Wednesday, April 22, 2015

The Biggest Financial Question And Why We Should Ask It

There are many questions one can ask about the financial world in its current state.  For example, is the dollar going to fall?  At which prices are our favorite commodities a smart buy?  How can we execute our tax procedures with maximum efficiency? And what about retirement?

I have worked with True Contrarian for four and a half years and attribute most if not all of my financial knowledge to my experience with True Contrarian and primarily to Steven Jon Kaplan. And as I grew more invested, for lack of a better word, in the financial realm, I started to notice that even basic knowledge about personal finance is not readily available in society.  We may be taught the standard theoretical concepts of supply and demand in an economics class.  We may be told by our banks that opening a credit card at a specific day or time is optimal.  But where are we taught how to open a simple investment account and advised how to use it?  Where are we taught about tax procedures so that we are prepared when we first start making an income?  I find that many people believe that management of personal finances is only for people with significant wealth to manage. But financial empowerment can and should be a universal feeling.  I believe that basic knowledge about financial planning should be readily available to anyone who has goals for the future.  Moreover, I believe that financial planning should be something more valued in society as a concept that transcends one's current economic status at the time.  

How can we train ourselves and the next generation to be financially literate?  In other words, how can we provide resources to society that both educate the public about their finances and make them believe that this education is necessary?  In my opinion, people should have a basic knowledge about savings, taxes, investing and even retirement plans before even enrolling in higher education.  It seems a little skewed to me that information on such practical skills appears to be the hardest to find.

A long term goal I have for True Contrarian is to take on this responsibility.  I would love to set up programs within schools where brief courses or at least some education materials are promoted and readily available to students.  Between Steve's connections with the New York City public school system, mine at the preparatory programs I attended, and our mutual connections at universities, spreading such knowledge is a feasible goal.  However, in the meantime, all we want is to make advice on financial planning accessible to anyone who wants it for a reasonable fee.  

Our new financial coaching program at True Contrarian is meant to provide knowledge to those who ask and also to promote the idea on a larger scale that information on these practical topics is necessary in society. I want financial empowerment not to be about how much money one has but rather the attitude with which people approach whatever they might have.  Our coaching program is a small start down that path and I'm excited to see how it develops in the near future.  If you would like more information about our program, click here.  

Danielle Kerani Oberdier
VP | True Contrarian


Tuesday, April 14, 2015

"Whenever you find yourself on the side of the majority, it is time to pause and reflect." --Mark Twain

IT'S TIME TO START PRICING IN THE NEXT U.S. PRESIDENTIAL ELECTION (April 14, 2015): Every four years, a week or two before each U.S. Presidential election, there will be a flood of articles in the media about how you can allegedly take advantage of the upcoming election to adjust your portfolios. However, by the time that the election process has become so advanced, nearly all of the price adjustments will have already been made. Following the election itself, there is usually a brief and sometimes dramatic readjustment in response to the expectation that the new President will implement policies which are favorable to some sectors and unfavorable to others. However, the real money is made by anticipating far in advance what is most likely to occur no matter who wins, and how most investors are likely to behave as the election more closely approaches.

On Sunday, Hillary Clinton announced that she was running for the Democratic nomination, and on the following day, Marco Rubio announced his Republican candidacy. While it is possible that a different Democrat will prevail, it is highly unlikely. There will be many challengers to Marco Rubio, and his chances are certainly much less than those for Clinton because of much more intense competition, but I'm going to go out on a limb and assume that the Florida senator will prevail on the Republican side due to a combination of youth, charisma, debating ability, his Cuban background, and various intangibles. If it's going to be Rubio vs. Clinton in November 2016, then how will this affect the financial markets for the next 1-1/2 years?

Perhaps the most important point is that U.S. government deficits will likely get larger instead of smaller, regardless of the results of the 2016 elections. If Hillary Clinton becomes President, then there will likely be a surge of new proposed government programs with very few brakes put on current entitlements. Increased taxes might be proposed, but these will be challenging to actually achieve unless both the Senate and the House of Representatives unexpectedly switch simultaneously to Democratic majorities. With a Republican-dominated Congress and a Democratic President, it won't be significantly different from the current gridlock situation. Almost no new legislation will be passed. Meanwhile, because it has been so long since we've experienced a bear market, a severe one will likely occur regardless of who is President. Without the Fed being able to cut rates further, the only stimulative response to counteract a recession would be increased government spending, so both parties will be eager to prove that they're "doing something about" the economic slowdown. Translation: expect higher deficits perhaps exceeding one trillion dollars annually as we had experienced several years ago. This will contribute to a lower U.S. dollar and elevated interest rates. These reactions won't wait until after the election; we'll likely see a slump in the greenback along with rising Treasury and other bond yields in 2015-2016 in anticipation of the election rather than in response to it. It is possible that the U.S. dollar has already peaked, and that U.S. Treasuries and many U.S. corporate bonds have already done likewise.

What if Rubio prevails? In that case, you can be certain that, especially with a cooperative Republican Congress, there will be numerous tax cuts and lower marginal rates which will lead to rising deficits. There will be some cutbacks to entitlements, such as raising the retirement age for Social Security from 67 to 69 just as Ronald Reagan compromised with Congress to increase it from 65 to 67. The Medicare cutoff point could also be increased by two or more years. These will reduce government expenditures, but if you have studied Rubio's speeches you will see that his Tea Party credentials are misleading. He will likely be happy to run large deficits as long as government spending fits Republican priorities rather than Democratic ones. His theme will be one of compassionate conservatism, especially since he will keep an eye on being re-elected in 2020. With a combination of less tax revenue and limited reductions in government spending, deficits will end up increasing almost as much as they would have done with a Democratic President. If we are in a recession and it becomes severe, then Republicans won't want to be seen as being indifferent to middle class suffering. Thus, the overall impact on the U.S. dollar and interest rates will be surprisingly similar with either a Democratic or a Republican victory.

The primary difference will be in corporate regulation. If Hillary Clinton wins, then there will likely be much more regulation than if Rubio is the next President. Climate change is a popular platform in many Democratic circles, but is mostly disregarded by Republicans. Commodity-producing industries, especially mining, are likely to be treated much more favorably if Republicans prevail in the next election. In contrast, health-care stocks, which have been all the rage in recent years, are likely to fear potential changes to Obamacare and likely perform poorly if the possibility of a Republican victory improves at any time prior to the election--even if it is many months before the event itself.

