The Last 15 Years In the DJIA: 0.14% Annual Return

Submitted by Simon Black via Sovereign Man blog,

One of the great myths about investing that we’re told by the mainstream investment education is that we should “buy and hold” for the long term.

I remember being taught in a personal finance class long ago that I should just buy the S&P 500 index, walk away, and that years later I will have achieved huge gains.

The premise is that over a long period of time, it doesn’t really matter at what point you get in and out. The long-term trend of the stock market portends that you will make money.

It’s those kinds of investing myths that become axiomatic through repetition. You keep hearing the same thing over and over again and pretty soon people believe it.

Let’s look at the data.

It’s true that stock markets have plenty of peaks and troughs. Going back to the last relative peak, the Dow Jones Industrial Average (DJIA) hit just over 14,000 in October 2007; back then this was an all-time high.

If you had bought the DJIA back then, your return on the increase in share prices through today would work out to be a measly 3.5% on an annualized basis.

If you adjust that for taxes and inflation (even using the government’s own monkey numbers for inflation), you’re looking at a real rate of just 1.2%.

Now just think about everything that you saw in the last 7 years. The volatility. The risk. The turmoil.

Was it worth it? Probably not.

But if we go back further and hold an even longer-term view, the picture must brighten, right?

Let’s go to the peak before that. In early 2000, stocks once again reached what back then was an all-time high.

If you had bought the S&P 500 index back then (which is exactly what I was told at precisely the time that I was told), your annualized rate of return through today would be just 2.17%.

If you adjust that number for taxes and inflation, your real rate of return would be a big fat 0.14%… as in less than 1%. It’s practically ZERO.

Think about what you saw over the last 15 years in the markets—the collapse after 9/11, interest rates cut to zero, interest rates ratchet up again, huge swoons in markets, the credit crunch, Lehman’s collapse, the debt ceiling debacle, etc.

Is all that really worth a return of 0.14% per year? (i.e. 14 cents on every $100 invested)

It makes absolutely zero sense to do this with our money. But that’s what we’re forced into right now with most conventional investments at their all-time highs.

Bottom line—you don’t HAVE to be invested in the market. Sometimes the best investment you make is the investment you don’t make.

The challenge is, of course, that if you’re not invested in the market, your money is just sitting at the bank, earning less than the rate of inflation.

Welcome to the world of mainstream financial options. You’re damned if you do and damned if you don’t.

The conclusion here is very simple. It’s time to move on from the mainstream. There’s too much technology and too many global options now to be lulled into conventional investments that are born to lose.

What a Random Coincidence: 9-11 Conspiracy and Back to the Future

This could make one a believer in a conspiracy to commit murder on 9-11-2001.  Whether one chooses to believe this report or not is not irrelevant.  The crime was committed and who did it is still a question on everyone's mind, especially now as Joe Biden threatens us with speeches about following ISIS to the Gates of Hell.  (Who the hell does he think he is? His son is sitting on the board of directors for a natural gas company named Burisma operating in eastern Ukraine.  His son will not be sent to the front lines with Joe the Plummer's kids.)

Our entire foreign policy since 9-11-2001 has been about engaging in the Judeo-Christian-Muslim terrorist hoax (otherwise known as the "religious holy wars"), and this time ISIS has more advanced weaponry than Israel, and they are out of control, corporate toy soldiers, pirates, and mercenaries.

What's important to realize is that many of us world citizens believe in following the law, and that's precisely but not exclusively why we as a nation are so concerned about the cost of living, yet we do nothing about it until it's too late.

Meanwhile, mind games like the one depicted in the short film below and sick and evil.  Their use of psychological warfare, chemical weapons, and media propaganda machines exposes their "soft power" as it was referred to many years ago.

Anyway, pay attention and keep digging.  Think about the best way to fight this power and make public suggestions online for all to see.

Hey, maybe it's me.  I'm just noticing a random coincidence.  Right?  Look again.  Probably so.  Hindsight is 20/20.  Without seeing the original script and asking the directors, producers, and actors any questions, we cannot ascertain whether there was supposed to be any likeness to a future event.

If good ole Michael J Fox were to say to you "Hey Doc, I got to tell you something about the future." Would you listen?

I guess I need to look into synchromysticism.  Looks like a bunch of random coincidences to me. 

30-300% Inflation on Goods You Buy Since 2000

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

We're being hit with a double-whammy: Wages are under deflationary pressure, and almost everything else is exposed to inflationary pressure.

