Bonding With Fudged News


Corporate bonds are being manipulated with fake news.

Many investors are so worried about fake news in stock markets that they invest in bonds, despite the low returns.

Equities are riskier short term, but have always gained much higher returns long term.

Now bonds have one more growing risk… not exactly fake news.  Fudged news might be a better term.

wsj.com

Image from the Wall Street Journal article “Bond Ratings Firms Go Easy on Some Heavily Indebted Companies”.

The article says:  In August, bond-ratings firms Moody’s MCO -2.14% Corp. and S&P Global Inc. SPGI -1.92% predicted that Newell Brands Inc. NWL -0.55% would soon reduce its heavy debt load, allowing it to keep its coveted investment-grade bond rating.

They made the same prediction in 2018. And in 2017. And in 2016. And in 2015, when the company announced a big merger that quadrupled its debt. Yet bond ratings for the maker of Rubbermaid containers and Sharpie markers haven’t budged.

Amid an epic corporate borrowing spree, ratings firms have given leeway to other big borrowers like Kraft Heinz Co. and Campbell Soup Co. , allowing their balance sheets to swell.

“It’s pretty eye-popping if you’ve been doing this for 20-plus years, to see how much more leverage a number of these companies can incur with the same credit rating,” said Greg Haendel, a portfolio manager at Tortoise in Los Angeles overseeing about $1 billion in corporate bonds. “There’s definitely some ratings inflation.”

Years of rock-bottom interest rates have fueled a boom in borrowing, driving debt owed by U.S. companies excluding banks and other financial institutions to nearly $10 trillion—up about 60% from precrisis levels. Leverage—how much debt a company owes relative to its earnings—hit a high in the second quarter of this year, according to JPMorgan Chase & Co. data on investment-grade bonds going back to 2004, which also excludes financial companies.

The buildup has fueled one of the most divisive debates on Wall Street: Will higher debt loads cause big losses when the economy turns? Or have low interest rates made the borrowing more manageable?

Bond rating agencies have erred enough times in the past, so this further erosion of truth highlights the growing risk we face in every segment of investment markets.

Gary

The Secret Science of Wealth

Here is a ratio that can make us rich….1.6 to 1.  Leverage in this amount has helped build one of the greatest fortunes in history.  This ratio is one of three secrets in the science of everlasting wealth.  See how Yale University’s research on Warren Buffet’s investing strategy shows the actual science of how to borrow low and invest high.

I began thinking about the secrets of good investing over 30 years ago.  Well, actually I had thought about these secrets many times before that. “Why do some people make money again and again?  What is their secret?”

However, this thinking was super charged about 3 decades ago.  I was a speaker at an investment seminar in the Cayman Islands.  Another speaker was one of the world’s great investors, John Templeton.  Chance put us in the same room waiting to speak.  Then after we spoke chance brought us together, alone in the small departure lounge at the airport.  This was my golden chance, to speak alone, one on one, with this investing genius.  I took it.  “What’s the secret that sets you aside from the rest“,  I asked.

Mr. Templeton (he was not Sir John then) explained that he just did the same as every good investor to stay on top of trends.  But then, he added, his secret was to review everything with a black box… a form of thinking beyond logic.

Then his flight departure was called.  He flew away and I was left, more puzzled than before.  “Hmpf?”  I wondered.  “Knowing that secret doesn’t help.  What’s the science behind the black box?  That’s what I need to know.” 

I remained mystified.  Later the mystery deepened.   I was conducting a book signing for my novel “The 65th Octave”.

I was speaking at a (now defunct) Borders Bookstore about how the core of the novel was the Golden Words.  They helped reveal little known secrets for a more fulfilled life.  One attendee, burst out crying.  That was very puzzling so after the signing I asked her, “Why the tears?

She explained that she had been Warren Buffett’s personal assistant.  Buffett and Charlie Munger had used these same secrets and had encouraged her to use them.  She said those ideas had sounded too esoteric. She had ignored them and left Buffett’s employment.

That’s a clue, I thought.  “The same secrets in my novel can be applied to investing”.

This is when I realized how many secrets of everlasting wealth, may seem mystic but are simply well known mathematics of nature.  They have not been commonly applied in the science of investing.  Only a few investors have learned to apply the science of nature to finance.  This rarity has made these few investors almost unimaginably rich.

One secret that research has now proven, is a most interesting proportion of universal math called the Golden Mean or Golden Ratio.  The Golden Mean is the ratio of approximately 1.6 to 1  (1.6180339887498948482 to be more accurate, but 1 to 1.6 is usually accurate enough).  This rate of expansion is found everywhere-throughout nature.  The Golden Mean controls the growth of most natural things; trees, the shape of leaves, the spiral of shells, as well as the way economies and societies grow.

Good businesses and investments grow along the Golden Mean.  If they grow too fast or to slow beyond this rate, they face increased risk of loss.

The Golden Mean for example is regularly used in architecture.   Our house in North Carolina was built on the Golden Mean.

italian-villa

It has a base of 50 feet by 30 feet… a 1 to 1.6 dimension on purpose.