Because of a falling dollar and rising interest rates, sectors which usually benefit from a strong greenback and falling rates will tend to be hard hit no matter who is elected President. This would include high-dividend shares including utilities, REITs, telecommunications stocks, and tobacco shares. Companies which do a lot of exporting will be helped by the falling U.S. dollar, while major importers will do less well than expected. Securities which benefit from rising nominal interest rates will be among the few winners and will thus receive a lot of money from asset reallocations, thereby making them especially likely to outperform since they will stand out starkly from almost everything else which is losing value. If inflation is increasing faster than interest rates then real yields will become increasingly negative, which will be especially supportive for commodities and the shares of their producers.

If the Republicans control the Presidency and both houses of Congress, then this will pave the way to a potential flood of new legislation. While this could favor some industries, the initial response by many investors will be fear of the unknown after several years of effective gridlock. If U.S. assets are already in a bear market by November 2016, which is highly likely, then such a bear market is likely to accelerate dramatically after the election. There might be an initial euphoric response to either candidate's victory, but perhaps around the time of the Presidential inauguration on January 20, 2017 or shortly thereafter, any bear market could enter an especially intense worsening. Following President Obama's election to his first term on November 4, 2008, there was a sharp drop for U.S. equity indices which continued for nearly a half year. It is likely that we will have similar behavior following the next election. The anticipation of any election contest creates a sort of anticipatory excitement and tends to delay the final stage of any bear market. Therefore, I think it would be a good idea to sell most U.S. assets now, when the mood is still optimistic about the future, rather than as the reality of a new administration becomes increasingly imminent and investors begin to focus on specific policy and thorny issues which will be challenging to politically resolve no matter who is in charge.

One interesting wildcard will be what happens with U.S. real estate during the next several years. Policies such as zero down payments (or 3% down where the 3% can be borrowed, as Fannie Mae and Freddie Mac implemented in early February 2015), interest-only mortgages, and similar policies which were assailed and temporarily restricted following the last U.S. housing slump are now back in full force, having received limited opposition from either political party. The problem with allowing almost anyone to buy a house is that it temporarily increases demand relative to supply, thereby increasing prices just long enough to encourage new buyers prior to the next recession when valuations will plummet more sharply from having become artificially inflated. Credit standards are moderately higher than they had been a decade ago, but there are more investment funds which have bought real estate in recent years--thus offsetting the reduced demand from the least creditworthy individual buyers. The problem with investment buying is that higher interest rates will cause the net yields from real estate to appear increasingly unattractive, which could encourage some of these funds to become net sellers rather than net buyers. Higher mortgage rates will likely also discourage some buyers from participating because their monthly payments will be unaffordable at current price levels. Regardless of who is elected as the next U.S. President, the dangerously relaxed lending standards of Fannie Mae and Freddie Mac are likely setting the stage for a repeat of the U.S. real-estate debacle of 2006-2011. We will probably once again experience declines averaging 34% which had been the nationwide average loss during the previous bear market. As in 2006-2011, some parts of the United States in 2015-2020 will suffer losses of 60%, although the regions which experience such outsized losses won't likely be the same ones as last time. San Francisco and other especially overvalued cities in the United States are probably most vulnerable to losing half or more of their value. Because this topic is so complicated, I will discuss it in more detail in my next posting.

Tax tip: If you own shares or funds which are trading near six-year bottoms and you are a U.S. resident, you can take advantage of their currently depressed prices if these assets are in your 401(k), 403(b), SEP-IRA, Keogh, traditional IRA, or other non-Roth retirement account. You can convert these shares from your account to a Roth IRA and pay taxes based upon their present low valuations. As these eventually rebound, all future gains will be completely tax free. In the event that these shares don't recover but end up retreating further in price, you can choose to undo your conversion, which is known as a recharacterization. You can then wait at least 30 days, or until the following calendar year--whichever is later--and then convert them again. There is no limit to how many times you can repeat this process and there are no income or other restrictions in making such conversions and recharacterizations, as long as each recharacterization is done on or before October 15 of the year following the date when the conversion had been done. It's like being able to go back in time and "unbuy" something which doesn't go up in price. It's heads you win, and tails you also win. Unfortunately, I do not know of an equivalent strategy which is permitted in any other country.

Disclosure: In August-September 2013, and at various points during 2014 through March 2015, I had been buying the shares of emerging-market country funds whenever they had appeared to be most undervalued. Since June 2013, I have added periodically to funds of mining shares--and more recently energy shares--especially following their most extended pullbacks. I have also been accumulating HDGE which is an actively managed fund that sells short various U.S. equities, because I believe that U.S. assets of almost all kinds have become dangerously overvalued. From my largest to my smallest position, I currently own GDXJ, KOL, XME, HDGE, GDX, SIL, COPX, REMX, EWZ, RSX, IDX, GXG, ECH, GLDX, URA, FCG, VGPMX, BGEIX, VNM, ZJG (Toronto), NGE, PLTM, EPU, TUR, SILJ, SOIL, EPHE, and THD. In the late spring of 2014, I sold all of my SCIF which had briefly become my fourth-largest holding, because euphoria over the Indian election was irrationally overdone and this fund had more than doubled. I have reduced my total cash position since June 2013 to less than 4% of my total liquid net worth in order to increase my holdings in the above assets. I sold all of my SLX by acting whenever steel insiders were doing likewise. I also sold all of my FCG but I repurchased it following its recent collapse. I expect the S&P 500 to eventually lose about two thirds of its recent peak value--with most of that decline occurring in 2016-2017. The Russell 2000 Index (IWM) has only modestly surpassed its high from the first week of March 2014, while the Russell Microcap Index (IWC) barely surpassed its zenith from March 6, 2014. The S&P 500 Index set a new all-time high on numerous occasions during the same period. This marks a classic negative divergence which previously occurred in years including 1928-1929, 1972-1973, and 2007. Those who have "forgotten" or never learned the lessons of previous bear markets are doomed to repeat their mistakes.

Monday, March 16, 2015

"In investing, what is comfortable is rarely profitable." -- Robert Arnott

SINCE EVERYONE EXPECTS THE U.S. DOLLAR TO KEEP RISING, LOOK FOR THE EXACT OPPOSITE (March 16, 2015): Investors may differ in some ways in their future outlook, but almost everyone around the world today agrees that the U.S. dollar will continue to ascend indefinitely. The U.S. dollar index surpassed 100 during the past week and achieved its most elevated point since March 2003--just about exactly twelve years ago. Gauging the extent of any extreme in the financial markets is inherently a perilous task, as we have experienced some of the most exaggerated extremes in both directions since the beginning of the century. However, we have such a preponderance of data which screams for a reversal that it is worth reviewing the available evidence and reaching a conclusion.

