At Yearend 2014

Forgive us now for what we’ve done
It started out as a bit of fun
Here, take these keys before we run away
The keys to the gulag

—Nick Cave and The Bad Seeds

 The market edges to a new high this morning as the BLS reports a blockbuster 320,000 jobs were created last month (Establishment Survey). It’s bullshit, of course. The Household Survey finds 147,283 jobs added, 77,000 of them part-time, while 150,000 full time gigs were eliminated (

Let the believers believe what they want.

So, Philostratus said, Gods perceive future events, mortals present ones, whereas the wise sense those that are imminent. Fine, but the wise guys in my domain have been calling for a market top so long we’re gonna have to redefine imminent.

One thing they have gotten right: the investment environment sucks. Has for a long time-since 2000, actually. And anyone who argues that holding stocks during that time was smart–the S&P 500 gained 35% over those 14 years–should reflect on the facts: dividend income was minimal, and overvaluation exposed the investor to significant risk most of the time. Sort of like walking around with a hand grenade with the pin out, hoping you don’t let the handle fly off so shrapnel can rip your entrails out. Holding cash equivalents at an average of 1.5% over that period yielded a 23.77% return with zero risk (ah, the power of compound interest!).

Next time we hit a low, say 2021 or so, the market will be grossly undervalued, and the dividend yield on the Vanguard S&P 500 Index Fund should be north of 10%, (it was 13.82% in 1932). Worth hanging out in cash to skirt the high risk until we get that kind of opportunity again.

In the meantime, commodities, and oil in particular, are rapidly filling up the Dempsey Dumpster. This is something to worry about right now. If you wondered why junk bond issuance has gone at a torrid pace for the past two years (I did), wonder no more: a huge chunk of it was for oil and gas fracking projects. There had to be a reason: It was an easy sale. You can just see investors, both institutional and mom and pops, salivating at the prospect of investing in America’s new-found self sufficiency in oil.

This is why junk bonds are so toxic. They come to market offering a big yield for an investment that looks great, only to turn out to be a total loss. That deal has nowhere to go but south. If you know anyone with junk bond funds, tell them to read this: . When one part of the junk bond market tanks, the rest follow forthwith.

Stocks in the U.S. are still levitating, and they look awful.



No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.

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