The Greeks were aware of the pleasing impact of the Golden Ratio and used it as the core of many structures, such as the Parthenon.

In fact the symbol for the Golden Ratio, the Greek letter phi, is derived from the name of Phidias, one of the three architects, who designed this amazing monument.  Iktinus and Callicrates were the other two architects.  These three used Phi beginning with the exterior of the Parthenon.  The dimensions of the façade represent the perfect golden ratio.  Then the ratio is used in many ways within.

Ancient Egyptians used the Golden Mean in the Great Pyramids of Giza.  The length of the base of the pyramid is approximately the Golden Mean.  The height is approximately Pi.

The Golden Mean ratio is in the design of Notre Dame in Paris, the headquarters for the United Nations built under the supervision of Wallace K. Harrison and French architect, Charles E. Jeannere, reflects the Golden Ratio in several ways.  The windows have the ratio and also when looking at the width of the entire building and comparing it to the height of every ten floors.

“Great”, I asked myself again and again. “The Golden Mean can be found in the human body, nature, solar systems, DNA, the stock market, the Bible, theology, music, artwork, design, and architecture.  That all well and good, but what is the exact science for applying this ratio to investing?

Finally, research about Warren Buffet’s investing strategy published at Yale University’s website shows the actual science of how to use the Golden Ratio to become and remain rich.

A research paper published on the website of Yale University’s Department of Economics pinpoints this truth.  The paper shows the methods used by Warren Buffett to amass his $50 billion dollar fortune.  The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more.  The research shows that neither luck nor magic are involved.  Instead, the paper shows that Buffet’s success hinges on using leverage at the Golden Ratio to make large purchases of “cheap, safe, quality stocks”.

Buffett has amassed an amazing fortune by leveraging a good strategy for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.

The study found that Buffett applies a leverage of about 1.6 to 1, boosting both his risk and excess return in that proportion.  He uses the Golden Mean in his borrowing, not too little, not too much.

Thus his many accomplishments include having the conviction, wherewithal, and skill to operate with leverage and significant risk over many decades.

The research paper shows these general features of Buffet’s portfolio:  Stocks that are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).  Even so at times his portfolio has fallen, but Buffett waits long periods for prices to recover.

This leaves the key question: What capability allows Buffett to hang on when his leveraged investments are losing value?

For example, from June 30, 1998 to February 29, 2000, Berkshire  lost 44% of its market value while the overall stock market gained 32%.  Most fund managers would have trouble surviving a shortfall of 76%.  Buffett’s reputation and structure as a corporation helped him stay the course and rebound when the internet bubble burst.  Having not leveraged too much because of the Golden Mean is a crucial part of his tenacity.

Another part of his portfolio science  is keeping finance costs low.  His company benefited from a AAA credit rating and was able to borrow funds at such low rates that Berkshire was able to issue the first ever negative interest loan in 2002.  In addition Buffet bought up insurance companies that could provide low cost finance.  Insurance float loans cost only 2.2%, three full percentage points below the average T-bill rate.

Buffet’s staying power also comes from his belief in how he invests and the companies he invests in.  Plus Buffett gets smarter by spending much of his time reading every day.

“Warren Buffet treats knowledge like daily compound interest that builds up as the hours tick away.” 

He combines this knowledge with fulfillment.  He says, “I pretty much don’t do anything I don’t like to do. I’m very fortunate in that… I’m pretty much in command of my own time, but I have a lot of fun doing it.”  He remains mostly disconnected from the busy investing world.  His success is the freedom to wake up every morning and work on something he is passionate about and that leaves him fulfilled.

These scientific facts, that many consider secrets, are one foundation of value investing course “The Purposeful investing Course” (Pi).

What will a longer, active life do to our savings and budgets?

During nearly five decades of global investing I have noticed that some people, such as Warren Buffett, have a three point good value strategy that increases their wealth again and again.

What are the three tactics of this strategy?

The first tactic is to seek safety before profit.

A research paper that studied Warren Buffet’s investing strategy was published at Yale University’s website. This research shows that the stocks he chooses are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).

The second tactic is to maintain staying power so you can let time do its work.  At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

keppler asset management chart

This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of outperformance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.  Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio the better the odds of outstanding success.

The Buffet strategy integrates time and value for safety and profit.

A third, limited leveraging, tactic in the strategy boosts profit.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.   The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune.  The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more.  The research shows that neither luck nor magic are involved.  Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.

To sum up the strategy, Buffet uses value, time and leverage to buy and hold “cheap, safe, quality stocks”.  He uses limited leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.

You can learn how to use this type of three point strategy with the Purposeful investing Course (Pi).  This course is based on my 50 years of global investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.

Lessons from Pi are based on the creation and management of a Pi Model Portfolio.  There are no secrets about this portfolio except that it is based entirely on good math and uses time to take advantage of value.

The value analysis is used to create a portfolio of MSCI Country Benchmark Index ETFs that cover  stock markets that are undervalued.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage over $2.5 billion of funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) and most of his funds registered for the European Union, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael about 25 years ago, so I am one of the few Americans who receive this data and you will not find his information readily available in the US.

In a moment you’ll see how to remedy this fact.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  Then Keppler takes market’s history into account.