As correspondent Mark G. observed in Globalization = Permanent Instability, it's impossible to understand inflation and deflation now except in a global context.

Now that prices for commodities such as oil and grain are set on the global market, local surpluses don't push prices down. If North America has record harvests of grain, on a national basis we'd expect prices to fall as local supply exceeds local demand.
 

But since grain is tradable, i.e. it can be shipped to other markets where demand and thus prices are much higher, the price in North America reflects supply and demand everywhere on the planet, not just in North America.
 

If we put ourselves in the shoes of a farmer or grain wholesaler, this is a boon: why sell your product for 1X locally, when it fetches 2X in other countries? You'd be crazy not to put it on a boat and get double the price elsewhere.
 

As the share of the economy exposed to digitization increases, so does the share of work that can be done anywhere on the planet. When work is digitized, it is effectively commoditized, meaning that it no longer matters who performs the work or where they live.
 

If people in countries with low wages can perform the work, why on Earth would you pay double to have high-wage people do the work? It makes no sense. Taking advantage of the differences in local pay scales is called labor arbitrage, as the employer is trading on (i.e. arbitraging) two sets of prices.
 

It's not just labor that can be arbitraged: currency, interest rates, risk, environmental regulations, commodities--huge swaths of the global economy can be arbitraged.
 

The basic idea of the global carry trade is to borrow money cheaply in a currency that's weakening and use the money to buy low-risk, high-yield assets in currencies that are gaining in relative value.

It's a slam dunk arbitrage: not only does the trader earn an essentially free return (borrowing yen at 1%, for example, converting the yen to dollars and buying Treasury bonds paying 3%), but there is a bonus yield on the dollar strengthening against the yen: a two-fer return.
 

Global labor is in over-supply--one reason why wages in the U.S. have been declining in real terms, i.e. when inflation is factored in. The better description is purchasing power: how much can your paycheck buy?
 

Here is a chart reflecting the decline in purchasing power of U.S. earnings since 2006:
 

Courtesy of David Stockman, here is a chart of inflation (i.e. loss of purchasing power) since 2000:
 

Whatever isn't tradable can skyrocket in cost because, well, it can--since there's little competition in healthcare and school districts, both of which operate as quasi-monopolies, school administrators can skim $600,000 a year: Fired school leaders get big payouts:
 

A former Union City, CA superintendent took home more than $600,000 last year, making her the top earner on a new online database tracking salary and benefit information for California public school employees.
 

Since healthcare is only tradable at the margins, for example, medical tourism, where Americans travel abroad to take advantage of treatments that are 20% the cost of the same care in the U.S., healthcare costs can rise 500% when measured as a percentage of wages devoted to healthcare:
 

Note that this doesn't mean that healthcare costs rose along with wages--it means a larger share of our earnings is going to healthcare than ever before. Other than a brief period in the 1990s when productivity gains drove wages higher, healthcare costs have risen faster than earnings every decade. The consequence is simple: the more of our earnings that go to healthcare, the less there is for savings, investments and other spending.
 

In a way, we're being hit with a double-whammy: whatever can't be traded, such as the local school district and hospital, can charge outrageous fees and pay insiders outrageous sums for gross incompetence, while whatever can be traded can go up in price based on demand and currency fluctuations elsewhere.
 

Meanwhile, as labor is in over-supply virtually everywhere, wages are declining when measured in purchasing power. Wages are under deflationary pressure, and almost everything else is exposed to inflationary pressure. No wonder we feel poorer: most of are poorer.

re: inflation, #auditthefed, #ENDTHEFED

Permanent Damage Has Been Done to the American Economy

From 4th Media

The last major wave of the economic collapse did a colossal amount of damage to our economic foundations, and now the next major wave of the economic collapse is rapidly approaching. 

