Martin J. Pring - VTAD · Pring.com PringTurner.com Investing in the Second Lost Decade Martin J....

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Investing in the Second Lost Decade

Martin J. Pring

IFTA Europe 2014

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

Source S&P

1909 17% higher than 1902

1973 27% higher than 1966

New high 22% above 2000?

These look like trading ranges.

Deflated S&P Composite

Trading ranges in nominal terms bear markets in reality.

Deflated US Stock Prices (1900-2014 )

1 2 3?

March 2000 CPI Adjusted S&P = 8.75

February 2014 CPI Adjusted S&P = 7.90

13-year loss = 9.7%

Deflated S&P Composite

S&P versus MSCI World Index 1973-2014 (Deflated)

Deflated MSCI World Stock Index

S&P versus MSCI World Index 1973-2014 (Deflated)

Causes of Secular Bear Markets in Equities

• Structural

• Psychological

• Unstable Commodity Prices

ECRI Weekly Leading Indicator

Secular Bear

Secular Bull

ECRI Weekly Leading Indicator 1967-2014

Red = Recessions

Nonfarm Payrolls/Involuntary Part Time

Nonfarm Payrolls/Involuntary Part Time Workers 1955-2014

Secular Bear Secular Bear Secular Bull

Secular Bull

Annual Working Age Population Growth and Projection

??????

• Structural

• Psychological

Real Earnings are not Correlated to Stock Prices (1870-2014)

Inflation Adjusted Equities

Shiller Real Earnings (10-year MA)

19-years/ 69%

decline/ 6

recessions

19-years/ 67%

decline/ 4

recessions

16-years/ 62%

decline/ 4

recessions

CPI Adjusted S&P Composite

Shiller P/E

Deflated US Stock Prices versus Shiller P/E Ratio1900-2014

12-years/ 60%

decline/ 2

recessions

• Structural

• Psychological

CPI Adjusted S&P Composite

Commodity Prices

Deflated US Stock Prices vs US Commodity Prices (1830-2014)

Secular Trends for Commodities

US Commodity Prices

US Commodity Prices 1840-2014

Average bull=19-years

Average bear=21-years

Current bull is

13-years old.

Price Oscillator (60/360)

CRB Spot Raw Industrials

US Commodity Prices 1840-2014

Upside reversal

Secular Trends for Bonds

31-years

29-years

21-years

40-years

21-years

Average=25-years

Average=30-years

US Govt Bond Yields (20-30-years)

US Government Bond Yields 1860-2014

US Govt Bond Yields (20-30-year)

96-month EMA vs 9-month EMA

Trendline and

MA at 4.1%.

Green plot when 9-EMA is

above 96-month EMA.

9-month EMA

96-month EMA

Secular Trend Reversals Characterised by Extreme Swings in

Psychology

US Govt 20-30-year Yield

ROC (12)

Record reading

Exhaustion move

Great volatility at

secular reversal.

Government Bond Yields

Bnd Yields versus Commodity Prices(1868-2014)

Commodity Prices

II. Investing Around the

Business Cycle

Leading

Coincident

Lagging

ECRI Leading, Coincident and Lagging Indicator Momentum 1972-2013

Commodities

Are all part of the business

cycle sequence.

Stocks

Contraction

Growth

Idealized Business Cycle

S&P Composite

Coincident Indicators (1/9 trend deviation)

S&P Composite vs Coincident Indicator Momentum (1955-81)

Economy

growing

Economy

contracting

Approximately 41-months between

cyclic lows

Growth declines

but does not go

negative.

Double Cycle

The Double Cycle

Introducing the Six Stages

Commodities

Stocks

If the stock market discounts the economy then ……

.…individual stock market sectors should discount

the economic sector they represent!

