Paul the Poke

Ecclesiastes 3:1 For everything there is a season, and a time for every matter under heaven…

Dr Nenner is not only brilliant, but gracious spending almost an hour of his time discussing current conditions in the Financial World.  As one of the most influential Cycle Researchers in the World, Charles Nenner shared his most recent research and discussed the Cycles of Stocks, Bonds, Interest Rates, and the safer harbor for Income Investors, Real Estate.

As Dr. Nenner repeatedly states all things change. Good times end, Bad times end and everything cycles from Seasons to Interest Rates. Nenner Research indicates the Globe may be about to experience a profound change of Cycle. Soon, the US Business Cycle will be setting a record for expansion surpassing the 120 months of growth experienced in the 1990’s;  setting a record implies this is unusual, as it normally does not  last this long! The expansion is so old and so long many have forgotten that Business Cycles complete, they change! The Business Cycle transitions from Expansion to Contraction slowly, then all of a sudden. Charles Nenner’s research has predicted the slowdown. It is now no longer a prediction, but fact and the Economy of the World is poised to get worse, much worse. Excesses still unresolved from 2009 added to the inevitable malinvestment of the current Cycle presents the potential for a downturn worse than the Great Financial Crisis!!

Excesses still unresolved from 2009 added to the inevitable malinvestment of the current Cycle presents the potential for a downturn worse than the Great Financial Crisis!!

Charles Nenner’s Cyclical Research forecasts declining US GDP in 2019 to a year end level of less than 1%;  GDP for 2020 may be contracting to below 0. Currently,  Industrial Production, Manufacturing and Factory Orders are declining in the US.

Auto sales are falling,

Retail has not recovered from one of the worst Christmas Seasons in 20 years and retail store closings and shopping mall closures are at a record pace. 

 My favorite asset class, Real Estate, is in a mid cycle correction and has experienced 14 months in a row of declining Existing Home Sales with prices in some markets notably New York City, Seattle, San Jose actually beginning to deteriorate. 

Dr. Nenner foresees a Stock Market decline accompanying the softening Economy starting in earnest mid to late July. Unfortunately, Dr Nenner’s Research does not indicate a short drop and quick recovery, but a more prolonged period of slow Economic activity. Those in retirement or approaching retirement should take heed;  an extremely conservative approach or an exit strategy might be discussed with their Investment Advisor.  Losses incurred from a Stock portfolio may require a very long time to recover. Many Baby Boomers do not have that time! Avoiding loss should be the goal, not squeezing out the last dollar of profit. Lose 40% or more and the “Golden Years” are not so golden!

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In Prior slowdowns, Investors could transfer Wealth into Bonds when the Stock Market plunged. Charles Nenner sees higher rates from July going forward that will eventually lead to significant losses and much higher rates in just a few years. Dr. Nenner also envisions Global Deflation; Deflation is much more difficult to manage than Inflation prolonging the contraction. Deflation often refers to the destruction of Credit and Debt through non-payment or defaults. Obviously, as Risk of Default or possible Debt restructure rises, Investors demand to be compensated for the Risk and Rates rise. This is counter intuitive to a slowing Economy which speaks to the predicament of Extreme Global Debt.  Individual US Treasury Bonds representing the safest investment in the world issued by the Global Reserve Currency will receive unprecedented demand; Capital seeking safety.  Dr Nenner’s Cycles for the 30 year Treasury Indicate demand pushing Treasuries to possible new low yields.  A bifurcated Bond Market?

Bonds and debt without the implicit guarantee of the US may suffer loss of principal in  a World engulfed in Global Deflation and Contagion.

Bond funds and ETF’s  which unlike simple bonds, never mature could incur losses of 70% or more in a rising rate environment. Further,  Deflation may cause huge losses in lower quality Bonds and Debt instruments. Estimates are as high as $2.5 Trillion in Corporate Bonds could already be just one notch above JUNK!  A recession could double that. Downgrades and Defaults will cause massive Bond losses.

Consistent income will help mitigate the turmoil that is coming.  The S&P dividends yield less than 2% and the risk of monumental loss of value dictates avoidance.  Bonds and Debt instruments are facing the potential of devastating losses as well. The current Income provided is not much more with the 10 year Treasury yielding less than 2.2% in an Inverted Yield environment.  Any increase of Interest Rates will devastate a Bond Portfolio. Fortunately, Real Estate provides consistent, conservative, and monthly Income.

Conservative single family residential rentals provided cash flow month after month through the Great Financial Crisis.  As a separate asset class from both Stocks and Bonds, Real Estate barely correlates with Wall Street;  estimates are in the 8-9% range. Real Estate, although cyclical, is also very Regional in Nature. There are several truly great Real Estate markets in the US that are experiencing both Organic growth and Demographic growth causing demand for Housing. Las Vegas and Phoenix are both exploding adding over 100,000 new residents each in 2018;  one cause is the Exodus from California, a Mega Trend that will last for years. This population increase is creating jobs and an enormous demand for rentals. Dr Nenner believes that investing in Small Units and Entry Level Single Family properties will generate Income through the economic downturn and may prove to be a very prudent investment. Investors will receive useable cash flow while waiting for the Real Estate Market recovery which may bottom as soon as 3^rdquarter 2020.  Just beyond the current Real Estate correction is the “Explosive Phase” of the Real Estate Cycle where Fortunes are born! Not just Cash Flow, but much higher prices.

Will rising HOME prices coincide with the 30 year Treasury declining to historical low rates? Will the US experience Negative Rates and barely positive mortgages as our European Cousins? Will Risk expose struggling Corporations, Munincipalities, Counties, States, and maybe even Sovereign borrowers to much higher rates based on Credit downgrades? The next few years promise to be very interesting; is that a Chinese curse????

Rental Cash Flow may be one of the few Income Streams that will be monthly, consistent, and actually grow in a downturn; a fiscal Lifeboat! Risk has entered the Market. As a separate asset class, Real Estate may provide a safer asset for your Wealth. Always discuss with your Financial Advisor before Investing.