“Promise yourself to be so strong that nothing can disturb your peace of mindLook at the sunny side of everything and make your optimism come true.
only of the best, work only for the best, and expect only the best. 

Forget the mistakes of the past and press on to the greater achievements of the future.
Give so much time to the improvement of yourself that you have no time to criticize others.

Live in the faith that the whole world is on your side so long as you are true to the best that is in you!”

– Christian D. Larson

Brianna, sent me a text message over the holiday, “I just read your OMR piece – very interesting.”

I responded, “Here’s the bottom line:

  • We’ve saddled my generation and worse yours with too much debt.
  • Because of the debt mess, governments around the world are trying to print, buy and sweep it under the carpet.
  • Think “how the economic machine works.” The most important thing to understand is that we are at the end of a long-term credit expansion cycle and at the beginning of a deleveraging cycle.

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  • Many people can’t get credit anymore. Tapped out.
  • We need to get out of this debt mess and reset the system somehow.
  • It will take a dozen or so years. It has to break (default in some form) before it can reset.
  • The question is whether governments soften the blow or not. A beautiful or ugly deleveraging?
  • The U.S. has a better shot. Europe has bigger structural challenges.  Japan and China?
  • Can one do it? Can they all do it?
  • We need to reset or the greater power of economic reality will do it for us.
  • We’ll get through it but not without consequences. It will be bumpy.”

I concluded my text reply to Brie saying, “Maybe I need to take a happy pill, but I’m almost certain I’m right.  No guarantees.  We’ll see.”

And her text back to me made me smile, “Well, on the positive side — this too shall pass and we are fortunate to understand what is happening and can better prepare for it… AND it’s Christmas so let’s not worry and drink some of Rory’s yummy wine ?.”

How about that!  “Promise – peace – optimism – think – best – future – faith – true – you.”  Amen!

Brianna works in New York with a team of people lead by her boss Rory Riggs.  Google him.  He’s sharp and probably the brightest business mind I know.  Rory sent Brie home with an outstanding bottle of red wine and, oh yes, we did drink it.  Their firm, Syntax, has created a better way to index.  Think owning the same stocks in the S&P 500 Index but weighted across the same constituents in a way that diversifies you better.  Same with small caps, sectors, etc.  The result is an improvement in returns and the numbers are compelling.  You’ll want to learn more.  Stay tuned.

By the way, if you are going to the Inside ETFs Conference in Florida later this month – you should take a minute to stop by their booth.  No, I’m not on Rory’s payroll… just a big fan.  And a special hat tip to the brilliant Mark Finn.  A godfather behind the curtain and one of the smartest investors I know.

The Inside ETFs Conference is on January 22-25, 2017 at the Diplomat Beach Resort in Hollywood, Florida.  I’ll be speaking at the event.  You can learn more here.  If you are attending, please send me a note… I hope to see you there.

Today, let’s take a look at the most current equity market valuations for they can tell us a great deal about future 7-year and 10-year annualized returns.  We’ll also look at the bond market.  Total U.S. credit market debt-to-GDP is nearly 355%.  Global debt-to-GDP is 325%.

I hope you find the messaging in such a way that your retail client can better understand.  I believe that the biggest bubble of all bubbles is in the bond market.  If not tactical last quarter, that bond portion of a portfolio took a beating.  What can you do?  I share a few ideas.  You’ll also find a great chart showing bond yields dating all the way back to the year 1285 (not a typo).  It is a reminder that we sit at a very unusual period in time.  The great bond bull market is behind us… not ahead of us.  But let’s see opportunity… not despair.

And drink some yummy red wine!  Hold the glass up high and “Promise yourself to be so strong that nothing can disturb your peace of mind.  Look at the sunny side of everything and make your optimism come true.  Think only of the best, work only for the best, and expect only the best.”

Not a bad way to begin the new year.  I hope you find this week’s post helpful.

? If you are not signed up to receive my weekly On My Radar e-newsletter, you can subscribe here. ?

Included in this week’s On My Radar:

  • Year-End Valuations and Forward Equity Market Returns
  • The Bond Market is Facing the “Perfect Storm”
  • Trade Signals – Don’t Fight the Trend or the Tape… A Golden Rule 

Year-End Valuations and Forward Equity Market Returns

Chart 1: My favorite – Median P/E.  At 22.9 the market remains “Overvalued”

Here is how you read the chart:

  • Median P/E is the P/E in the middle, meaning there are 250 companies out of 500 that have a higher P/E and 250 that have a lower P/E.
  • The red line in the middle section shows you how P/Es have moved over time (updated monthly).
  • The green dotted line is the 52.8 year median. So a Median P/E of 16.9 is the historical “fair value.”  Simply a point of reference.
  • You can see that over time the red line moves above and below the dotted green line.
  • The future returns come when you buy at “bargains.” It also happens to be when risk is least.
  • As you’ll see in Chart 2, the worst returns come when Median P/E is in the highest 20% of all readings. That is where it sits today.  Expensive!


One last comment on the above chart.  At the very bottom of the chart, NDR calculates just how far the market is from “Overvalued,” “Median Fair Value” and “Undervalued”.  For example, Median Fair Value is determined by taking 16.9 (Median P/E) x 97.90 (Most recent 12-months earnings) or 1654.50.  The S&P 500 Index closed the year at 2238.83 which is 26.1% above fair value.  A correction of -26.1% would mark a point in time where you would get better bang for your money.

A correction to “Undervalued” would make for a great buying opportunity.  Unless one is run over by the 48.7% decline it will take to get there.  Such declines come in recession so we’ll keep close watch on the recession indicators (more on that next week).  No sign of U.S. recession for now.  I am on record predicting 2017 to be the year.  I’m not so sure.  We’ll watch the

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