Several of us have taken the position that we’re likely in the early stages of a bear market. The Wall Street Journal (12/01/2015) reports two troubling bits of economic data that might feed that concern: US corporate capital expenditures (capex) continue dropping and emerging market corporate debt defaults continue rising. For the first time in recent years, e.m. default rates exceed U.S. rates.
Who is Several of us?

Hi Heezsafe,
Thanks very much for your submittal, but especially thank you for reminding me of the Conjunction fallacy. I am familiar with the work of Kahneman and Tversky so I am aware of the Conjunction fallacy, but I failed to recall that its common nickname is The Linda Problem.
I agree with you that we all fall victim to this behavioral fallacy at some time or another; it is a pervasive shortcoming. And yes it does appear on a few MFO posts; it is hard to escape from it if folks don’t think in terms of compound probabilities. Folks seem to resist that discipline.
For example, if you are invited to a financial investment meeting, what is the probability that a casual encounter will be with the money manager presenter if M people are present? The likely answer is 1/M or 2/M. Most folks would know that answer.
Now, what is the likelihood that the person you meet is a successful money manager? Most folks would not know that a high probability correct answer to that question is 0.1/M. Successful money managers are hard to find because they are a rare breed.
The Conjunction fallacy has been captured in many public media. It is often a major part of a movie theme. A terrific example of it is excitingly demonstrated in “The Enemy Below” movie. That film features Robert Mitchum as the destroyer skipper and Curt Jürgens as the submarine commander. It’s the great “he thinks I’ll do this, so I will not, but he knows I will not so…..” 3rd or even 4th level logic chain.
Here is a Link to that 1957 movie trailer:

I agree with the Keynes and the Zweig observation that multidimensional thinking and depth are required when making decisions. However, there is a practical limit and danger in the depth dimension.
Many of us are guilty of over-thinking an investment. Since we never have access to complete information, we often delay and delay a decision until the optimum investment point has passed. We are victim to paralysis caused by too much analyses.
As investors, it is a challenge to decide when enough information is enough to make a reasonable decision. That threshold balance point is hard to define, and likely changes for each decision. Firm rules don’t exist. Investing may seem easy, but is never easy to execute.
I have pontificated far too long. Thanks again for your comments.
Best Wishes.

Just compared with CAPE and DSENX, as it seems not dissimilar but a lot jumpier for sure. I am sticking with DSENX.

@LewisBraham From what I've read of Lord Byron, he would be considered the modern-day equivalent of the drama queen. Several daguerreotypes I've seen of him showcase his full dark mane, and always draped with a long flowing cape (the Victorian "windbreaker"). Given your status as The People's Financial Champion, I suppose you could go with the cape, if you fancied taking another step in the Byron direction. After Bonfire of the Vanities, it worked for NYC dandy Tom Wolfe, remember? I'd say "hey, not such a stretch, it could work for you, too," except, in Pittsburgh, .....hmmm, perhaps that would be a stretch. :)

WBMAX almost down 17%
WBLSX almost down 4%
I own the latter. I'm thinking OTCRX and ACVVX are better replacements. Something seems broken at Whitebox. Only a severe bear market would correct the situation and I don't think the Fed will permit that. I did move half of my WBLSX to OTCRX earlier in the year. One "Hussman" is quite enough for me personally. I think the issue with some Long/Short managers maybe their "academic theories" seem to be a dogma they cannot escape.
I know Whitebox was a darling of some on the board. I never got convinced on WBMAX but thought WBLSX would be a reasonable risk cash alternative. Anyone still own these funds?