#1 EmploymentThe mainstream media is constantly telling us about the “employment recovery” that is happening in the United States, but the truth is that it is just an illusion.  As the chart below demonstrates, just prior to the last recession about 63 percent of all working age Americans had a job. During the last wave of the economic collapse, that number dropped to below 59 percent and stayed there for a very long time.  In the past few months we have finally seen the employment-population ratio tick back up to 59 percent, but we are still far, far below where we used to be. To call the tiny little bump at the end of this chart a “recovery” is really an insult to our intelligence… 

 

#2 The Labor Force Participation Rate The percentage of Americans that are either employed or currently looking for a job started to fall during the last recession and it has not stopped falling since then.  The labor force participation rate has now fallen to a 36 year low, and this is a sign of a very, very sick economy… 



 #3 The Inactivity Rate For Men In Their Prime Years Some blame the decline in the labor force participation rate on the aging of our population.  But it isn’t just elderly people that are dropping out of the labor force.  In fact, the inactivity rate for men in their prime working years (25 to 54) continues to rise and is now at the highest level that has ever been 
recorded… 

 

#4 Manufacturing EmployeesOnce upon a time in America, anyone that was reliable and willing to work hard could easily find a manufacturing job somewhere.  But we have stood by and allowed millions upon millions of good paying manufacturing jobs to be shipped out of the country, and now many of our formerly great manufacturing cities have been transformed into ghost towns.  Over the past few years, there has been a slight “recovery”, but we are still well below where we were at just previous to the last recession… 

 

#5 Our Current Account Balance As a nation, we buy far more from the rest of the world than they buy from us.  In other words, we perpetually consume far more wealth than we produce.  This is a recipe for national economic suicide.  Our current account balance soared to obscene levels just prior to the last recession, and now we have almost gotten back to those levels…

  

#6 Existing Home Sales Our economy has never fully recovered from the housing crash of 2007-2008.  As you can see from the chart below, the number of existing home sales is still far below the level that we hit back in 2006.  At this point we are just getting back to the level we were at in 2000, but our population today is far larger than it was back then… 

 

#7 New Home Sales Things are even more dramatic when you look at new home sales.  This is an industry that have been absolutely emasculated.  The number of new home sales in the United States is just a little more than half of what it was back in 2000, and it isn’t even worth comparing to what we experienced during the peak of 2006. 

 

#8 The Monetary Base In a desperate attempt to get the economy going again, the Federal Reserve has been wildly printing money.  It has been so reckless that it is hard to put it into words.  When I look at this chart, the phrase “Weimar Republic” comes to mind…

 

#9 Food Inflation Thankfully, much of the money that the Federal Reserve has been injecting into the system has not made it into the real economy.  But enough of it has gotten into the system to force food prices significantly higher.  For example, my wife went to the store today and paid just a shade under 10 bucks for just four pieces of chicken.  And as you can see from the chart below, food prices have been steadily going up in America for a very long time… 

 

#10 The Velocity Of Money One of the reasons why we have not seen even more inflation is because the velocity of money is extraordinarily low.  In general, when an economy is healthy money tends to flow through the system rapidly.  People are buying and selling and money changes hands frequently.  But when an economy is sick, money tends to stagnate.  And that is exactly what is happening in the United States right now.  In fact, at this point the velocity of the M2 money stock has dropped to the lowest level ever recorded… 



#11 The National Debt As our economic fundamentals have deteriorated, our politicians have attempted to prop up our standard of living by borrowing from the future.  The U.S. national debt is on pace to approximately double during the Obama years, and it increased by more than a trillion dollars in fiscal year 2014 alone.  Despite assurances that “the deficit is under control”, the federal government borrows about a trillion dollars a year to fund new spending in addition to borrowing about 7 trillion dollars to pay off old debt that is coming due.  What we are doing to future generations of Americans is absolutely criminal, and it is just a matter of time before this Ponzi scheme totally collapses… 



 #12 Total Debt Of course it is not just the federal government that is gorging on debt.  When you add up all forms of debt in our society (government, business, consumer, etc.) it comes to a grand total of more than 57 trillion dollars.  This total has more than doubled since the year 2000… 

 

If you know anyone that believes that we are in good economic shape, just show them these charts. The numbers do not lie.  Our economy is sick and it is getting sicker by the day. And of course the next major financial crisis could strike at any time.  U.S. stocks just experienced their worst week in three years, and if cases of Ebola start popping up around the country the fear that would cause could collapse our economy all by itself. The debt-fueled prosperity that we are enjoying today is not real.  We are living on the fumes of our past, and every single day our long-term problems get even worse. 

Anyone with half a brain should be able to see what is coming. Sadly, most Americans will continue to deny the truth until it is far too late. ———
- - A former Washington, D.C., attorney, Michael Snyder 

Central Banks Need $200 Billion Per Quarter To Avoid A Market Crash

From Zerohedge:

We have all seen it countless times before: visual confirmation that without the Fed's (and all other central banks') liquidity pump, the S&P would be about 70% lower than were it is now.