Let's begin with the media's explanation of "why" the U.S. dollar is so strong. Relying on the mainstream financial media to understand anything in the financial markets is hopeless, because they'll put together any story line which seems to fit recent facts, and they'll invent nonexistent cause-and-effect relationships. The most popular current myth about the U.S. dollar is that it has been rising because it's the cleanest dirty shirt in the laundry, and that it's climbing in anticipation of the U.S. Federal Reserve raising interest rates, and that it will continue to move higher because U.S. Treasury yields for any given duration are higher than similar yields in many other countries.

The problem with all of the above arguments, of course, is that entirely different arguments were advanced two or three years ago when the U.S. dollar was rallying. At that time, there was no expectation that the Fed would raise interest rates, and in fact the Fed made it very clear that they would not do so for an extended period. Therefore, the explanation at that time was that the U.S. dollar was rising because the Fed wouldn't raise interest rates. It can't possibly make sense that the U.S. dollar rallied in 2013 because the Fed wasn't going to raise rates, but it will rise in 2015 because the Fed is going to raise rates.

As for the Treasury yield differential argument, a similar explanation was given seven years ago about why the U.S. dollar would keep falling in value--it was allegedly because interest rates outside the U.S. were much higher than U.S. Treasury yields of similar durations. As it turned out, these higher rates abroad caused growth in other countries to slow down, while the low U.S. rates led to more robust expansion. Thus, the differential caused exactly the opposite result of what the media were saying. Instead of continuing to retreat from its all-time nadir, the U.S. dollar in March 2008 began a powerful one-year rally precisely when its yields were the least competitive with those from many other countries. The fact that U.S. Treasury yields are currently higher than government bond yields in many other countries means that the economies of other countries will probably grow more quickly than the United States' GDP growth rate, which will cause the U.S. dollar to retreat instead of rising further.

Here is what I consider to be the most logical explanation of what will occur with the greenback: the U.S. was the first country in the world to do quantitative easing and to adopt a near-zero interest rate policy. Since the United States was first, it was the first to enjoy the temporary economic stimulus created by this scheme. As a result, the U.S. economy outpaced most of the rest of the world, so investors crowded into U.S. assets of all kinds including stocks, bonds, real estate, and the U.S. dollar. Recently, dozens of countries around the world have belatedly decided to copy the United States with nearly identical quantitative easing programs, figuring that if you can't beat them, join them. This will soon result in the economies of these countries enjoying a higher rate of economic growth than the United States, and thus their currencies will appreciate versus the U.S. dollar. In some cases, the current exchange rates have become so exaggerated that their reversals are likely to be powerful--such as for the Brazilian real, the Russian ruble which has already made some inroads, and the liquid Canadian and Australian dollars. Even the much-detested euro and yen will rebound strongly against the greenback during the next year or two, simply because they have become so irrationally oversold.

Is there any evidence to support these contentions? If you go to http://www.cftc.gov/ or http://www.cotpricecharts.com/commitmentscurrent/ , you will discover that for many currencies the current bets by commercials on higher non-U.S. currencies are at or near historic extremes. Commercials are those who are required to trade any given futures contract as a part of their regular business dealings, such as the treasurer of a major multinational corporation like McDonald's. If these executives as a group are betting with increasing intensity on a lower U.S. dollar, then it's unlikely that they're going to be wrong.

Speaking of McDonald's, there is a well-known signal known as the "Big Mac Indicator," which asserts that you can determine what will happen with currency fluctuations based upon how much it costs to purchase a Big Mac sandwich in any part of the world. In those cities where a Big Mac is especially cheap, it's likely that the currency has become illogically undervalued and will soon climb significantly. In those cities where a Big Mac is unusually expensive, there will likely be an important decline for the local currency. Throughout the decades, this indicator has proven to be surprisingly reliable, accurately chronicling the overvalued Japanese yen in the 1980s, the initially undervalued euro at the beginning of the current century, and the overvalued Australian and Canadian dollars in late 2007 and in 2011. Today, a Big Mac is unusually cheap throughout most of Australia, Canada, Brazil, and Russia, while it is near multi-decade highs in many parts of the United States. Only Switzerland tends to be overpriced in Europe, with nearly all other European countries experiencing Big Mac costs which are their lowest in several years when measured in U.S. dollars. This signal has such a reliable long-term track record that its current message is probably worth taking seriously.

The media have changed their way of writing about the greenback. Instead of articles such as "will the U.S. dollar rise or fall in the coming year?" they instead are only interested in debating how much more it will climb and when. There are far more articles of the "better get used to" variety, which almost always proliferate whenever any trend is set to reverse sharply. In failing to appreciate the inherently cyclical nature of the financial markets, commentators will say things such as "you better get used to the U.S. stock market being depressed," which was especially popular in early 2009 when investors should have instead been aggressively buying equities, or "you have to adjust to the new reality of real estate prices continuing to decline," which was stated repeatedly in 2010-2011 before a significant rebound. Four years ago, the belief was that emerging markets would continue to outperform indefinitely and that inflation was an unstoppable force; today, almost the exact opposite outlook for deflation and slumping emerging markets is assumed to continue for many more years. We don't throw away our winter clothing on an especially hot and humid day in July, but that is how investors tend to greet any extreme in the financial markets, by assuming that the recent past will continue into the indefinite future. Since almost everyone now takes for granted that commodities will keep slumping and that the U.S. dollar will keep surging, it's unlikely that this will be the first time in history that the herd proves to be correct and that the inherently cyclical character of the financial markets has somehow been repealed by Janet Yellen.

Tax tip: If you own shares or funds which are trading near six-year bottoms and you are a U.S. resident, you can take advantage of their currently depressed prices if these assets are in your 401(k), 403(b), SEP-IRA, Keogh, traditional IRA, or other non-Roth retirement account. You can convert these shares from your account to a Roth IRA and pay taxes based upon their present low valuations. As these eventually rebound, all future gains will be completely tax free. In the event that these shares don't recover but end up retreating further in price, you can choose to undo your conversion, which is known as a recharacterization. You can then wait at least 30 days, or until the following calendar year--whichever is later--and then convert them again. There is no limit to how many times you can repeat this process, as long as each recharacterization is done on or before October 15 of the year following the date when the conversion had been done. It's like being able to go back in time and "unbuy" something which doesn't go up in price. It's heads you win, and tails you also win. Unfortunately, I do not know of an equivalent strategy which is permitted in any other country.