I find the attitude expressed in that article reminiscent of Alfred E Neuman's "What me worry?"
One of the most storied investors on Wall Street was the late Marty Zweig. Mr. Zweig was famous for admitting with great frequency, when queried about the stock market that he "was worried".
Admittedly, the stock market will do what it will, whether we worry or not. But worry is a very salutary phenomenon -- it's nature's way of focusing the mind. Consider an investment landscape without people "worrying":
1. Company management: Nothing to worry about if we miss our numbers, we don't hold costs down, or revenues decline.
2. Company auditors: Nothing to worry about if we don't catch fraudulent numbers.
3. Security analysts: Nothing to worry about if we miss the problems at a company.
4. Ratings agencies: Nothing to worry about if we wrongly characterize a firm's liquidity and solvency.
Ever more all-time highs in the stock market is not guaranteed -- at least in a timeframe relevant to individual investors. It took something like 25 years for the stock market to regain its 1929 levels. Japanese investors are still well below the highs they experienced in 1989. How do you say "no need to worry in Japanese?"
Not worrying is the enemy. Worrying is your friend.

>> in severe drawdown period in 2008, few asset classes escape except cash and some bond sectors.
True, but some did rather better than others (PRBLX, Yackts, e.g.).
I was sort of thinking a value-oriented algorithmic vehicle w/ special bond twist might show its chops comparably. I assume its snapback will be good.
Have been in and departed min vol and low vol, rightly or wrongly.

@davidrmoran, in severe drawdown period in 2008, few asset classes escape except cash and some bond sectors. I have been intrigued with DSENX's since inception, but chose Vanguard Global Min Volatility, VMVFX, in the end for all its simplicity and low ER (0.30% vs 0.87%). David S. wrote a nice piece describing the merits of VMVFX (thank you David). This fund held up very well comparing its benchmark, Vanguard Total World Index.

The N Y Times has a few good columns today on the stock and bond markets. As for bonds, there's a front-page article reporting that mutual funds are engaging in a selling spree of emerging-market bonds, and this is contributing to a sharp decline in global markets. They are selling for good reason: their investors are withdrawing money from these funds. Last week alone, investors withdrew $2.5 billion from emerging-market bond funds.
http://www.nytimes.com/2015/08/23/business/investors-race-to-escape-risk-in-once-booming-emerging-market-bonds.html?_r=0
And Gretchen Morgenson writes a column in which she questions the vague disclosures made by highflying mutual funds. She warns that these funds put investors in peril.
http://www.nytimes.com/2015/08/23/business/vague-disclosures-by-highflying-mutual-funds-may-put-investors-in-peril.html
If the waters are receding (a new bear market?), then we may soon discover which fund managers have been swimming without clothes.
[Confession: I really don’t know what’s in my bond funds. I’m trusting the managers to be prudent. I hope I’m trusting the right fund families.]

Hi JohnN,
Thank you for the Link to this Joshua Kennon article. Over many years I have been informed by his many fine financial articles. This one did not disappoint in that regard.
Kennon mostly directs his writings towards neophyte investors. After many years, I am not a novice investor, but since I have no formal training in that arena, my amateur knowledge base is somewhat spotty. It has holes that Kennon can and does fill.
Although I read Benjamin Graham’s “The Intelligent Investor”, it completely escaped my memory that Graham recommended a portfolio asset allocation that had a 25% bond holding floor and a 75% bond position ceiling. I didn’t recall these limits to his conservative investing approach. I wonder if his student, Warren Buffett, shares the same or similar portfolio construction constraints.
Best Wishes.

Yellen has said in the past she's not against NIRP.

Do you have any idea how NIRP could be implemented in the USA?
NIRP takes money from everyone, even the poor.

NIRP is happening in other parts of the world, why couldn't it happen here? NIRP on savings/checking accounts.
Eventually, would not surprise me if they do away with paper currency. If everything's digital, no way to escape monetary policy.