The Market’s Discounting Mechanism

Homebuilders lead housing Capital goods stocks lead

capital spending

Capital spending stocks

Capital spending

Housing

Homebuilders

How Market Sectors Lead Economic Sectors

Home Builders

Housing Starts

Home Builder KST Housing Start KST

Homebuilders vs. Housing Starts

Home Builder KST

Housing Start KST

Homebuilders vs. Housing Starts(1989-2014)

XHB IAI

XLV IEO

Pring Six Pring Six Stages

Where are we now?

Commodities

Stocks

Government 5-year Yield

Short-term Momentum Reversing to the upside

Government 5-year Bond Yield 2006-2014

Long-term Momentum Still bullish for yields

German Bun LIFFE

Still falling

Possible top

German Bun LIFFE

Short-term KST Sell signal

Key level is 139

Intermediate KST

Long-term KST Turning?

S&P Composite

S&P versus KST Momentum 1993-2014

Still rising

MA and trendline at 1700-1720.

MSCI World ETF (ACWI)

RSI (18/4)

$54 is the key area.

MSCI World ETF 1966-2014

Inflation Adjusted S&P Composite

Shiller P/E/Corp Bond Yield

S&P versus Shiller P/E/Corp Bond Yield Ratio 1880-2014

S&P Composite

Govt Bond Yield (12-ROC)

S&P vesus 20-year Govt Bond Yield 12 ROC 1967-2014

Red highlights = recessions

48-ROC S&P/GDP

Inflation Adjusted S&P Composite)

S&P versus S&P/GDP Ratio Momentum 1880-2014

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.

Primary trend

9 months to 2 years

Short-term trend 2 to 6 weeks

Intermediate trend

6 weeks to 9 months

Special K

Market Cycle Model

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.

Special K

7900 is the key area.

DAX 1996-2014

Global Commodity Index vs the Global Economy 1966-2014

OECD Leading Indicator

18-month ROC

US Commodity Prices (1920-2014)

Commodity Prices versus a Momentum Indicator(1971-2014)

Commodity Diffusion Indicator

ECRI JOC Industrials

DJ UBS Commodity

CRB Composite

Four breakouts

CRB Spot in Euro

Short-term Momentum

Bullish

CRB Spot Raw Industrials in Euro 2006-2014

Long-term Momentum Flat

Cross Checks with Inter-Asset and Intermarket Relationships

Commodity/Bond Ratio

Secular Oscillator

Commodity/Bond ratio and a Secular Oscillator(1890-2014)

Commodity/Bond Ratio

Deflated US Stock Prices vs US Commodity Prices (1963-2014)

Inflationary

Deflationary

Rising peaks and troughs still intact.

S&P Composite

KST (Ratio)

S&P Composite/Commodity Ratio

Hesitated in February.

S&P/Commodity Ratio

KST (Ratio)

Special K Momentum

Rolled over in February.

Uptrend is intact

Bullish primary trend momentum

Bearish primary trend momentum

Theoretical Long-term Smoothed Momentum (Stage IV Start)

Commodities

Long Term Momentum Position February 2014

El Utilities

Telecom

Homebuilders

Staples

Gold Shares

Semiconductor

Industrial Commodities Steel

Materials

Health Care

Con Disc

Financials

Capital Goods

Industrials

Drillers

Aluminum Technology REITS

Early Cycle leaders Late Cycle leaders

Energy

Pharmaceuticals

Interesting theory…

…but does business cycle

investing work in the real

world?

Source: S&P Dow Jones Indexes

Stocks

Commodities

DJ Pring

Less Risk

Better return

Pringturner.com

Bonds Stocks

Commodities

DJPring

S&P Composite Total Return

Dow Jones Pring Business Cycle Index

(DJPRING)

DJPRING versus S&P Composite 2006-2014

Recaptures 2007-9 loss

Whipsaw barometer signal

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…

Please Visit our website www.pring.com to join our free e-mailing list.

“The book sees another ‘lost

decade,’ but also ways to

make it a winner.

Paul B. Brown – New York Times

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

Martin J. Pring - VTAD · Pring.com PringTurner.com Investing in the Second Lost Decade Martin J....

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