Disclosure: In August-September 2013, and at various points during 2014 through the first quarter of 2015, I have been buying the shares of emerging-market country funds whenever they have appeared to be most undervalued. Since June 2013, I have added periodically to funds of mining shares and related assets especially following their most extended pullbacks. I have also been accumulating HDGE which is an actively managed fund that sells short various U.S. equities, because I believe that U.S. assets of almost all kinds have become dangerously overvalued. From my largest to my smallest position, I currently own GDXJ, KOL, XME, HDGE, GDX, SIL, COPX, REMX, EWZ, RSX, IDX, GXG, ECH, GLDX, URA, FCG, VGPMX, BGEIX, VNM, ZJG (Toronto), NGE, PLTM, EPU, TUR, SILJ, SOIL, EPHE, and THD. In the late spring of 2014, I sold all of my SCIF which had briefly become my fourth-largest holding, because euphoria over the Indian election was irrationally overdone and this fund had more than doubled. I have reduced my total cash position since June 2013 to less than 4% of my total liquid net worth in order to increase my holdings in the above assets. I sold all of my SLX by acting whenever steel insiders were doing likewise. I also sold all of my FCG but I repurchased it following its recent collapse. I expect the S&P 500 to eventually lose about two thirds of its recent peak value--with most of that decline occurring in 2016-2017. The Russell 2000 Index (IWM) has only modestly surpassed its high from the first week of March 2014, while the Russell Microcap Index (IWC) has never surpassed its zenith from March 6, 2014. The S&P 500 Index set a new all-time high on numerous occasions during the same period. This marks a classic negative divergence which previously occurred in years including 1928-1929, 1972-1973, and 2007. Those who have "forgotten" or never learned the lessons of past bear markets are doomed to repeat their mistakes.

Monday, February 23, 2015

"Never accept 'conventional wisdom' when it comes to finance. If others keep failing, why do you want to follow them?” --Ziad K. Abdelnour

U.S. ASSETS OF ALL KINDS ARE DANGEROUSLY OVERVALUED (February 23, 2015): From time to time, investors around the world become irrationally obsessed with certain assets, thereby causing them to become extremely far above or far below fair value. Such a situation exists today, as rising U.S. assets especially since November 2012 have encouraged many to sell almost all other kinds of investments to own the U.S. dollar, U.S. stocks, U.S. bonds, U.S. real estate, and almost everything which is closely related to any of the above. This has caused a chain reaction whereby those who are invested in far more compelling securities become upset with their underperformance relative to a benchmark like the S&P 500 or a plain vanilla U.S. corporate bond fund, and thereby end up switching their allocation to be more heavily invested in the United States. The end result has been a bubble which like all true bubbles is barely recognized as such because it seems like logical behavior. There are even cute sayings, such as the United States being the cleanest dirty shirt in the laundry, which encourages uncertain investors to take the leap and to put more of their money into the United States than would be prudent. Most U.S. assets have experienced all-time record inflows and are trading near all-time highs, while many emerging markets, commodity-related securities, and similar unpopular assets are trading near their lowest points in six years. Naturally this encourages many others to sell whatever is close to a six-year bottom to buy something in the U.S. which is near an all-time high rather than doing as I recommend and taking precisely the opposite course of action.

Price and time can't tell you when a given trend is going to end, but fund flows and insider behavior tend to be consistently reliable indicators. There have been record inflows into nearly all open-end and exchange-traded funds of U.S. stocks and bonds since the beginning of 2013, while there have been record outflows from many emerging-market and commodity-related funds in recent months. In the long run, selling whatever is most popular and buying whatever is least favored has been a strategy which has made fortunes for many of history's most consistently wealthiest investors. Chasing after recent performance has never yielded a single billionaire or anyone who is remotely close to that status. Therefore, it is especially timely to consider making a gradual asset reallocation away from the S&P 500, the Nasdaq, the U.S. dollar, and U.S. bond funds in order to purchase emerging-market assets especially in countries south of the equator where valuations have generally been near generational lows relative to corporate profits. This includes Brazil (EWZ and BRF), Colombia (GXG), Nigeria (NGE), Australia (EWA and KROO), Peru (EPU), and similarly disliked funds. It also includes funds of commodity producers such as junior gold mining shares (GDXJ), coal mining (KOL), copper mining (COPX), rare-earth extraction (REMX), uranium mining (URA), platinum producers (PLTM), and almost all other funds related to energy, mining, agriculture, and similar securities.

If you own shares or funds of depressed assets and you are a U.S. resident, you can take advantage of their currently depressed prices if you own such assets in your 401(k), 403(b), SEP-IRA, Keogh, traditional IRA, or other non-Roth retirement account. You can convert these shares from your account to a Roth IRA and pay taxes based upon their present low valuations. As these eventually rebound, all future gains will be completely tax free. In the event that these shares don't recover but end up retreating further in price, you can choose to undo your conversion, which is known as a recharacterization. You can then wait at least 30 days, or until the first day of the following calendar year--whichever is later--and then convert them again. There is no limit to how many times you can repeat this process. It's like being able to go back in time and "unbuy" something which doesn't go up in price. It's heads you win, and tails you also win. Unfortunately, I do not know of any equivalent in any other country. It's ironic that this situation exists for U.S. residents who are mostly overinvested in U.S. assets which are dramatically overvalued and are therefore inappropriate for doing such conversions.

Brad Lamensdorf has done such an excellent job detailing why U.S. equity indices have become absurdly overvalued that there is no better way to illustrate this than to present his recent essay in its entirety:



  • Overvalued Fundamentals Outline Big Picture


  • If you want to know how much the least popular assets could potentially rally, all you have to do is to compare their current valuations with their monthly highs from January 2013. While there is no guarantee that these assets will return to where they had been just over two years ago, by historic standards this would be a relatively moderate rebound from such a level of extreme unpopularity. Almost all shares of commodity producers and emerging-market equities had been far higher than their January 2013 peaks in 2012--especially in the first quarter of that year--with many of them trading at even higher levels near the end of 2010 and at various points in 2011. If an asset has lost more than half of its value and it regains only half of its loss, then you will still end up with a profit of more than 50%. The last time that many of these assets were similarly depressed six years ago, many of them ended up more than tripling. In recent months, partly from investors chasing after U.S. assets, outflows have been even greater from most funds related to emerging markets and commodity producers than they had been in late 2008 and early 2009. Insider buying for many of these subsectors has generally been more aggressive and more pervasive in recent months than it had been at almost any other time since the early part of the century when we had similarly irrational disparities especially between technology shares and "old economy" shares. The more things change, the more they remain the same: the Nasdaq is almost all the way back to five thousand again and is set for another plunge of 60% or more during the next few years.