Hi Old Joe,
Folks who do not commonly make sophisticated calculations (non-linear differential equations) overly trust the precision of the numbers computed. This is especially the case if the calculations include some unfamiliar modeling elements.
Scientists, engineers, and perhaps even mathematicians (attempt at humor) know better. They recognize the simplifications, the many assumptions, and the incomplete data that are often inputs to arrive at an answer. These needed shortcuts often significantly compromise accuracy. That’s why safety factors are introduced.
All models in all fields are simplifications of reality. An infinite number of digits after a decimal point is never taken seriously by an experienced engineer. It is merely an artifact of the calculation itself. He appreciates the accuracy limits of what he knows and rounds-off accordingly. I apply that same discipline in many of my posts.
Unfortunately, we frequently don’t recognize our modeling limitations in the investment world. We fall victim to false myths and deficient models; we overreact to very loose, meaningless correlations. Investment outcomes suffer.
This talk about modeling deficiencies and data inaccuracy prompted a memory of a famous WWII mistake told to engineering students as a lesson. It’s a terrific tale about the first US bomber that was recovered nearly intact by the Germans after being shot-down in an early bombing raid.
The German engineers puzzled over the profile of the wing configuration. It seemed to be inefficiently contoured. Wind Tunnel tests verified that assessment. The Germans could not accept that US designers had blundered so badly.
They postulated that the US designers knew some aerodynamic nuances that escaped them. They committed research resources to discover the suspected subtleties. The research failed. There was nothing to discover. The US designers had simply made an error in interpreting their own wind tunnel data. Mistakes on a grand scale do happen.
Many such mistakes are well documented. The scientific community is not immune to them. That’s why in many research disciplines, a duplication of original results from an independent test source is a mandatory standard before product approval and dissemination.
Given the uncertainties of market forecasting and modeling deficiencies, the decision to dump any precision requirements is easily made when doing market analyses.
Thank you for your comments and your patience.
Best Wishes.

FYI: According to the 2015 Advisor Brandscape report from Cogent Reports, across 10 leading brand attributes, the extent to which advisers trust an asset manager has the greatest impact on whether or not they will consider investing with that company in the future. Cogent Reports also found that the impact of trust exceeds that of more traditional purchase drivers such as perceptions of reliability, consistency of performance, or information and guidance.
“It’s clear from these findings that even some of the biggest asset managers still have their work cut out for them in building greater trust among RIAs,” said Meredith Lloyd Rice, senior research director and lead author at Market Strategies, in a news release.
Following are the 10 mutual funds advisers trust most.
Regards,
Ted
1. American Funds
2. Franklin Templeton
3. BlackRock Funds
4. Vanguard
5. Fidelity Investments/Advisor Funds
6. OppenheimerFunds
7. MFS Investment Management
8. T. Rowe Price
9. First Eagle
10. Dimensional Fund Advisors
From Cogent Webslite:
Across four of the five primary retail distribution channels, American Funds, Franklin Templeton and BlackRock are the most trusted brands. However, among RIAs only, American Funds remains in the top three, trailing Vanguard and DFA.
“It’s clear from these findings that even some of the biggest asset managers still have their work cut out for them in building greater trust among RIAs,” said Rice. “But with so much focus on this increasingly important channel, we expect nothing less than an all-out effort to win that trust.”

My fear or lack of fear in spending varies with the conditions. If the markets are raging ahead and my IRA has been increasing at 7-10% annually, I'm inclined to splurge more (on vacations, home improvements, etc.). The past couple years the IRA's been stuck in a rut. That's partially due to some longer-term speculative plays that haven't yet worked out, but also due to slower growth in the major equity and bond indexes. So the IRA hasn't grown much the past year or so. As a consequence, I'm less likely to spend.
Another concern is the intense political rhetoric about curtailing SS which seems to ebb and flow. We're also dependent on a couple DB pensions, so the speculation re SS and pension solvency both have an impact on our thinking. While I can control our investing and spending, I have no control over what the politicians and courts do in regard to those other two matters. Probably a dumb response - but there's an emotional component to all this that's hard to escape.
I was probably 45+ when we finally got down to hard-tacks and paid off all our revolving credit and instituted an annual written budget. It was than that savings really increased. The first few years were excruciatingly difficult for us. Drove worn out vehicles and curtailed discretionary travel among other things. In retrospect, it was the smartest thing we ever did.

