Monday, August 8, 2011

Dangerous Advice Update

February 2, 2011
More Dangerous Advice from Jeremy Siegel

Risks abound with inflation-linked bonds

30-year TIPS yield then: 2.10%
30-year TIPS yield now: 1.14%
Gain/loss: 0.96% better yield (x 30 years)

For the record, I went against his advice. The 30-year TIPS I bought in February's auction is now up 28%. I don't feel any better off though. I'll be holding until maturity. Nothing really changed for me. I locked in a rate and that's what I'll be getting.


Stocks are still reasonably priced at less than 15 times projected 2011 earnings in virtually every country in the world.

S&P 500 then: 1,304.03
S&P 500 now: 1,119.46
Gain/loss: 14% loss

Mr. Siegel, good luck on 2012's projected earnings, 2013's projected earnings, and so on. The stock market seems to think you might need it. Unlike TIPS investors, you did not lock in a real return. You'll get whatever the market gives you. If earnings dry up for some reason, so will your dividends.

I'm not suggesting that my TIPS are risk free. There is plenty of risk. If rates rise and I hold these bonds until maturity then it really does not affect me much though. All that matters is that I get paid. If I do not get paid, then stock market investors are certainly going to feel plenty of pain too. It is our debt that's propping everything else up. Without that, look out below.

Of course, I should probably mention that I have not written a book titled "Stocks for the Long Run" nor do I teach economics at Wharton. I'm just a believer in physics and math (with a hobby of following
exponential trend failures). That's all.

May 29, 2000
The Great Market Bubble Debate

Siegel: Seven percent per year [average] real returns on stocks is what I find over nearly two centuries. I don't see persuasive reasons why it should be any different from that over the intermediate run. In the short run, it could be almost anything.

How are those 7% real returns working out over the intermediate run? Or is 11+ years not long enough?

Siegel: Have we learned anything over the past 50 years? When we compare a 100 years' p-e's, we're going through the Great Depression, a banking collapse, and all the rest. Have we learned how to prevent a banking collapse? A Great Depression? I would say, yes, we've had incredible success. Have we been in the longest economic expansion in history? I would say yes. Are earnings of the top companies growing at the fastest rate that they ever have, far faster than the peaks that you mentioned in the past? Yes.

We learned how to prevent a banking collapse? That's news to me. Here's a chart of what Citigroup investors learned.

Source Data:
Yahoo: S&P 500 Historical Prices
US Treasury: Daily Real Yields


mab said...

English Spring! It's not a fragrant new soap either, lol!

Stagflationary Mark said...

From your link...

Police have already admitted that they had no choice but to allow looters to steal from high street shops on Saturday evening as they had to focus on the dozens of burning buildings and rioting in Tottenham.

Happy Hour had become Looting and Diluting Hour? Where did the population learn this! ;)

In any event, I'm guessing that the projected 2011 earnings of high street shops will be revised down a tad. Just a hunch.

mab said...

In any event, I'm guessing that the projected 2011 earnings of high street shops will be revised down a tad.

One would think so. But wouldn't it be ironical (bushism) if those high street shops were insured by AIG?

Word Ver: "bhorking". I'm not sure what it is, but I'm sure it beats working for a (debt) living.

Stagflationary Mark said...


Insured by AIG? That's priceless! LOL!

No really. I can't put a price on AIG. It was down 10% today and this is its long-term chart.

mab said...

I've got good news! Now that the Gov't owns AIG, it can go down 110% and it won't be a disorderly failure.

How about the long term charts of long term treasuries!?!? They're screaming that investors have lost faith and that we can't afford social security.

THEY"RE SCREAMING IT! Or they will be soon so we better crash the eCONomy now.

dd said...

AIG, but but it's suing BAC for billions! A win win for taxpayers. Except that small issue of the waivers on that bailout also funded by taxpayers. Not to worry. BAC to be nationalized in some form or other: Maiden Lane 10,000 managed by Black Rock owners of iShares...There's an ETF in there somewhere.
Anyway, not to worry again because:
Criminal Mortgage Probes Fizzle Out
No criminals anywhere.
Carry On.

Stagflationary Mark said...


What's the technological singularity?

But right now, these machines have to answer to humans. They lack the ability to make decisions outside of their programming or use intuition. Without self-awareness and the ability to extrapolate based on available information, machines remain tools.

Machines lack the ability to make good intuitive decisions about our economy. That's why we need people like Ben "There Is No Housing Bubble to Go Bust" Bernanke to extrapolate past trends into the future for us. Only then can we prosper.

Stagflationary Mark said...


One way to make sure crime doesn't pay would be to let the government run it. - Ronald Reagan

Forehead. Desk. Whack. Whack. Whack.

Mr Slippery said...

Siegel is a dullard, and a dullard for the long run,

Another great day for TIPS and treasuries. Wow.

With 0% in stocks and long gold, it was quite a profitable day for me.

Knife catchers are out in droves.

Stagflationary Mark said...

Mr Slippery,

That gold to aluminum ratio continues to hit new highs.

Gold rose to 1759 per troy ounce.
Aluminum fell to $1.0571 per pound.

The ratio is now 24,266 to 1. It now takes just 6.06 pounds of gold to buy all the aluminum (147,000 pounds) to make a 747-400. That's down from 6.83 pounds less than a week ago. Amazing.

It isn't like my long-term TIPS aren't in the nose bleed section of the stadium too though.

That said, one would think that at some point gold is no longer going to be a good hedge if you are worried about rising aluminum prices though. That is one "return to the mean" event you would definitely not want to see as a gold investor.

Mr Slippery said...

That is one "return to the mean" event you would definitely not want to see as a gold investor.

No doubt. I have a couple of different thoughts on it which would take too much time to elaborate.

But, where would I stick any gold profits right now? As you said, TIPS are 25% more expensive than 6 months ago. Stocks are still in convulsions from the blood bath of the last two weeks. Cash pays negative returns.


fried said...

After the FOMC statement today, you must be feeling very savvy with your TIPS investment. Congrats. As for me, even my small gold position, Sprott's PHYS is underperforming...

Stagflationary Mark said...

Mr Slippery,


I second that motion.


Savvy? More like terrified. As I have often said, if one must panic then at least panic first.

The 1% real rate on the 30-year TIPS implies that there will be at least 30 more years of panicking.

April 19, 2011
Lowered expectations for pension system still too high, says study

Most public sector pension plans — including Pennsylvania’s State Employee Retirement System, known as SERS, and Public School Employee Retirement System, known as PSERS — have an expected rate of return of 8 percent annually, while the private sector is required to use an index under the 2006 Federal Pension Protection Act. That index currently holds private sector pension plans to an expected rate of return close to 6 percent annually.