Commentary for the Week of March 8

[Editor's note: The following was sent out to clients in mid-July by my friend Doug Behnfield, a financial advisor and senior vice president at Morgan Stanley Wealth Management in Boulder, CO.  Long-time followers of Rick's Picks will be familiar with Doug's work, since his thoughts have appeared here many times. I have always referred to him as not only the smartest investor I know, but one of the smartest guys. He still is, and I am grateful to him for allowing me to share his insights with you. However, I must I must apologize for some formatting changes that were necessary due to typographical limitations on my end. Doug's original letter was meticulously footnoted, and some text that was bullet-pointed I have rendered in paragraph form. Otherwise, the content is unchanged. RA] In all 44 years as a Financial Advisor (aka Account Executive, stockbroker), I have never been aware of any respected stock market pundit that “called the top” in close proximity to the actual beginning of a true Bear Market. However, an associate once gave me a report late in 1987 that had been issued in July, 1987 written by Justin Mamis entitled The Philosophy of Tops. He wrote it just three months before the Crash of October 1987. It has been in my permanent file for decades and I dragged it out a few months ago to remind me how utterly difficult it is to know how high is too high (or how low is too low) in the stock market. After all this experience in the business, I wish I knew, or that I knew someone who knew, on a timely basis. But, alas, it has been too much to ask. That doesn’t mean that I haven’t accumulated a meaningful amount of market wisdom over the years.

[Editor's note: The following was sent out to clients in mid-July by my friend Doug Behnfield, a financial advisor and senior vice president at Morgan Stanley Wealth Management in Boulder, CO.  Long-time followers of Rick's Picks will be familiar with Doug's work, since his thoughts have appeared here many times. I have always referred to him not only as the smartest investor I know, but one of the smartest guys. He still is. I am grateful to him for allowing me to share his insights with you. However, I must I must apologize for some formatting changes that were necessary due to typographical limitations on my end. Doug's original letter was meticulously footnoted, and some text that was bullet-pointed I have rendered in paragraph form. Otherwise, the content is unchanged. RA] In all 44 years as a Financial Advisor (aka Account Executive, stockbroker), I have never been aware of any respected stock market pundit that “called the top” in close proximity to the actual beginning of a true Bear Market. However, an associate once gave me a report late in 1987 that had been issued in July, 1987 written by Justin Mamis entitled The Philosophy of Tops. He wrote it just three months before the Crash of October 1987. It has been in my permanent file for decades and I dragged it out a few months ago to remind me how utterly difficult it is to know how high is too high (or how low is too low) in the stock market. After all this experience in the business, I wish I knew, or that I knew someone who knew, on a timely basis. But, alas, it has been too much to ask. That doesn’t mean that I haven’t accumulated a meaningful amount of market wisdom over the years. As

The 10 year treasury hit 3% today and 2 year treasuries haven't been this high since back in 2008.  Is the 5,000 year low in rates behind us? Let's just say I don't think we'll see these lows again in my lifetime. If you are considering selling your house this could be your last chance as once the bonds start to collapse rates can double very quickly. The DOW had a light volume day but it did refresh its bullish impulse leg on the hourly.  According to the SEC there is over $3 trillion sitting in money market funds. You can be sure this money will be waiting to jump in when the markets end their consolidation and decides to make its next move.