    During the final months of 1999 and the early months of 2000, there were numerous financial analysts and advisors who said something like this: "There are some people out there who told us that the Nasdaq was overvalued when it went above four thousand, and yet it kept going up. Then they told us it was overvalued when it reached 4500, and it kept going higher. Now the Nasdaq is above five thousand, so you should completely ignore those bears who have been wrong time after time, and listen to us when we tell you that even greater Nasdaq gains lie ahead for many more years." What did the Nasdaq do after that? It plunged 78.4% from March 10, 2000 through October 10, 2002. The bears who were "always wrong" ended up being most right when almost no one believed them. Making a trading decision based upon recent behavior is almost always a serious mistake, because any asset almost always makes a final sharp surge higher before it experiences a severe bear market. Similarly, almost any asset which is about to enjoy a powerful rally almost always first slumps to a new multi-year bottom in order to discourage investors from buying it at its most compellingly undervalued levels. Don't be fooled into believing something based upon recent performance, especially whenever something is at or near an especially lopsided historic extreme. If you had arrived on planet Earth from Mars--assuming you had terrible internet reception on Mars--you'd have no difficulty in recognizing today's asset valuations as being ridiculous. Only when you have time to emotionally adjust to any irrational situation, and time to be repeatedly brainwashed by almost everyone around you, do you progressively perceive the most absurd situation as being normal.

    Disclosure: In August-September 2013, and throughout 2014 into early 2015, I have been aggressively buying the shares of emerging-market country funds whenever they have appeared to be most undervalued. Since June 2013, I have added periodically to funds of mining shares and related assets especially following their most extended pullbacks. Starting in December 2013 I had been buying HDGE whenever it has traded below 13 dollars per share, and more recently whenever it has retreated below 11, with the idea of selling it perhaps in 2017 or whenever we are completing the next U.S. equity bear-market bottoming pattern; HDGE is an actively managed fund which sells short various U.S. equities. From my largest to my smallest position, I currently own GDXJ, KOL, XME, HDGE, GDX, SIL, COPX, REMX, EWZ, RSX, IDX, GXG, ECH, GLDX, URA, FCG, VGPMX, BGEIX, VNM, ZJG (Toronto), NGE, PLTM, EPU, TUR, SILJ, SOIL, EPHE, and THD. In the late spring of 2014, I sold all of my SCIF which had briefly become my fourth-largest holding, because euphoria over the Indian election was irrationally overdone and this fund had more than doubled. I have reduced my total cash position since June 2013 to approximately 4% of my total liquid net worth in order to increase my holdings in the above assets. I sold all of my SLX by acting whenever steel insiders were doing likewise. I expect the S&P 500 to eventually lose about two thirds of its recent peak value--with most of that decline occurring in 2016-2017. The Russell 2000 Index (IWM) has barely surpassed its high from the first week of March 2014, while the Russell Microcap Index (IWC) has never surpassed its zenith from March 6, 2014. Meanwhile, the S&P 500 Index set a new all-time high on numerous occasions during the same period. This marks a classic negative divergence which previously occurred in years including 1928-1929, 1972-1973, and 2007. Those who have "forgotten" or never learned the lessons of past bear markets are doomed to repeat their mistakes.

    Monday, February 9, 2015

    "Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down." --Warren Buffett

    DEFLATION IS THE MOST POPULAR AND MOST MISGUIDED BELIEF TODAY (February 8, 2015): If you were to interview a hundred or more people about the global financial markets, they would disagree about some topics. Some believe that the price of crude oil has bottomed and will continue to rebound, while others expect it to remain low for an extended period of time. Some expect interest rates to rise while others expect rates to keep dropping. Some expect the global economy to continue to grow in the coming year, while others are concerned about a slowdown. However, almost everyone agrees that inflation is not a serious concern and that one of the safest bets you can make is to assume that inflation will stay extraordinarily low or even possibly go negative throughout the world.

    Whenever there is a nearly unanimous consensus that a particular kind of behavior will prevail in the financial markets, almost everyone will have already made portfolio allocations to match this expectation, leaving almost no one left to actually cause the anticipated event to occur. If everyone has already purchased U.S. dollars in the belief that the greenback will continue to climb against nearly all other global currencies, then who will be left to buy it? There currently exist all-time record speculative positions on a higher U.S. dollar, along with similar records or near-record bets on lower currencies in almost all other countries. Almost no one is taking steps to hedge their portfolios in the event of rising inflationary expectations. The surprise for which almost no one is prepared is the one which is most likely to actually happen.

    As a result of the nearly universal belief in deflation, investors have crowded into assets which will benefit from continued declines for commodities. The shares of most commodity producers recently set or approached six-year bottoms, as have the shares of many emerging markets which are connected directly or indirectly with commodity production. The outperformance of U.S. stocks, bonds, and the U.S. dollar has created its own dangerously exaggerated situation, by convincing most investors that this outperformance will continue indefinitely. You often hear nonsensical comments such as the United States being the cleanest dirty shirt, and other theories which attempt in hindsight to explain what has already happened as logically as possible. In reality, if you had arrived on Earth from the planet Mars, you would immediately recognize that it makes no sense for average U.S. price-earnings ratios to be above 18 while Russian companies have an average P/E of only 4. Companies in nearly identical industries, such as Ecopetrol (EC) versus Exxon-Mobil (XOM), demonstrate an irrational overvaluation for the U.S. counterparts as compared with those in almost any other part of the world.

    It is particularly ironic that seven years ago--and again four year ago--investors assumed the exact opposite: that growth outside the United States would perpetually outperform growth within the U.S., and that commodities would continue to climb in price because of an irreversible increase in demand from two billion people who had moved into the middle class. These people wanted to drive automobiles, and to have real copper pipes in their houses, and to eat the same food as those in developed countries. Since 2008 or 2011, there hasn't been any change in the fundamental situation; those in emerging markets haven't decided that they prefer poverty or wish to give up their recent prosperity. However, a new myth has been created in which the U.S. economy will allegedly continue to outperform the rest of the world for many more years, which is just as illogical as the opposite myth which had existed previously.

    Nearly all funds of commodity producers and emerging-market equities have begun to rebound from six-year lows, while a few including Brazil (EWZ) and Nigeria (NGE) have lagged in their recoveries. In general, the best investment strategy will continue to be to purchase whatever is least popular at any given time and is assumed to be the most "hopeless" in being able to enjoy a rebound. The most severe bear markets are almost always followed by the strongest recoveries, and yet most investors incorrectly perceive that any uptrends following major downtrends will be muted or insignificant. The most difficult perception problem for most investors in early 2009 was in realizing that the huge collapse for global equities ensured an equally outsized and dramatic regaining of those losses, because emotionally a big drop creates the illusion that there is some kind of inherent inferiority which can't be easily overcome. We have already experienced three energetic rallies for commodity producers and emerging-market equities since 2000, but investors mistakenly believe once again that the chance of a fourth such rally is highly unlikely.

