Investing in the Second Lost Decade. IFTA Europe Martin J. Pring. Pring.com. PringTurner.com

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1 Investing in the Second Lost Decade IFTA Europe 2014 Martin J. Pring

2 pring.com/ifta-2014.html 1. Copy of this presentation 2. Copy of article Is the Secular Bear Market About to Resume? 3. Copy of latest newsletters

3 US Stock Prices S&P Composite These look like trading ranges. New high 22% above 2000? % higher than % higher than 1902 Source S&P

4 Deflated US Stock Prices ( ) Deflated S&P Composite Trading ranges in nominal terms bear markets in reality ?

5 March 2000 CPI Adjusted S&P = 8.75 February 2014 CPI Adjusted S&P = year loss = 9.7%

6 S&P versus MSCI World Index (Deflated) Deflated S&P Composite

7 S&P versus MSCI World Index (Deflated) Deflated MSCI World Stock Index

8 Causes of Secular Bear Markets in Equities Structural Psychological Unstable Commodity Prices

9 ECRI Weekly Leading Indicator ECRI Weekly Leading Indicator Secular Bear Secular Bull Secular Bear Red = Recessions

10 Nonfarm Payrolls/Involuntary Part Time Workers Nonfarm Payrolls/Involuntary Part Time Secular Bull Secular Bear Secular Bull Secular Bear

11 Annual Working Age Population Growth and Projection??????

12 Causes of Secular Bear Markets in Equities Structural Psychological Unstable Commodity Prices

13 Real Earnings are not Correlated to Stock Prices ( ) 4 Inflation Adjusted Equities Shiller Real Earnings (10-year MA)

14 Deflated US Stock Prices versus Shiller P/E Ratio CPI Adjusted S&P Composite 19-years/ 69% decline/ 6 recessions 19-years/ 67% decline/ 4 recessions 16-years/ 62% decline/ 4 recessions 12-years/ 60% decline/ 2 recessions Shiller P/E??

15 Causes of Secular Bear Markets in Equities Structural Psychological Unstable Commodity Prices

16 Deflated US Stock Prices vs US Commodity Prices ( ) CPI Adjusted S&P Composite Commodity Prices

17 Secular Trends for Commodities

18 US Commodity Prices US Commodity Prices Average bull=19-years Average bear=21-years Current bull is 13-years old.

19 US Commodity Prices CRB Spot Raw Industrials Upside reversal Price Oscillator (60/360)

20 Secular Trends for Bonds

21 US Government Bond Yields US Govt Bond Yields (20-30-years) 31-years Average=30-years Average=25-years 29-years 40-years 21-years 21-years

22 US Government Bond Yields US Govt Bond Yields (20-30-year) Trendline and MA at 4.1%. Green plot when 9-EMA is above 96-month EMA. 96-month EMA 96-month EMA vs 9-month EMA 9-month EMA

23 Secular Trend Reversals Characterised by Extreme Swings in Psychology

24 US Government Bond Yields US Govt year Yield Great volatility at Record reading secular reversal. ROC (12) Exhaustion move

25 Bnd Yields versus Commodity Prices( ) Government Bond Yields Commodity Prices??

26 II. Investing Around the Business Cycle

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28 ECRI Leading, Coincident and Lagging Indicator Momentum Leading Coincident Lagging

29 Bonds Are all part of the business Stocks cycle sequence. Commodities

30 Idealized Business Cycle S B C Growth Contraction C B S

31 S&P Composite vs Coincident Indicator Momentum ( ) S&P Composite Coincident Indicators (1/9 trend deviation)

32 The Double Cycle B S Growth declines but does not go negative. C B Double Cycle Economy growing Economy contracting C B S C B S Approximately 41-months between cyclic lows

33 Introducing the Six Stages

34 Idealized Business Cycle B 4 S 5 C 6 B S Bonds C Stocks Commodities

35 The Market s Discounting Mechanism If the stock market discounts the economy then. individual stock market sectors should discount the economic sector they represent!

