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Events Are Finally Aligning Better With Our Predictions

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  • Mon, Nov 19, 2018 - 09:43pm

    #1

    Adam Taggart

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    Events Are Finally Aligning Better With Our Predictions

Chris and I have been clear about this: the central banks inflated the post-GFC "recovery" much higher and for much longer than we thought possible.

Multiples higher. And years longer.

So to much of the world, Peak Prosperity's warnings of the inevitable repercussions were dismissable. Hey, the sky's not falling and my portfolio continues to go up each month. Therefore, you guys are wrong.

Hard logic to argue with when the ears are then shut.

So we've simply persevered, confident that once the central banks' happy juice begins to wear thin, the reality we've been predicting will re-assert itself. And those who have been listening to us and following our advice will be the better prepared ones.

And it finally seems like that time has arrived.

Many of the developments we've predicted are fast unfolding. Such as:

  • Last November, in Earn More On Your Cash Savings (With Less Risk), we noted that interest rates had bottomed and were likely headed higher. We pointed out the wisdom of purchasing short-term Tbills with your 'dry powder' cash reserves using the TreasuryDirect program to get 20x or higher returns than the banks offer. Since then, interest rates have continued to rise and are now nearly double what they were when we issued our report.
  • Last December 9th, in If You Don't Own Any Bitcoin Read This, we counseled folks to resist the FOMO, warning of a coming South Sea-style bubble burst price wipeout in the crypto space. The Bitcoin mania topped out a week later, and is since down 75%. The other cryptos are down substantially more.
  • This June & July, in A Hard Rain's a-Gonna Fall and The Case For Starting To Build A (Small) Short Position, we noted the mutiplying fundamental and technical reasons why the markets looked weak. So weak that we felt those with a speculative bent and sufficient reserve capital could consider taking a short position. Two months later, the markets began rolling over and are down ~10% from recent highs.
  • Concurrent with our general market warning, in The FAANG-nary In The Coal Mine, we specifically cautioned investors about the vulnerability of the perennial-darling FAANG stocks. Since then, most FAANG stocks are down ~20%

The point here is that developments are finally beginning to align much better with the reality-based lens we look through here at PeakProsperity.com.

Should that continue from here (and we think it will), expect the world to get a lot rockier in the coming months…

And we'll be here, chronicalling events and predicting which developments will be most likely to happen next.

Things are finally getting interesting.

  • Tue, Nov 20, 2018 - 05:50am

    #2
    pgp

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    I don’t think many people disagree

I don’t think many people with their eyes open disagree with the predictions/observations made by PP.  The problem we face is more one of time-scale.  Knowing there is an end doesn’t help without an end-date.  Every investor knows that reacting too soon is often just as damaging to financial success as taking action too late. 

The global financial sky should have fallen years or even decades ago, but it turns out that collapse is always preceded by a long period of decline.  Not just from doomed to fail government intervention but because it takes time for people to let go of propsperity, real or manufactured.  It is important to survive that period of decline, not by preparing for an early end but by accepting the fate that humanity has created for itself and adapting where possible.

In every decline there rises a rich man.  In every prosperous period there are the indigent.  In every war there are survivors.  Often the lucky are just that, unplanned winners.  Ultimately contentment (happiness to the layman) doesn’t come from analysing predictions and planning for the worst, it comes from intelligent acceptance.

  • Fri, Nov 23, 2018 - 06:19pm

    #3
    Uncletommy

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    Black Friday; aptly named!

To gives thanks on Thursday and to acknowledge the contentment of what you have has lost its meaning in the buying frenzy of the pre-Christmas rush. Consumption used to be a medical condition. It has, now, become a psychological malady.

  • Mon, Dec 03, 2018 - 09:42pm

    #4
    brushhog

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    Mostly right on

The only point I take exception to is the advice on short term treasuries. If you bought them last year, then they are down in value and you arent getting the interest rates that are being offered now. Not a huge deal but the timing was a little off. The best time to buy treasuries is right now, as interest yields have probably peaked and values are down. Buy them up now and get close to 3% on the 2 year with a chance of rising value over the next year when they start slashing rates.

