Replies to post #29743 on A.I.M. Users Bulletin Board (AIMUSERS)

[macprogrammer]

I highly recommend reading 'The Great Depression Ahead' by Harry Dent.

There are two components to understanding the big waves in the economy. The first is 'Market Turns' and the second is 'Magnitude'.

Harry Dent uses a demographic spending model to determine both. Market turns are no longer a mystery. Dent's projections of when the market will turn from bull to bear have been 100 percent correct since 1980. However, magnitude is impossible to project. Too many variables.

The demographic spending model came in handy for me on several occasions. I used it in 2006, just after the real estate bubble had peaked, to sell my house, and again in 2007 to take my cash from the stock market and run.

Our current cycle is almost identical to Japan's of 1990. We are at the beginning stages of a protracted 13 year depression. And the book goes on to demonstrate that current investment methods will not work.

But the beautiful thing is, for AIM investors there will be plenty of bear market pullbacks along the way. Lot's of bounces. So once again, congratulations for being smart enough to pick the right system.


Ryan

[OldAIMGuy]

Hi Clive, Re: Cash "Yield" vs Stock Dividends.............

I created this graphic recently showing how the yield of a very low risk (13 week Treasury Note) "competes" with Stock Dividends over time. I don't think I shared this with the group, however.

If we think of a low risk money market yield as competition for stock dividends, then we have to weigh the relative risk of being "risk free" with the risk of being invested in the stock market. Over time this changes around quite a bit. This graphic shows the Value Line dividend yield being subtracted from the 13 Week Treasury Coupon rate over time.


(positive values = higher risk stock markets; negative values = lower risk stock markets)

When the low risk treasury rate is paying 5% and the Value Line average dividend is paying 1.6% as we had in 2007, we see that the relative risk of being in the Stock Market is quite high. Moving forward in time to recent weeks, the treasury coupon rate is now paying less than 0.25% but the average Value Line dividend is between 3% and 4%. Under such circumstances, the "low risk" treasury rate cannot effectively compete with the average dividend yield of common stocks. At such times, the "low risk" investment becomes equities, not treasuries.

If we relate this to what AIM does for us automatically, we see that AIM tends to be very heavily invested when the average Stock Dividend Yield is quite high (and money market rates are low). AIM also, very kindly, shifts our money from stocks toward the short term cash holdings when cash is yielding its best cyclical levels. What is truly interesting is that AIM doesn't know or care what the current Money Market rate is and yet manages to be doing the right thing at the right time.

AIM's like the old joke about the Thermos Bottle.

"It keeps hot things hot and cold things cold.
But how do it know???"

Best regards,
Tom

[Toofuzzy]

Hi Clive

>>>>
A reasonable model to work with is that stock capital values pace inflation over time. Cash also paces inflation.

Stocks however pay a dividend yield which might be considered as the risk premium element.<<<<

Cash is owned not so much as an investment but as a stable store of value. If we bought everything in ounces of oil that oil would be the thing I would say to buy as the reference holding. But dollars it is. The dollar holdings allow you to buy and sell stocks at higher or lower prices.

Toofuzzy