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Michael Kepler CEO Keppler Asset Management.

Listen to Michael Keppler explain his philosophy for 6 minutes and 43 seconds here.

Michael’s analysis is rational, mathematical and does not cause worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) market.

This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment.  This eliminates the need for hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pi portfolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2019.

70% is diversified into Keppler’s good value (BUY rated) developed markets: Australia, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the MSCI indicies of the good value BUY markets.

For example, the iShares MSCI Australia (symbol EWA) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Australia Index which is composed mainly of large cap and small cap stocks traded primarily on the Australian Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Australia.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for every market.

How you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (PI).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

You also receive two special reports.

In the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.  The two conditions are in place again!

30 years ago, the US dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I have created a short, but powerful report “Three Currency Patterns for 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.  I kept the report short and simple, but included links to 153 pages of  Good Value Stock Market research and Asset Allocation Analysis.

The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

This report sells for $29.95 but in this special offer, you receive the report, “Three Currency Patterns for 50% Profits or More” FREE when you subscribe to Pi.

Plus get the $39.95 report “The Silver Dip 2019” free.

With investors watching global stock markets bounce up and down, many missed two really important profit generating events over the last two years.  The price of silver dipped below $14 an ounce as did shares of the iShares Silver ETF (SLV).   The second event is that the silver gold ratio hit 80, compared to a ratio of 230 only two years before.

In September 2015, I prepared a special report “Silver Dip 2015” about a silver speculation, leveraged with a British pound loan, that could increase the returns in a safe portfolio by as much as eight times.  The tactics described in that report generated 62.48% profit in just nine months.

I have updated this report and added how to use the Silver Dip Strategy with platinum.   The “Silver Dip 2019” report shares the latest in a series of long term lessons gained through 40 years of speculating and investing in precious metals.  I released the 2015 report, when the gold silver ratio slipped to 80.  The ratio has corrected and that profit has been taken and now a new precious metals dip has emerged.

I have prepared a new special report “Silver Dip 2019” about a leveraged speculation that can increase the returns in a safe portfolio by as much as eight times.

You also learn from the Value Investing Seminar, our premier course, that we have been conducting for over 30 years.  Tens of thousands of delegates have paid up to $999 to attend.  Now you can join the seminar online FREE in this special offer.

This three day course is available in sessions that are 10 to 20 minutes long for easy, convenient learning.   You can listen to each session any time and as often as you desire.

The sooner you hear what I have to say about current markets, the better you’ll be able to cash in on perhaps the best investing opportunity since 1982.

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Tens of thousands have paid up to $999 to attend.

This year I celebrated my 51st anniversary of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special seminar session looks at how to spot value from cycles.  Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

stock-Charts

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Details in the online seminar include:

* How to easily buy global currencies, shares and bonds.

* Trading down and the benefits of investing in real estate in Small Town USA.  We will share why this breakout value is special and why we have been recommending good value real estate in this area since 2009.

* What’s up with gold and silver?  One session looks at my current position on gold and silver and asset protection.  We review the state of the precious metal markets and potential problems ahead for US dollars.  Learn how low interest rates eliminate  opportunity costs of diversification in precious metals and foreign currencies.

* How to improve safety and increase profit with leverage and staying power.  The seminar reveals Warren Buffett’s value investing strategy from research published at Yale University’s website.  This research shows that the stocks Buffet chooses are safe (with low beta and low volatility), cheap (value stocks with low price-to-book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios). His big, extra profits come from leverage and staying power.  At times Buffet’s portfolio, as all value portfolios, has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

Use time not timing.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Learn how much leverage to use.  Leverage is like medicine, the key is dose.  The best ratio is normally 1.6 to 1.  We’ll sum up the strategy; how to leverage cheap, safe, quality stocks and for what period of time based on the times and each individual’s circumstances.

Learn to plan in a way so you never run out of money.  The seminar also has a session on the importance of having and sticking to a plan.  See how success is dependent on conviction, wherewithal, and skill to operate with leverage and significant risk.  Learn a three point strategy based on my 50 years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

The online seminar also reveals  the results of a $80,000 share purchase cost test that found the least expensive way to invest in good value.  The keys to this portfolio are good value, low cost, minimal fuss and bother.  Plus a great savings of time.  Trading is minimal, usually not more than one or two shares are bought or sold in a year.  I wanted to find the very least expensive way to create and hold this portfolio so I performed this test.

I have good news about the cost of the seminar as well.   For almost three decades the seminar fee has been $799 for one or $999 for a couple. Tens of thousands paid this price, but online the seminar is $297.

In this special offer, you can get this online seminar FREE when you subscribe to our Personal investing Course.

Save $468.90 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  Plus you receive FREE the $29.95 report “Three Currency Patterns for 50% Profits or More”, the $39.95 report “Silver Dip 2019” and our latest $297 online seminar for a total savings of $468.90.

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Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Silver Dip 2018” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Your subscription will be charged $299 a year from now, but you can cancel at any time.

Gary

(1) www.wsj.com/articles/bond-ratings-firms-go-easy-on-some-heavily-indebted-companies-11571563801