    Summary: Everyone is convinced that deflation will rule worldwide and that U.S. assets will outperform those in the rest of the world, because they're looking back at the recent past and wrongly extrapolating it into the indefinite future. Take the opposite point of view and you will prosper greatly in 2015-2016.

    Disclosure: In August-September 2013, and throughout 2014 into early 2015, I have been aggressively buying the shares of emerging-market country funds whenever they have appeared to be most undervalued. Since June 2013, I have added periodically to funds of mining shares and related assets especially following their most extended pullbacks. Starting in December 2013 I had been buying HDGE whenever it has traded below 13 dollars per share, and more recently whenever it has retreated below 12, with the idea of selling it perhaps in 2017 or whenever we are completing the next U.S. equity bear-market bottoming pattern; HDGE is an actively managed fund which sells short various U.S. equities. From my largest to my smallest position, I currently own GDXJ, KOL, XME, HDGE, GDX, SIL, COPX, REMX, EWZ, RSX, IDX, GXG, ECH, GLDX, URA, FCG, VGPMX, BGEIX, VNM, ZJG (Toronto), NGE, PLTM, EPU, TUR, SILJ, SOIL, EPHE, and THD. In the late spring of 2014, I sold all of my SCIF which had briefly become my fourth-largest holding, because euphoria over the Indian election was irrationally overdone and this fund had more than doubled. I have reduced my total cash position since June 2013 to approximately 4%-5% of my total liquid net worth in order to increase my holdings in the above assets. I sold all of my SLX by acting whenever steel insiders were doing likewise. I expect the S&P 500 to eventually lose about two thirds of its December 29, 2014 peak value--with most of that decline occurring in 2016-2017. The Russell 2000 Index (IWM) barely achieved a new all-time top on July 1, 2014 and again on December 31, 2014, but these were both less than 1% above its March 6, 2014 high. The Russell Microcap Index (IWC) has never surpassed its zenith from March 6, 2014. Meanwhile, the S&P 500 Index set a new all-time high on numerous occasions during the same ten-month period. This marks a classic negative divergence which previously occurred in years including 1928-1929, 1972-1973, and 2007. Those who have "forgotten" or never learned the lessons of past bear markets are doomed to repeat their mistakes.

    Thursday, January 8, 2015

    "Be a contrarian. Buy when others are smiling at you. Keep purchasing as they snicker at you. As they start laughing at you, become fully invested. It might not be apparent to the financial markets now, but in all probability, gold is in the initial stages of a major bull cycle." --Irwin T. Yamamoto

    IN 2015, THE LAST SHALL BE FIRST AND THE FIRST SHALL BE LAST (January 8, 2015): What do most investors expect in 2015? If you look at the comments of most advisors and analysts, or you speak with your friends and neighbors, you will soon realize the following: consciously or subconsciously, people expect the behavior in the financial markets in the final months of 2014 to prevail throughout 2015. This isn't because of any kind of scientific method or algorithmic extrapolation, but because it's human nature to almost always project the recent past into the indefinite future. Therefore, nearly all investors anticipate worsening deflation; a continued rise in the U.S. dollar; new all-time highs for most bond funds; additional significant gains for the S&P 500 Index; large-cap U.S. equities outperforming their small-cap counterparts; additional meaningful declines for commodities and the shares of their producers; further losses for most emerging-market shares; and for central bankers around the world to continue to try to increase inflation at almost any cost.

    Before the end of 2015, it will become apparent that the above expectations are all badly off course. Already, all of the assets described in the previous paragraph have achieved multi-year, multi-decade, or all-time extremes, although investors don't appreciate how lopsided these valuations have become because everything which exists at any given time is believed to be reasonably priced. When the Nasdaq was above five thousand in early 2000 it was assumed that it would remain elevated indefinitely, and now that the Nasdaq is not far below five thousand today most investors assume that it will soon reach a new all-time zenith. However, the Nasdaq, the S&P 500, and all other U.S. equity indices and funds have become dangerously overvalued. Before they more than tripled, U.S. equities were a compelling bargain; now that their prices have surged far more rapidly than the profits of their underlying companies, the U.S. stock market is more vulnerable to a multi-year bear market than at any time in its past history. This is evident from fund flow data for U.S. equity funds, which mostly approached or set new records for total investor inflows during the past two years. The all-time record monthly inflow was in February 2000, just before a severe bear market, while the all-time record monthly outflow was in February 2009, just before one of the strongest bull markets in history. If most investors are piling into or out of anything, then the market is set to punish them rather than to reward them.

    There is an unusually sharp dichotomy between two sets of assets worldwide today: those which are close to all-time peaks, and those which are trading near six-year bottoms. While the latter don't receive nearly as much media attention as the former, most shares of commodity producers and many emerging-market equities have traded sometime since early November 2014 at or near their lowest levels since the final months of 2008 or the early months of 2009. In most cases, emerging-market bourses have enjoyed roughly similar overall GDP growth as compared with the United States, but instead of more than tripling in value as U.S. equity funds have done since early 2009, they have barely moved higher during the past six years. This has resulted in an irrational situation where a company like Ecopetrol (EC) in Colombia, merely because it is in Colombia, with more consistent profit growth, lower debt, and stronger earnings than Exxon Mobil (XOM), has moved net sideways. This is true for entire stock markets including Russia (RSX), Brazil (EWZ), Nigeria (NGE), Portugal (PGAL), Norway (NORW), and most others in South America, Africa, and much of Europe. Asian and Australian shares are somewhere in between. You'll almost never hear a media recommendation to purchase equities in Colombia or Norway or Nigeria, but that is where some of the best global bargains currently reside.

    With the U.S. dollar index reaching its highest point since November 2005, investors assume that it will continue to rally. However, we currently have an all-time record number of speculators betting on a continued climb for the greenback. Any time that a given trade becomes its most overcrowded in several decades, it becomes especially dangerous to assume that it will continue. The relevant question to ask is this: why is the U.S. dollar so strong? A response is usually in the form of some nonsense such as the U.S. being the least dirty shirt in the laundry, but in reality there is no logical reason for the greenback to be so powerful unless a worldwide recession is imminent. The same is true with commodities which are mostly trading at their lowest prices since the early months of 2009, as well as many global currencies which are doing likewise. If we are about to experience a deflationary depression which begins during the next few months, then this behavior is sensible. Otherwise, it is a glaring mispricing combination which will be followed by huge gains for commodity producers and emerging-market equities in particular, along with moderate losses for both U.S. stocks and bonds.