  • Mon, Dec 03, 2018 - 10:53pm   (Reply to #4)

    #5

    Adam Taggart

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    brushhog wrote:The only

brushhog wrote:

The only point I take exception to is the advice on short term treasuries. If you bought them last year, then they are down in value and you arent getting the interest rates that are being offered now. Not a huge deal but the timing was a little off. The best time to buy treasuries is right now, as interest yields have probably peaked and values are down. Buy them up now and get close to 3% on the 2 year with a chance of rising value over the next year when they start slashing rates.

brushog —

Let me clarify as I disagree with several of your points. Mainly, I think you’re confusing short-term T-bills with longer duration Treasury notes and bonds:

  1. We recommended putting bank cash into short-term Treasurys instead for several reasons, the prinicipal one being that Treasurys at the time were yielding over 20x more than the average bank savings account. Short-term Treasury yields have nearly doubled since then, making the comparison even more attractive vs bank accounts.
  2. We focused on short-term Treasurys because they are designed to be held to maturity, which is easy to do as their durations are very short (a few weeks to a few months). If you stick to that plan, you always get the interest + 100% of your principal back. So you don’t lose any money from any bills you buy “going down in value” as interest rates keep rising.
  3. We proposed considering creating a rolling ladder of T-bill investments as long as interest rates are rising, with the proceeds being automatically reinvested. This way, you benefit over time by rising rates — getting a higher yield every time your bills rollover. (And of course, should rates suddenly fall, your current bills won’t lose you any money if you hold them to maturity. You may want to stop the reinvestment schedule, though.) This is what I personally have been doing.

Those who have followed these steps since we first suggested them have benefitted very well vs had they kept their money in a low-yielding bank savings or money market account. Plus they’ve had the peace of mind knowing their money isn’t subject to bank failure/bail-in risk. So I still stand by this call by PP.com as being very sound.

Last, your proposed strategy of buying now and gaining appreciation as interest rates start going down applies to Treasury notes and bonds. In this case, you’re speculating — and T-bills are not the right vehicle for this. Primarily due to their very short durations

 

  • Tue, Dec 18, 2018 - 05:13pm

    #6

    Snydeman

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    Thought experiment II

Double-posting this out in a more public venue, to garner more thoughts from PP members…

 

Ok, so let’s do a thought experiment here. I’m not trying to show off my own resarch or cognitive ability, so much as see if I’ve “gotten right” many disparate things I’ve read here, on Wolf’s/Charles’s sites, ZH, etc.

 

If the economy turns sour – no, when it turns sour – there are a few ways this may play out, and a few things the Fed might possibly do. As recession hits, credit will begin freezing up, we will likely have some big-time bankruptcies/fund closures, lay-offs, and all the things that come with a downturn. The Fed could:

 

a) Do nothing. Let the market clear itself. Pent-up pain is released across the nation and globe as the cumulative bill of propping up zombie companies and saving the grain and chaff in the last two downturns finally comes due. Massive losses across every part of the economic landscape and among every asset class. Huge job losses. Yellow vests emerge and social dislocation, political and social unrest hit like we’ve never seen in modern times. Essential services eventually break down, starvation hits, and it becomes bad enough that we’ll wish things were as good as in “Mad Max.” We’ll call this the F-SSHTF (Full-Scale Shit Hits The Fan) scenario. For a full run-down of how this scenario would play out, see any of the many books on the topic. 

Highly unlikely without some action from the Fed or Federal Government

 

b) Lower interest rates again. Well, they don’t have far to fall, but could we take rates into the negative? Either way, savers and pensioners get hammered. Pension plans or anything based on fixed income assets gets monkey-stomped. Debt skyrockets even higher. Pension plans either get re-structured in favor of anyone but pensioners, eliminated all together, or used as justification to hike taxes even further. Yellow vests emerge, and there would likely be political and social blowback too, once the pain of losing fixed-income becomes readily apparent to a big enough majority. PLUS this further distorts the “”markets”” in the way that brought us here to begin with, so it ultimately solves nothing, and only stalls for time. 

Likely, but largely ineffective.

 

c) Quantitative Easing IV. Inject more liquidity into financial markets and sectors than ever before. This further props up credit, but also keeps zombie companies alive and does not allow the non-performing loans, shitty businesses, or stupidity from clearing out of the system. It also further enriches the silly-wealthy at the expense of everyone else, exacerbating the existing wealth gap and leading to even more unrest among the populus. “”Markets”” remain distorted, inflation among luxury goods continues. Eventually, Yellow vests emerge and political/social unrest and radicalization (defined by me as voting further left or further right on the political spectrum). PLUS this further distorts the “”markets”” in the way that brought us here to begin with, so it ultimately solves nothing, and only stalls for time. 

Likely, but largely ineffective.

 

d) Some combination of B and C. See B and C. 

Likely, but largely ineffective.