Most recently, this was shown last Friday in "Another Reminder How Addicted Markets Still Are To Liquidity" in which Deutsche bank's Jim Reid said:

The recovery from the lows after Bullard spoke yesterday is another reminder how addicted markets still are to liquidity. Indeed in today's pdf we reprint and  update a table from our 2014 Outlook showing the various phases of the Fed's balance sheet expansion and pausing over the last 5-6 years and its impact on equities and credit. We have found that the relationship broadly works best with markets pricing in the Fed balance sheet move just under 3 months in advance. We've also included our oft-used chart of the Fed balance sheet vs the S&P 500 to help demonstrate this. So end July / early August 2014 was always the time that this relationship suggested markets should enter a new more difficult phase. So we still think central bankers hold the key to markets going forward and there seems to be a hint of change in the Fed.

Another view was shown over the weekend, in "The Chart That Explains Why Fed's Bullard Wants To Restart The QE Flow" which shows that when the Fed's excess reserve firehose is turned on Max, stocks surge; when it isn't - as has been the case recently - they tumble.

So now that "best Keynesian practices" are out of the window, and everyone has once again turned Austrian, and only the "flow of money" (either inside or outside) matters, the question is how much do central banks need to inject to keep the stock market from crashing, let alone continuing to levitate. Luckily, Citi's Matt King has just done the math, and the answer is...

Here is his answer:

We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices. Figure 5 shows the rolling 3m combined liquidity injection by the Fed, the ECB, the BoE and the BoJ, plotted against the rolling 3m change in spreads. While the relationship is not perfect – liquidity flows across asset classes and across borders, and there are announcement and confidence effects in addition to the straightforward impact on net supply – it is this, not fundamentals, which we would argue has been the major driver of markets for the past few years (Figure 6 shows the same series plotted against global equities).

In case anyone missed it, and in case there is still any debate about this issue which we first explicitly stated nearly 6 years ago and were widely mocked by the all too serious intelligentsia, here is the key sentence again:

"it's the liquidity injections, not fundamentals, which we would argue has been the major driver of markets for the past few years."

And with that piece of New Normal trivia behind us, we continue:

For over a year now, central banks have quietly being reducing their support. As Figure 7 shows, much of this is down to the Fed, but the contraction in the ECB’s balance sheet has also been significant. Seen from this perspective, a negative reaction in markets was long overdue: very roughly, the charts suggest that zero stimulus would be consistent with 50bp widening in investment grade, or a little over a ten percent quarterly drop in equities. Put differently, it takes around $200bn per quarter just to keep markets from selling off.

If anyone ever needed any confirmation of what we said in June 2012, that "The Stock Is Dead, Long-Live The Flow: Perpetual QE Has Arrived", now you have it, and only qualified but quantified. Because to translate what Matt King - Citi's most respected strategist and the only person on Wall Street to warn about the Lehman collapse and its consequences before it happened, just said - if and when the global central bank liquidity tracker ever drops to $200 billion per quarter or less, the market will crash.

Permanent Damage Has Been Done To The US Economy

From Zerohedge:

Submitted by Michael Snyder via The Economic Collapse blog,

Most people that discuss the "economic collapse" focus on what is coming in the future.  And without a doubt, we are on the verge of some incredibly hard times.  But what often gets neglected is the immense permanent damage that has been done to the U.S. economy by the long-term economic collapse that we are already experiencing.  In this article I am going to share with you 12 economic charts that show that we are in much, much worse shape than we were five or ten years ago.  The long-term problems that are eating away at the foundations of our economy like cancer have not been fixed.  In fact, many of them continue to get even worse year after year.  But because unprecedented levels of government debt and reckless money printing by the Federal Reserve have bought us a very short window of relative stability, most Americans don't seem too concerned about our long-term problems. 

They seem to have faith that our "leaders" will be able to find a way to muddle through whatever challenges are ahead.  Hopefully this article will be a wake up call.  The last major wave of the economic collapse did a colossal amount of damage to our economic foundations, and now the next major wave of the economic collapse is rapidly approaching.

#1 Employment

The mainstream media is constantly telling us about the "employment recovery" that is happening in the United States, but the truth is that it is just an illusion.  As the chart below demonstrates, just prior to the last recession about 63 percent of all working age Americans had a job.  During the last wave of the economic collapse, that number dropped to below 59 percent and stayed there for a very long time.  In the past few months we have finally seen the employment-population ratio tick back up to 59 percent, but we are still far, far below where we used to be.  To call the tiny little bump at the end of this chart a "recovery" is really an insult to our intelligence...

