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(B)(N) Working in America

October 23, 2013

Drama. The “spin” has been off this year and for the last several years since the beginning of the government’s monetary policy called “quantitative easing” post-2008 and the easy money in 5% government bonds has not been available and fixed income investors have been content with 1% and 2% returns or (if not content) they have had to put their money into the equity markets, most likely at home. Alas, the risk! the risk! if taxpayers are not guaranteeing the capital and paying the interest at rates above the rate of inflation.

Quantitative Easing and the S&P 500

Quantitative Easing and the S&P 500
Courtesy: Bloomberg and AMP Capital

For example, government held securities have nearly quadrupled from less than $1 trillion in 2009 to more than $3 trillion in 2013, and at the same time the S&P 500 has increased in market value from about $6 trillion in early 2009 to over $15 trillion now and we might say that the government investment of $3 trillion has reduced their interest costs and produced an equity market return of +200%.

Moreover, in aggregate, $4.4 trillion has been added to the market value of the companies in the four major markets this year, and these companies have paid $575 billion in dividends for a total return of +23.5% for the year so far. Please see Exhibit 1 below.

That sounds a lot better than +5% to us and, somehow, $4.4 trillion has migrated from government bond and high-grade corporate bond investments to the equity market this year and there are a lot of people who are “worried” about that, but we’re not among them.

The Perpetual Bond™ in the major markets currently has 629 companies in it and had it been run with the same capital as the rest of the market at the beginning of the year, we would have siphoned off $6.4 trillion from the bond markets for a gain of +30% this year with no risk or controllable risk at all times. And absent some tax planning, we would be returning capital gains taxes on $6.4 trillion rather than on $4.4 trillion or on 5% interest on $4.4 trillion at rest.

Just as importantly, there are over three hundred and fifty companies that we did not buy this year but which are undoubtedly in the major portfolios of the insurance companies and pension plans. And they won’t be getting +24% this year, or any other year, if they don’t do something about their technology (CNBC, July 17, 2013, $1 in market in 2000, today would be…$1).

Exhibit 1: Working in America

Working in America
Working in America

(Please Click on the Chart to make it larger if required.)

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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