworthy formations.

An excellent, simple explanation on why buying wildly over-valued financial assets is locking in a bad investment for years to come.  There is no free lunch.  See Blowing Bubbles: QE and the iron laws:

Look across the room you’re in, and imagine there’s a $100 bill taped in the far upper corner, where the walls and ceiling meet. Imagine you’re handing over some amount of money today, in return for a claim on that $100 bill 12 years from now.

Drop your hand toward to the floor. If you pay $13.70 today for that future $100 cash flow, you can expect an 18% annual return on your investment over the next 12 years.

Raise your hand a little higher. If you pay $25.60 today for that future $100 cash flow, you can expect a 12% annual return on your investment over the next 12 years

Raise your hand just above chest-level. If you pay $39.60 today, you can expect an 8% annual return. Move your hand to the top of your head. If you pay $70.10 today, you can expect a 3% annual return. Raise your hand above your head. If you pay $78.90 today, you can expect a 2% annual return.

Now imagine jumping up and touching the ceiling with your hand. If you pay $100 today for that future $100 cash flow, you’ll earn nothing on your investment over the next 12 years.

The exercise you just did is the single most important thing to understand about long-term investing…

It is contrary to all public interest and safety to allow investment banks to continue making speculative bets backed by FDIC coverage/taxpayers. These firms have to be broken up and forced to gamble only at their own risk.

Taxpayer backed “bank” @GoldmanSachs trades more natural gas than ExxonMobil & Chevron! https://t.co/KPAEFJCtuY @meyer_g6

— Dennis Kelleher (@DennisKelleher1) May 16, 2016