The Justice Department has threatened an inquiry into whether airlines have colluded to keep fares high.  Isn't the answer obvious? Of course they have! How else could they have grown to their recent pinnacle of profitability, even as their customers have come to curse them with a vehemence they once reserved for TV cable providers?  The carriers' understandable efforts to boost a sagging bottom line began decades ago with changes in ticketing policy that made it prohibitively expensive to modify or cancel a reservation. Thus did they turn a service that used to be free, and which remains free at most other service-oriented businesses, including hotels, into a profit center. More recently, the carriers have nickle-and-dimed passengers to death, charging extra for each checked bag and even for items stored in the overhead bin. At the same time, seat widths and leg room have shrunk to the point where it is no longer possible to fly comfortably unless you're on a first class ticket. Even then, the first-class experience is no better in many instances than the economy class amenities of 20 years ago. My main experience is with Frontier, which, to create the illusion of more leg room, recently began to install "streamlined" seats that feature a wafer-thin layer of padding with about as much give as a surgical table. As any passenger could tell you, the airlines have been getting away with murder, even as they've become ruthlessly successful cost-cutters. How long will their earnings hot-streak last?  I wrote here a month ago, when the airline stocks appeared to be topping, that no business can continue to be successful if it becomes as arrogantly unresponsive to the needs of its customers as the airlines have.  These days, passengers are more eager than ever for a return to basic

Uber is not a publicly traded company, but if it were, I would recommended shorting as many shares as you could borrow, beg or steal. That's because the four-year-old purveyor of on-demand transportation is probably as insanely overvalued as venture-stage companies ever get. And that's saying something, since, six years into a bull market, greed, recklessness and stupidity in the investment world have never been more cocksure. In December, when Uber promoted a $1.2 billion round of financing, investors effectively valued the company at $40 billion. That made it bigger than 359 of 469 companies listed on the Fortune 500 -- bigger, in fact, than: Kraft Foods Group, Delta Air Lines, General Mills, CBS, Rite Aid, Macy’s, Viacom, Dollar General, Kellogg, KKR, Nordstrom, Halliburton Company, Archer-Daniels Midland, Omnicom Group, Charles Schwab Corporation, YUM! Brands, DISH Network, Aetna, ConAgra, Hormel Foods and Best Buy, to name just a few. Earlier, when Uber was valued at a mere $18 billion, its initial backers stood to make 2000 times their initial investment. Will enough greater fools eventually come along to take them out of their shares at even higher prices? My guess is no -- that if and when Uber goes public, the IPO will stumble out of the gate and lag the field at the first turn. Which is to say, the company's 'story' will have peaked before the smart money ever gets a chance to unload on the rubes. That's not to say its shares will have zero value or that Uber will not continue to grow its business. But success will have to be earned the old-fashioned way, one passenger at a time. As for those who are betting Uber will be able to grow another revenue stream by diving into the delivery business, they are in for a rude

[I first aired this commentary more than a year ago but am republishing it because the public-employee pension problem it describes has only grown more dire. Some of the best writing on this topic has been done by my colleague and fellow deflationist Mish Shedlock. Click here to access his most recent work, which concerns the looming disaster in Illinois.  The author of the guest essay below is a retired New Jersey teacher who considers her benefits package far too generous. Gov. Christie was right to confront the teachers’ union immediately after taking office, she says, since teacher benefits could eventually bankrupt the state, and many others, if outlays needed to pay those benefits continue to outstrip revenues.  I have withheld the author’s name to protect her from retaliation by her former colleagues. RA] I watch with gratitude the commercial by Prudential that warns those who hope to retire to think about how much money they'll need to do so comfortably.  I am grateful because I need not worry so much about my money running out before my nest egg does. I am a retired New Jersey educator.  My funds are as lengthy as my life.  They will even continue to support my spouse after I am gone at a rate of 50%.  His pension will additionally support me at a rate of 50% if he should pre-decease me. I began teaching in 1972 at an annual salary of $7,700.  It was not much. Incremental raises were small from year to year.  I ended my career teaching after 30 years.  I was 52 -- three years below full retirement age. I decided for personal reasons to retire early at a penalty of 3% per annum below the full retirement age, which was recently moved down to 55.  I was not concerned