 

e) Quantitative Easing Fo’ Da’ Peeps. Either through debt forgiveness, helicopter money, tax refund/holiday, or some other mechanic I can’t foresee, cash money is handed directly to the people. There is a great rejoicing among the vast majority of people, while the aware among us begin quietly buying every hard asset we can get our hands on (the rich and connected will beat us to it, though). By the time the imminent and unavoidable devaluation of the currencies that results from willy-nilly “printing for the people” becomes apparent to Joe or Jane Doe, prices have already begun to climb high enough to essentially nullify the cash hand-out, or worse, bring on a hyper-inflationary cycle. It also pulls forward production and resource-depletion from the future into today, thus hastening the Environment portion of the three Es in the Crash Course. See A, second half.

Most likely, imo, since it’s not been tried yet AND would be the most politically popular.

 

f) Hunger Games. Governments, colluding with central banks or not, foresee these events and take steps to begin rationing major products, sending the military and police forces out to patrol the streets, and otherwise controlling everything in order to facilitate the transition to a “New Dawn,” which inevitably will resemble twilight far more than dawn, and which will inevitably fail, because…well…have you seen how incompetent the government seems at these things?

Inevitable at some juncture, I fear.

 

I dunno. I see no way the Yellow Vests don’t come out in greater and greater numbers, nor do I see any path forward which does not end in pain. I feel very sorry for Jerome Powell, that much is certain.

 

Please, feel free to further exptrapolate on this thought experiment, or add to/detract from it as you see fit. I’m only one person and can’t see all ends. I’d love to be proven wrong in my pessimissm.

 

May the odds never be in their favor.

 

-S

  • Tue, Dec 18, 2018 - 06:57pm   (Reply to #4)

    #7
    MGRS

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    Treasury bond funds vs direct hold to maturity

brushhog wrote:

The only point I take exception to is the advice on short term treasuries. If you bought them last year, then they are down in value and you arent getting the interest rates that are being offered now. Not a huge deal but the timing was a little off. The best time to buy treasuries is right now, as interest yields have probably peaked and values are down. Buy them up now and get close to 3% on the 2 year with a chance of rising value over the next year when they start slashing rates.

 This may be true if you bought a treasury bond fund/ETF, which is different than directly holding the bonds/notes to maturity through Treasury Direct — which is what Adam and Chris recommended in their Treasury Direct piece. 

Bond funds/ETFs are subject to interest rate risk – if future bond yields go up, your current yields are worth less so the price the market is willing to pay for your now substandard bonds is less.  Your bond fund/ETF goes down in value, because why would a new investor buy your fund’s bonds when they can get a new bond at a better rate?

Contrast that to direct holding.  The govt offers you a rate of return, you take it, you hold to maturity.  There is no secondary market to lowball you once you’ve bought the note.  The govt just pays you back at maturity plus interest.  I’ve been quite happily collecting 2+ish percent annualized returns through Treasury Direct by holding 28 day notes directly.  Almost zero chance of losing money, no matter what the stock/bond market does — short of a US govt default. 

  • Thu, May 02, 2019 - 03:23pm

    #8

    Adam Taggart

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  • Tue, Jun 18, 2019 - 02:48pm   (Reply to #6)

    #9

    Barbara

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    re: Thought experiment – more thoughts on scenarios

So the Yellow Vests flood the streets?  Perhaps I’m getting jaded, but protestors don’t accomplish much in the US.

In the 60’s spoiled students had temper tantrums about Vietnam.  On my campus many protesters were draft dodgers taking minimum course loads with minimum grades.  For others -just another adolescent game.  Result-stopped student deferments and went to a lottery system.    Ended when they blew up a “military” research building and murdered a grad student who wasn’t even doing weapons research.  Not much different than my two-year old’s temper tantrums and no more effective in changing the power structure.

2008 – Occupy Wall Street – again lots of protestors, very little constructive action.  We asked the local group if they’d like to get involved in real local projects (community gardens, fixing homes, etc.).  No, that might take time away from their protest activities, although as near as we could tell nobody paid any attention to them.

Survivalists’ armed militias?  Probably ends like Waco.  Any of our local national guard units could take them out in a couple of hours.

Racial protesters that turn violent and destroy their own neighborhoods?

What I’m saying is I do expect the Yellow Vest look-alikes to come out and throw temper tantrums.  To absolutely NO effect.  The power structure could care less if they’re unpopular with the rabble and the protestors don’t actually want to get engaged in any constructive activity.  They just want to scream and throw things.

So likely scenario, a slow decline with more bread and circuses, including the Yellow Vest circus and the social media circus.

So what could stop everything? Real-world limits to growth, not governmental machinations and not citizen discontent.

  • Lack of energy either from foreign oil embargos or terrorist damage to facilities.
  • weather-driven crop failures several years in a row
  • increasing weather-related disasters
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