    It is rare to find an analyst or advisor who expects declines for both U.S. equity funds and U.S. bond funds during 2015. As unlikely as this may seem, it is the most probable outcome for the calendar year. Bonds have surged not because they represent any kind of fundamentally worthwhile investment choice, but because investors unhappy with yields of less than one percent in bank accounts have chased after yield without regard for risk. U.S. stocks have rallied because they continue to move higher, so those who are invested almost anywhere else in the world and have been disappointed with apparent "losers" have decided to eventually give in and to switch to the "winning" team. The more eagerly investors dump the most undervalued stocks to chase after the most overvalued ones, the greater the disparity has become between these groups. Finally, just in the past several weeks, the weakest names have been among the biggest winners, while the most popular indices including the S&P 500 have begun showing signs of early weakness. There continue to be sharp up days for U.S. equity indices, just as there had been throughout 2007 and during the first eight months of 2008, to discourage investors from selling U.S. stocks anywhere near the top. By the time investors realize that they should have sold, they will likely already have lost half or more of their money, just as had occurred during the 2007-2009 bear market.

    As for U.S. bonds, they seem to be in an unending uptrend. Anything which appears to be unstoppable eventually stops, and then dramatically reverses as the psychology becomes transformed from "bonds are just as safe as a bank account and will give me more income" to "get me out of these bonds at any price, because they've lost so much and I can't afford to keep losing more while I'm waiting for a rebound." This is of course exactly what happened with U.S. corporate bonds in 2007-2008, and the next year or two will be similar. U.S. Treasuries are in a different category from corporate bonds, but TLT recently surged to a new all-time high and Treasuries have become far too popular. With all-time record inflows into many U.S. Treasury funds in recent weeks, expect them to disappoint investors from now through early 2016 when they may once again become sufficiently cheap to justify purchasing.

    If you look at charts of GDX, SIL, GLDX, or SILJ, they have this feature in common: they all bottomed on November 5, 2014. Many other funds of commodity producers and emerging-market equities completed their lowest points in the morning of December 16, 2014. Some of these shares slumped to new six-year lows in January 2015, thereby providing additional good buying opportunities. Whenever it appears that bargains will last forever, they soon rapidly disappear.

    Summary: Investors are expecting additional 2015 gains for both U.S. stocks and bonds, as well as a continued rise in the U.S. dollar. All of the above will end up behaving exactly the opposite. The least-loved securities in the world, consisting primarily of the shares of commodity producers and emerging-market equities which are mostly near their lowest points in six years, will likely be among the biggest percentage winners throughout 2015 and into the early months of 2016.

    Disclosure: In August-September 2013, and throughout 2014 into early 2015, I have been aggressively buying the shares of emerging-market country funds whenever they have appeared to be most undervalued. Since June 2013, I have added periodically to funds of mining shares and related assets especially following their most extended pullbacks. Starting in December 2013 I had been buying HDGE whenever it has traded below 13 dollars per share, and more recently whenever it has retreated below 12, with the idea of selling it perhaps in 2017 or whenever we are completing the next U.S. equity bear-market bottoming pattern; HDGE is an actively managed fund which sells short various U.S. equities. From my largest to my smallest position, I currently own GDXJ, KOL, XME, HDGE, GDX, SIL, COPX, REMX, EWZ, RSX, IDX, GXG, ECH, GLDX, URA, FCG, VGPMX, BGEIX, VNM, ZJG (Toronto), NGE, PLTM, EPU, TUR, SILJ, SOIL, EPHE, and THD. In the late spring of 2014, I sold all of my SCIF which had briefly become my fourth-largest holding, because euphoria over the Indian election was irrationally overdone and this fund had more than doubled; since then, SCIF has been one of the biggest losers of all emerging-market funds. I have reduced my total cash position since June 2013 to approximately 5% of my total liquid net worth in order to increase my holdings in the above assets. I sold all of my SLX by acting whenever steel insiders were doing likewise. I expect the S&P 500 to eventually lose about two thirds of its December 29, 2014 peak value--with most of that decline occurring in 2016-2017. The Russell 2000 Index (IWM) barely achieved a new all-time top on July 1, 2014 and again on December 31, 2014, but these were both less than 1% above its March 6, 2014 high. The Russell Microcap Index (IWC) has never surpassed its zenith from March 6, 2014. Meanwhile, the S&P 500 Index set a new all-time high on numerous occasions during the same ten-month period. This marks a classic negative divergence which previously occurred in years including 1928-1929, 1972-1973, and 2007. Those who have "forgotten" or never learned the lessons of past bear markets are doomed to repeat their mistakes.

    Monday, December 1, 2014

    "Call me dummy and write a book for me: If the stock market falls 1%+ on a FAKE tweet, what does that mean when something serious happens?" --Bette Midler

    GOLD AND SILVER MINING SHARES ARE POINTING THE WAY HIGHER FOR OTHER COMMODITY PRODUCERS AND EMERGING MARKETS (December 1, 2014): Yes, you heard that right. In spite of, or really because of all the negative media hype about gold and silver, you would think that the sky had fallen and was about to crash on the heads of everyone who invests in commodities directly or indirectly. In my previous post from Halloween, I recommended that readers purchase the shares of gold and silver mining companies and their funds including GDXJ, GDX, SIL, GLDX, and SILJ. As it turned out, all of these bottomed nearly simultaneously on November 5, 2014, and have since formed bullish patterns of higher lows. On November 28, 2014, and again in the morning of December 1, 2014, gold and silver mining shares slumped but didn't nearly approach their nadirs from a few weeks earlier. This was true even though the price of silver itself, as measured by the December 2014 futures contract, plummeted to 14.100 U.S. dollars per troy ounce on Sunday evening, November 30, 2014. The primary impact of this collapse was to cause the sell stops of long silver positions to be triggered, thereby proving once again that those who use stops will succeed only in getting stopped out just before any major move occurs in the opposite direction.

    What should you do if a fund of junior gold mining shares like GDXJ had bottomed at 22.34 and is now moderately higher? Of course you could decide to buy it even though it has recently climbed sharply, but a much better idea is to observe the historic pattern in which gold and silver mining shares tend to rally from multi-year lows prior to similar rallies for other commodity producers and emerging-market equities. Funds including FCG (natural gas producers), COPX (copper mining shares), and GXG (Colombian equities), among dozens of others, slumped to five- and six-year bottoms on December 1, 2014. Knowing that precious metals producers are a leading indicator, it is thereby safe to purchase all related assets which are directly or indirectly connected with commodity production. In this way, you are continually accumulating the best bargains which are available and which no one wants to buy until they have rebounded, instead of chasing after the hottest securities which have already been progressively recovering. Eventually, the lagging assets you purchase will enjoy similar rallies.