If you repeat a lie often enough, people will believe it, and you will even come to believe it yourself.  The propagandist’s credo appears to have deep roots at the Wall Street Journal, which has been shilling hopes of better economic times since The Great Recession supposedly ended in 2009. The newspaper's editors extolled and glorified that wishful lie with a hat-trick of turbocharged headlines on page two of Friday’s edition. The first of the three celebratory articles, Americans Get Richer, And Pare Their Debt, reported that the net worth of U.S. households rose by about $1.6 trillion, to $84.9 trillion, in the first quarter of 2015. This is hardly a Horatio Alger tale about how hard work, diligence and persistence in the face of adversity made some Americans richer. Rather, it is implicitly the story of how the nation’s wealthiest households simply sat back and savored the good life as their homes and stock portfolios magically grew in value. They have the Fed to thank– not only for 3% mortgages that have force-fed real estate valuations, but for the near-zero-percent financing of more than $1 trillion of corporate buybacks in 2014 alone. In case you didn't know, this perpetual-motion machine, one of the modern miracles of high finance, has replaced fuddy-duddy capital investment as the preferred means of driving earnings growth. Trampled at Bergdorf's? Completing the Journal’s ostentatious “Hip-hip-hooray!” for the economy were two separate articles that were linked typographically, one beneath the other, by ellipses, presumably to further the impression of pent-up demand about to explode: “Shoppers Splurge in Spring Spree…And Robust Hiring Should Fuel Their Fire”. Will we be reading three months from now about shoppers getting trampled at WalMart, Kohl's, Target...Bergdorf's? You’d have to be older than 50 to recall a time when capital investment rather

[A subscriber sent me a report last week from a high-powered consulting firm that said odds of deflation were remote. It's a curious time to be making this argument, given that Europe's economic implosion has sucked up trillions in stimulus with no discernible effect. One of the reasons that deflation is so poorly understood is that those who should know better persist in characterizing it as a decrease in the money supply. That's like saying war is a decrease in peace. Both statement are arguably correct, but neither says anything. Who even knows what constitutes money these days, let alone how much of it exists?  If you want to understand deflation better than the eggheads and pundits, you need only focus on its chief symptom: an increase in the real burden of debt.  At a personal level, you'd feel that burden most acutely if the value of your home were to decline. It would be still worse if you'd taken out a second mortgage to put your kids through college. Could something like that happen to millions, if not tens of millions, of Americans? If you answered yes -- and you should have, since it actually happened in the U.S., less than a decade ago -- then you have implicitly rejected the notion that deflation is only remotely possible. To further stimulate your thinking about deflation, which I regard not only as inevitable, but as a precursor to any hyperinflationary epiphany of the dollar's worthlessness, I am reprinting a commentary that appeared here more than a decade ago. The Great Financial Crash has since validated my thesis, although I could hardly have imagined at the time that the banksters would subsequently blow a far bigger bubble that is growing even as I write these words. I published the material below

[Hoarding gold and silver against economic catastrophe can give us peace of mind. But in times of true crisis, there are some things that will be even more valuable to our survival than bullion, as the following note reminds us. It was contributed to a Rick's Picks forum discussion by a rancher who used the pseudonym 'Bed Rock'.  RA] The place I looked to see how to be prepared for a dollar collapse was in the journals of the pioneers who settled the frontiers in North America two to three hundred years ago. When moving to an unexplored region inside the frontier, and being months of hard travel away from any civilization where the necessities of life could be purchased, is basically where we all will be when commerce stops because of a dollar collapse. Bartering works good, but money was not very valuable, even gold. The people needed a place to live that offered protection from the weather, water and food. Everything else was and is a luxury. The people who had the talents of building shelters and producing food prospered and those that came with family money either died or went home broke. So what I took from this is, be prepared to use your hands. Surround yourself with good, honest people who have talents in the many life-saving areas needed to survive any circumstances that may be thrown at us. Raising chickens, making bread, treating sickness, making a garden, a carpenter, etc. You will know what you need for your area. I am a rancher and produce enough beef to feed approximately 6,000 people. But having to do that without cheap fuel, fertilizer, and life-saving drugs for the cattle, I will produce much less. But protein is one of the necessities needed to survive and something the