#2 The Labor Force Participation Rate

The percentage of Americans that are either employed or currently looking for a job started to fall during the last recession and it has not stopped falling since then.  The labor force participation rate has now fallen to a 36 year low, and this is a sign of a very, very sick economy...

#3 The Inactivity Rate For Men In Their Prime Years

Some blame the decline in the labor force participation rate on the aging of our population.  But it isn't just elderly people that are dropping out of the labor force.  In fact, the inactivity rate for men in their prime working years (25 to 54) continues to rise and is now at the highest level that has ever been recorded...

#4 Manufacturing Employees

Once upon a time in America, anyone that was reliable and willing to work hard could easily find a manufacturing job somewhere.  But we have stood by and allowed millions upon millions of good paying manufacturing jobs to be shipped out of the country, and now many of our formerly great manufacturing cities have been transformed into ghost towns.  Over the past few years, there has been a slight "recovery", but we are still well below where we were at just previous to the last recession...

#5 Our Current Account Balance

As a nation, we buy far more from the rest of the world than they buy from us.  In other words, we perpetually consume far more wealth than we produce.  This is a recipe for national economic suicide.  Our current account balance soared to obscene levels just prior to the last recession, and now we have almost gotten back to those levels...

#6 Existing Home Sales

Our economy has never fully recovered from the housing crash of 2007-2008.  As you can see from the chart below, the number of existing home sales is still far below the level that we hit back in 2006.  At this point we are just getting back to the level we were at in 2000, but our population today is far larger than it was back then...

#7 New Home Sales

Things are even more dramatic when you look at new home sales.  This is an industry that have been absolutely emasculated.  The number of new home sales in the United States is just a little more than half of what it was back in 2000, and it isn't even worth comparing to what we experienced during the peak of 2006.

#8 The Monetary Base

In a desperate attempt to get the economy going again, the Federal Reserve has been wildly printing money.  It has been so reckless that it is hard to put it into words.  When I look at this chart, the phrase "Weimar Republic" comes to mind...

#9 Food Inflation

Thankfully, much of the money that the Federal Reserve has been injecting into the system has not made it into the real economy.  But enough of it has gotten into the system to force food prices significantly higher.  For example, my wife went to the store today and paid just a shade under 10 bucks for just four pieces of chicken.  And as you can see from the chart below, food prices have been steadily going up in America for a very long time...

#10 The Velocity Of Money

One of the reasons why we have not seen even more inflation is because the velocity of money is extraordinarily low.  In general, when an economy is healthy money tends to flow through the system rapidly.  People are buying and selling and money changes hands frequently.  But when an economy is sick, money tends to stagnate.  And that is exactly what is happening in the United States right now.  In fact, at this point the velocity of the M2 money stock has dropped to the lowest level ever recorded...

#11 The National Debt

As our economic fundamentals have deteriorated, our politicians have attempted to prop up our standard of living by borrowing from the future.  The U.S. national debt is on pace to approximately double during the Obama years, and it increased by more than a trillion dollarsin fiscal year 2014 alone.  Despite assurances that "the deficit is under control", the federal government borrows about a trillion dollars a year to fund new spending in addition to borrowing about 7 trillion dollars to pay off old debt that is coming due.  What we are doing to future generations of Americans is absolutely criminal, and it is just a matter of time before this Ponzi scheme totally collapses...

#12 Total Debt

Of course it is not just the federal government that is gorging on debt.  When you add up all forms of debt in our society (government, business, consumer, etc.) it comes to a grand total of more than 57 trillion dollars.  This total has more than doubled since the year 2000...

If you know anyone that believes that we are in good economic shape, just show them these charts.

The numbers do not lie.  Our economy is sick and it is getting sicker by the day.

And of course the next major financial crisis could strike at any time.  U.S. stocks just experienced their worst week in three years, and if cases of Ebola start popping up around the country the fear that would cause could collapse our economy all by itself.

The debt-fueled prosperity that we are enjoying today is not real.  We are living on the fumes of our past, and every single day our long-term problems get even worse.

Anyone with half a brain should be able to see what is coming.

Sadly, most Americans will continue to deny the truth until it is far too late.

#EndTheFed T-Shirt Ideas

Here's one. Click the link for another via Google search.