    What reason is there for commodities to rally, given the OPEC meeting and the Switzerland gold referendum? The answer is that meetings and referendums don't determine the future prices of assets, which fluctuate almost entirely based upon economic considerations. Whenever there is a political motivation for buying or selling, such as a street protest or a change in government--or in the case of Brazil, the lack of a change in government--it is almost always profitable to trade in the opposite direction of the media consensus. If you hear even on non-financial cable TV stations why the price of oil will drop because of the OPEC meeting, or why the price of gold will slump because of a Sunday morning vote in Switzerland, then you can rest assured that the behavior of the U.S. dollar and the global economy is ten thousand times more important. The value of the greenback vs. the aussie or loonie isn't going to make headline news, because it's not very exciting and it's challenging for a journalist to create an entertaining and simplistic story line to attract viewers. However, these "boring" facts will be the key elements in determining whether the shares of commodity producers and emerging-market equities will rise or fall during the upcoming year.

    If there was anyone who was long crude oil, gold, silver, the shares of commodity producers, Brazilian or Russian equities, or the Australian and Canadian dollars, and emotionally wanted to sell out of disappointment, then the OPEC meeting and the Swiss gold referendum--along with the most recent Fed meeting, the U.S. Congressional elections, and a dozen other newsworthy events, not to mention the handy excuse of tax-loss selling at this time of year--gave these folks plenty of excuses to finally log into their accounts and close out their positions. The remaining owners of these assets are primarily highly committed, knowledgeable, value investors who will not easily be dissuaded into selling by media hype or anything else, thereby setting the stage for a dramatic extended rally. A fund like FCG, if it merely touches its June 23, 2014 intraday high of 24.12, will have more than doubled from today's intraday low of 11.89. Many funds of commodity producers will triple or more if they revisit their respective peaks from past years including 2013, 2012, and especially 2011. While nearly all analysts are concerned about how much lower these assets will go, a far more interesting and pertinent question is how high they can climb after they have reversed direction. At the end of any bear market, nearly all investors become irrationally obsessed with the potential for additional losses and forget that if something has lost 5/6 of its value then it will triple in price if it regains half of its previous top.

    Pay attention to fund flows which are ignored by almost all investors. At the same time that there have been record inflows into many U.S. equity funds in recent months, there have been all-time outflows from most assets connected with commodity production and emerging markets. Mining and energy shares in particular have suffered dramatic declines, with the percentage of the S&P 500's total market capitalization devoted to energy close to an all-time low. Relative to almost all other equity groups, the total market capitalization of mining shares is at a multi-decade bottom. In recent months, insiders have been substantial buyers of the shares of commodity producers, while the traders' commitments are near multi-decade bullish extremes of commercial (insider) accumulation. Regarding currencies, commodity pools and other speculative entities have been making all-time record bets on a rising greenback. The media are clearly on the side of these speculators, believing almost unanimously that the U.S. dollar will continue to rise indefinitely along with U.S. equities, U.S. corporate bonds, U.S. real estate and just about everything else connected with the United States.

    If the overnight action in gold and silver proved anything, as did similar behavior on November 5, 2014, it is that whenever there is a unanimous consensus that anything will happen in the financial markets then it inevitably proves to be the opposite of what actually occurs. If everyone is convinced that gold will plummet to one thousand dollars per troy ounce, then it will instead surge higher. If everyone is certain that the U.S. dollar is the cleanest dirty shirt in the laundry and will continue to climb versus all other currencies, then the greenback is likely instead to decline roughly through the end of 2015--and perhaps beyond if investors aren't sufficiently bearish toward the U.S. dollar a year from now. If everyone knows that U.S. equities are safer and more reliable than stocks anywhere else in the world, then U.S. equities will suffer a period of prolonged underperformance and almost certainly will decline by more than half as they have done in past decades whenever they have been this dramatically overvalued. It's worth noting that investors made their heaviest outflows from funds connected with the S&P 500 and other U.S. benchmark indices when the S&P was close to its March 6, 2009 nadir of 666.79, and now that it has more than tripled we have enjoyed huge inflows into the same funds. Investors love to buy high and to sell low, because that enables them to do exactly what the media are brainwashing them to do.

    Summary: Today's rally for gold and silver mining shares is pointing the way higher for the shares of other commodity producers and emerging-market equities which have continued to retreat toward five- and six-year bottoms. Buy them before everyone else realizes what is going to happen in 2015.

    Disclosure: In August-September 2013, and again throughout 2014, I have been aggressively buying the shares of emerging-market country funds whenever they appeared to be most undervalued. Since June 2013, I have added periodically to funds of mining shares and related assets especially following their most extended pullbacks. Starting in December 2013 I have been buying HDGE whenever it has traded below 13 dollars per share, and more recently whenever it has retreated below 12, with the idea of selling it in 2016-2017 as we are completing the next U.S. equity bear-market bottoming pattern; HDGE is an actively managed fund which sells short various U.S. equities. From my largest to my smallest position, I currently own GDXJ, KOL, XME, HDGE, GDX, SIL, COPX, REMX, EWZ, RSX, IDX, GXG, ECH, GLDX, URA, FCG, VGPMX, BGEIX, VNM, ZJG (Toronto), PLTM, EPU, TUR, NGE, SILJ, SOIL, EPHE, and THD. In the late spring of 2014, I sold all of my SCIF which had briefly become my fourth-largest holding, because euphoria over the Indian election was irrationally overdone and this fund had more than doubled; since then, SCIF has been one of the biggest losers of all emerging-market funds. I have reduced my total cash position since June 2013 to approximately 6% of my total liquid net worth in order to increase my holdings in the above assets. I have now sold all of my SLX by acting whenever steel insiders were doing likewise. I expect the S&P 500 to eventually lose about two thirds of its 2014 peak value--with most of that decline occurring in 2016 and perhaps continuing into 2017. The Russell 2000 Index barely achieved a new all-time top on July 1, 2014 compared with its early March 2014 highs and made a lower high on November 28, 2014, while the S&P 500 set a new all-time high on numerous occasions during the same nine-month period. The Russell Micro-cap Index has been even weaker since it completed a historic top on March 6, 2014. This marked a classic negative divergence which previously occurred in years including 1928-1929, 1972-1973, and 2007. Those who have "forgotten" or never learned the lessons of past bear markets are doomed to repeat their mistakes.