36 How Market Sectors Lead Economic Sectors Homebuilders lead housing Capital goods stocks lead capital spending Homebuilders Housing Capital spending stocks Capital spending

37 Homebuilders vs. Housing Starts Home Builders Housing Starts Home Builder KST Housing Start KST

38 Homebuilders vs. Housing Starts( ) Housing Start KST Home Builder KST

39 Pring Pring Six Six Stages XHB IAI IEO XLV CARZ XME IYW XRT GDX XLP SMH

40 Where are we now?

41 Idealized Business Cycle B 4 S 5 C 6 B S Bonds C Stocks Commodities

42 Government 5-year Bond Yield Government 5-year Yield Short-term Momentum Reversing to the upside Long-term Momentum Still bullish for yields

43 German Bun LIFFE Bund Possible top KST Still falling

44 German Bun LIFFE Bund Key level is 139 Short-term KST Sell signal Intermediate KST Long-term KST Turning?

45 S&P versus KST Momentum S&P Composite MA and trendline at Still rising KST

46 MSCI World ETF MSCI World ETF (ACWI) $54 is the key area. RSI (18/4)

47 S&P versus Shiller P/E/Corp Bond Yield Ratio Inflation Adjusted S&P Composite Shiller P/E/Corp Bond Yield

48 S&P vesus 20-year Govt Bond Yield 12 ROC S&P Composite Red highlights = recessions Govt Bond Yield (12-ROC)

49 S&P versus S&P/GDP Ratio Momentum Inflation Adjusted S&P Composite) 48-ROC S&P/GDP

50 The Special K 1. An indicator designed to typically experience simultaneous primary trend reversals with the price. 2. Capable of signaling reversals in the primary trend at a relatively early stage. 3. Triggers short-term buy and sell signals within that context.

51 Market Cycle Model Short-term Special K trend 2 to 6 weeks Intermediate trend 6 weeks to 9 months Primary trend 9 months to 2 years

52 The Special K: Drawbacks and Benefits 1. The Special K assumes a 4-year business cycle in its calculation and does not do well when the cycle is substantially different. 2. Linear trends do not lend themselves well to momentum interpretation. 3. Sector rotation is cyclical, so the Special K works well on relative action.

53 DAX DAX 7900 is the key area. Special K

54 Global Commodity Index vs the Global Economy CRB Spot Raw Industrials OECD Leading Indicator

55 US Commodity Prices ( ) CRB Spot Raw Industrials 18-month ROC

56 Commodity Prices versus a Momentum Indicator( ) CRB Spot Raw Industrials Commodity Diffusion Indicator

57 CRB Composite DJ UBS Commodity Four breakouts ECRI JOC Industrials CRB Spot Raw Industrials

58 CRB Spot Raw Industrials in Euro CRB Spot in Euro Short-term Momentum Bullish Long-term Momentum Flat

59 Cross Checks with Inter-Asset and Intermarket Relationships

60 Commodity/Bond ratio and a Secular Oscillator( ) Commodity/Bond Ratio Secular Oscillator

61 Deflated US Stock Prices vs US Commodity Prices ( ) Commodity/Bond Ratio Rising peaks and troughs still intact. Inflationary Deflationary KST

62 S&P Composite S&P Composite/Commodity Ratio Hesitated in February. KST (Ratio)

63 S&P/Commodity Ratio Uptrend is intact Special K Momentum KST (Ratio) Rolled over in February.

64 Theoretical Long-term Smoothed Momentum (Stage IV Start) Bearish Bonds primary trend momentum S&P Bullish primary trend momentum Commodities

65 Long Term Momentum Position February 2014 Con Disc Staples Pharmaceuticals Health Care Financials Homebuilders S&P Industrials El Utilities Telecom Materials REITS Technology Semiconductor Capital Goods Energy Aluminum Drillers Bonds Steel Industrial Commodities Early Cycle leaders Gold Shares Late Cycle leaders 65

66 Interesting theory but does business cycle investing work in the real world?

67 DJ Pring Stocks Commodities Bonds Source: S&P Dow Jones Indexes

68 DJPring Better return Less Risk Bonds Stocks Commodities Pringturner.com

69 DJPRING versus S&P Composite S&P Composite Total Return Recaptures loss Dow Jones Pring Business Cycle Index (DJPRING) Whipsaw barometer signal Recaptures loss

70 Summary Secular trend for stocks is still alive Secular uptrend for commodities is intact but at a crucial point. Tentative signs that the secular trend for bond yields has reversed to the upside. The business cycle is currently in Stage IV which is bullish for stocks and commodities and bearish for bonds.

71 Thanks for Listening The book sees another lost decade, but also ways to make it a winner. Paul B. Brown New York Times Please Visit our website to join our free ing list.

72 pring.com/ifta-2014.html 1. Copy of this presentation 2. Copy of article Is the Secular Bear Market about to Resume? 3. Copy of latest newsletters