Investing in the Second Lost Decade IFTA Europe 2014 Martin J. Pring
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
US Stock Prices 1900-2014 S&P Composite These look like trading ranges. New high 22% above 2000? 1973 27% higher than 1966 1909 17% higher than 1902 Source S&P
Deflated US Stock Prices (1900-2014 ) Deflated S&P Composite Trading ranges in nominal terms bear markets in reality. 13 2 3 41 2 3? 1 2 3 2
March 2000 CPI Adjusted S&P = 8.75 February 2014 CPI Adjusted S&P = 7.90 13-year loss = 9.7%
S&P versus MSCI World Index 1973-2014 (Deflated) Deflated S&P Composite
S&P versus MSCI World Index 1973-2014 (Deflated) Deflated MSCI World Stock Index
Causes of Secular Bear Markets in Equities Structural Psychological Unstable Commodity Prices
ECRI Weekly Leading Indicator 1967-2014 ECRI Weekly Leading Indicator Secular Bear Secular Bull Secular Bear Red = Recessions
Nonfarm Payrolls/Involuntary Part Time Workers 1955-2014 Nonfarm Payrolls/Involuntary Part Time Secular Bull Secular Bear Secular Bull Secular Bear
Annual Working Age Population Growth and Projection??????
Causes of Secular Bear Markets in Equities Structural Psychological Unstable Commodity Prices
Real Earnings are not Correlated to Stock Prices (1870-2014) 4 Inflation Adjusted Equities 2 3 1 Shiller Real Earnings (10-year MA)
Deflated US Stock Prices versus Shiller P/E Ratio1900-2014 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??
Causes of Secular Bear Markets in Equities Structural Psychological Unstable Commodity Prices
Deflated US Stock Prices vs US Commodity Prices (1830-2014) CPI Adjusted S&P Composite Commodity Prices
Secular Trends for Commodities
US Commodity Prices 1840-2014 US Commodity Prices Average bull=19-years 22 13 Average bear=21-years 12 22 33 23 13 19 18 Current bull is 13-years old.
US Commodity Prices 1840-2014 CRB Spot Raw Industrials Upside reversal Price Oscillator (60/360)
Secular Trends for Bonds
US Government Bond Yields 1860-2014 US Govt Bond Yields (20-30-years) 31-years Average=30-years Average=25-years 29-years 40-years 21-years 21-years
US Government Bond Yields 1865-2013 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
Secular Trend Reversals Characterised by Extreme Swings in Psychology
US Government Bond Yields 1865-2014 US Govt 20-30-year Yield Great volatility at Record reading secular reversal. ROC (12) Exhaustion move
Bnd Yields versus Commodity Prices(1868-2014) Government Bond Yields Commodity Prices??
II. Investing Around the Business Cycle
ECRI Leading, Coincident and Lagging Indicator Momentum 1972-2013 Leading Coincident Lagging
Bonds Are all part of the business Stocks cycle sequence. Commodities
Idealized Business Cycle S B C Growth Contraction C B S
S&P Composite vs Coincident Indicator Momentum (1955-81) S&P Composite Coincident Indicators (1/9 trend deviation)
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
Introducing the Six Stages
Idealized Business Cycle 1 2 3 B 4 S 5 C 6 B S Bonds C Stocks Commodities
The Market s Discounting Mechanism If the stock market discounts the economy then. individual stock market sectors should discount the economic sector they represent!
How Market Sectors Lead Economic Sectors Homebuilders lead housing Capital goods stocks lead capital spending Homebuilders Housing Capital spending stocks Capital spending
Homebuilders vs. Housing Starts Home Builders Housing Starts Home Builder KST Housing Start KST
Homebuilders vs. Housing Starts(1989-2014) Housing Start KST Home Builder KST
Pring Pring Six Six Stages XHB IAI IEO XLV CARZ XME IYW XRT GDX XLP SMH
Where are we now?
Idealized Business Cycle 1 2 3 B 4 S 5 C 6 B S Bonds C Stocks Commodities
Government 5-year Bond Yield 2006-2014 Government 5-year Yield Short-term Momentum Reversing to the upside Long-term Momentum Still bullish for yields
German Bun LIFFE Bund Possible top KST Still falling
German Bun LIFFE Bund Key level is 139 Short-term KST Sell signal Intermediate KST Long-term KST Turning?
S&P versus KST Momentum 1993-2014 S&P Composite MA and trendline at 1700-1720. Still rising KST
MSCI World ETF 1966-2014 MSCI World ETF (ACWI) $54 is the key area. RSI (18/4)
S&P versus Shiller P/E/Corp Bond Yield Ratio 1880-2014 Inflation Adjusted S&P Composite Shiller P/E/Corp Bond Yield
S&P vesus 20-year Govt Bond Yield 12 ROC 1967-2014 S&P Composite Red highlights = recessions Govt Bond Yield (12-ROC)
S&P versus S&P/GDP Ratio Momentum 1880-2014 Inflation Adjusted S&P Composite) 48-ROC S&P/GDP
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.
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
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.
DAX 1996-2014 DAX 7900 is the key area. Special K
Global Commodity Index vs the Global Economy 1966-2014 CRB Spot Raw Industrials OECD Leading Indicator
US Commodity Prices (1920-2014) CRB Spot Raw Industrials 18-month ROC
Commodity Prices versus a Momentum Indicator(1971-2014) CRB Spot Raw Industrials Commodity Diffusion Indicator
CRB Composite DJ UBS Commodity Four breakouts ECRI JOC Industrials CRB Spot Raw Industrials
CRB Spot Raw Industrials in Euro 2006-2014 CRB Spot in Euro Short-term Momentum Bullish Long-term Momentum Flat
Cross Checks with Inter-Asset and Intermarket Relationships
Commodity/Bond ratio and a Secular Oscillator(1890-2014) Commodity/Bond Ratio Secular Oscillator
Deflated US Stock Prices vs US Commodity Prices (1963-2014) Commodity/Bond Ratio Rising peaks and troughs still intact. Inflationary Deflationary KST
S&P Composite S&P Composite/Commodity Ratio Hesitated in February. KST (Ratio)
S&P/Commodity Ratio Uptrend is intact Special K Momentum KST (Ratio) Rolled over in February.
Theoretical Long-term Smoothed Momentum (Stage IV Start) Bearish Bonds primary trend momentum S&P Bullish primary trend momentum Commodities
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
Interesting theory but does business cycle investing work in the real world?
DJ Pring Stocks Commodities Bonds Source: S&P Dow Jones Indexes
DJPring Better return Less Risk Bonds Stocks Commodities Pringturner.com
DJPRING versus S&P Composite 2006-2014 S&P Composite Total Return Recaptures 2007-9 loss Dow Jones Pring Business Cycle Index (DJPRING) Whipsaw barometer signal Recaptures 2007-9 loss
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.
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 www.pring.com to join our free e-mailing list.
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