Blog | CB Investment Management

“Worst Return Prospects In History For Diversified Portfolios”

Time for every investor to understand the investment predicament

Central bank market dislocation

Central bank policy failure

Ray Dalio talks to the NY Fed. Time limit on the “Big Squeeze”

And now a recession is coming

The central banks have reached the point of “Money Illusion”

Investors need to educate themselves and plan appropriately


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Time for every investor to understand the investment predicament

The current investment predicament is so unusual, extreme and dangerous that every investor needs to become engaged, at least at some level, whether or not they have an advisor.

It is highly likely that whatever strategy you employ, sooner or later, you are likely to be confronted with extreme volatility so it is best to understand in advance at least some outline of the problem, as well as a good sense about appropriate investment strategy.

The chart above ( shows that for a conventional static allocation your long term expected return has now fallen below 2%! Not only is that very low, it is likely to be much lower than the expected volatility you will experience.

This immediately begs the question of whether active, dynamic, or tactical investment strategies would be a better solution. The answer is yes, but more on that later.

First, it should be understood that the problem is the central banks

Central bank market dislocation

The chart below shows that despite the collapse in GDP growth expectations this year and the 6th quarterly decline in S&P 500 earnings, which has never happened without at least a 20% correction, the S&P 500 has just continued to rally to new all time highs. Last week I showed that S&P 500 valuations are arguably the highest ever in history.

The chart below is just one of many market relationships that have never been seen before, all due to central bank intervention.


Central bank policy failure

The picture below was taken from my note immediately following last December’s rate rise decision by the Federal Reserve. In truth it has now been years where the Fed has talked up the economy and at the same time revised down its growth forecasts. Go figure!?

They did it again just last week. As discussed then, the NY Fed has now forecast 2016 calendar year growth will be the lowest since 2009! Yet apparently they are also more confident in the case for a rate rise!?


“One Of The Great Blunders Of Fed History” Jim Rickards


Perhaps the manager of the world’s biggest hedge fund can figure this out. Or does he too have a problem with policy?

Ray Dalio talks to the NY Fed. Time limit on the “Big Squeeze”

It is no longer controversial to say that:

• …this isn’t a normal business cycle and we are likely in an environment of abnormally slow growth

• …the current tools of monetary policy will be a lot less effective going forward

• …the risks are asymmetric to the downside

• …investment returns will be very low going forward, and

• …the impatience with economic stagnation, especially among middle and lower income earners, is leading to dangerous populism and nationalism.”

And now a recession is coming

Today’s Hedgeye macro call (recently by far the most accurate) suggests that weakness continues into Q4 2016 and recession has become a close call.


The US economy remains weak and vulnerable.

The new Macro Watch video out today explains why.

Weak And Vulnerable

The economy is weak because credit growth remains too sluggish to drive the economy as it did in the past. With interest rates near record low levels, credit should be expanding much more quickly than it is. In this video, we look at credit growth on a sector by sector basis, and project growth rates out to the end of 2017. While there has been some improvement since the last Macro Watch Credit Update six months ago, there has not been enough. The outlook for the economy remains depressed.

The economy is vulnerable because if interest rates now begin to rise, credit growth would slow and the economy would fall back into recession.

The unfortunate truth is that the economy remains on government life support. It still depends on government borrowing and interest rates held at ultra low levels by central bank intervention.”

The central banks have reached the point of “Money Illusion”

Jeff Clark of GoldSilver explains:

“Here’s a fact about hyperinflations most people don’t know, and it serves as a warning to anyone who thinks it can’t happen in their country…

At the beginning of every hyperinflation, it looks like everything is okay. The economy is emerging from a crisis, usually a deflation or some kind of crisis, and things are getting better. People feel more prosperous, because the storm has passed and there’s more money around from the extra currency the government has printed. Markets tend to rise, like housing and stocks.

But it’s an illusion, because prices have yet to adjust for all the extra currency that was created.

Why does it have to adjust?  Because inflation is not just the result of a spike in money supply, but also money velocity. As citizens begin to feel better about the state of the economy, they spend more. That extra money now starts to enter the economy—and prices begin to move higher.”

Watch the latest release out this week of this excellent series. The best roadmap you may have.


Investors need to educate themselves and plan appropriately

I hope investors realize that unusual circumstances require new approaches. The two most important takeaways should be the importance of an approach to gold allocation, and the realization that static allocation approaches will become extremely challenged. A tactical asset strategy has already become essential.

An overly tight Fed policy may prolong the power and privilege of the current dollar centric system by strengthening the dollar, however it also further weakens the world economy, which does not have much room left and is over leveraged.

Talk about a rock and a hard place.

If the Fed raises rates significantly they will create all sorts of financial catastrophes, including engineering its own insolvency and stoking a recession that they’re trying to prevent.But if they don’t raise rates then they’ll be forced to implement negative interest rates in the next recession.

This isn’t some far-fetched prediction, simply a common sense view of publicly available data and modern financial history.The alternative is to assume that the Fed possesses some magical fairy dust to fix everything without any consequences…… or that there will never be a recession ever again until the end of time.

This is absurd thinking.Look- it’s pretty obvious where things are headed. This isn’t a political problem. It’s an arithmetic problem. And the math doesn’t add up.”

Best Practice is a matter of your Best Interest.

Education and a Commitment to Informed Consent is an Obligation.

Chris Belchamber is an IRMAA Certified Planner

Medicare’s IRMAA impacts every retirement plan. Learning how to mitigate it is available via IRMAA Certified Planners designation.

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