Individual plans have traditionally had higher deductibles/co-pays, but nothing like what we're seeing under ACA. That, and narrow networks, are some of the main ways that ACA premiums are being kept lower.
Trying to figure out the best plan becomes intractable, especially when more than one person is involved. You've identified a key difference between HSA plans and some non-HSA plans - the latter often allow doctor visits for co-pays, without requiring that you meet the deductible. The more people you're insuring the more important that becomes, as it becomes more likely that someone will be going to the doctor.
One other difference between HSA and non-HSA plans - with the HSA plans, the deductible is a single family deductible (e.g. $12,000). For a non-HSA plan, the deductible is an individual deductible (e.g. $6,000 per person and $12,000 for the family).
So in an HSA plan, no one escapes the deductible until the family pays the combined deductible. In a non-HSA plan, once someone reaches the individual cap (e.g. $6K), that person doesn't have to pay more deductibles. But the other family members do.
That can work out better if one person is incurring most of the expenses. Then, instead of meeting a family $12K deductible, that person starts getting real coverage after $6K.

I like Faber and find him highly amusing (who else has responded to the question on CNBC of how you should allocate assets with "it depends on how many girlfriends you have"?)
I hope that there is not another 2008.
That said, this is my honest view:
That if it looks like we may be heading in that direction, the Fed will bail out Radio Shack (after the fact), Shake Shack and even Shaq.
They will try every voodoo economic BS tactic left. You will see QE4, you will see NIRP. Heck, a ban on physical cash so that no one can escape NIRP wouldn't surprise me. Every trick in the book will be used - you think that what's going on in Shanghai in terms of banning short selling and other "rules" can't be put into place here, at least to some degree?
They will bail out, print and nationalize like there's no tomorrow - if it comes to that, because the alternative if we have another 2008 and go back to square one is this:
All of the attitude by the Fed of "don't audit us, don't question us and no we aren't going to respond to an investigation about the Fed leaking information" will be ignored in a bleeping hurry.
If we have had QE1, 2 and 3 and operation twist and all other manner of financial engineering BS and we find ourselves back at square one after another 2008-style situation, Janet and company will have a lot of 'splaining to do (and they don't seem fond of that) because the anger will be immense and Congress will ab-so-lutely point the finger at them.
You think people were mad at Wall Street after 2008? LOL, at the very least twice as bad if it happens again.
If we have another 2008, in some ways it'll be game over. There will be tumbleweeds hosting CNBC because no one will be watching. The rejection of stocks by the public will be extraordinary - you're not going to get anyone back in and probably for years. The Fed will be too busy in hearings to do much. Attempts to push the public back into risk assets after that will be likely met with legitimate anger (or at least a collective middle finger.)
So yeah, I believe that there is a sense of "reflate or bust" desperation with governments around the world who don't want another 2008 because of all of the many things that would imply.
Perhaps I'll be wrong but I continue to fear that this time around if there's a crisis you will want to own assets instead of sitting in cash or bonds.
We'll see.
---
Someone posted this at ZH in the comments section years ago and I don't disagree with the gist of it, although I'm not as negative and think the how/why (I don't think they'd print like there's no tomorrow because this is the end, but because they believe another 2008 would be some degree of "game over") is different. I don't think another 2008 would be "the end", but I perhaps can see where it would be the end of the global economy as we know it today. Perhaps this is "the ultimate bubble" for use of a better term and what we look like as a global economy on the other side of it will be very different.
"Hope you didn't put much money on that bet, Dawg. These fuckers are going to print hard enough to wake the dead. They'll print like mo'fos, print like mad men, print like fly pimps. Print until their eyes bleed.
They will print via the swaps, via bank bailouts and mergers, via fixed Treasury yields, via real honest-to-God negative interest rates, via loans to banks on no collateral, via payroll tax reductions, and in the end via actual fiat paper instruments which they might very well drop in bails from actual mutherfucking helicopters.
They will not give two figs what anyone thinks.
Here is why.
Because this is the Goddamned end of it my friend. There is no accounting beyond this point. There will be no history of it. No one to take notes of rates of exchange, or of the graft and violence, nobody to worry about the deficit or the GDP or the national debt of any nation large or small under the blazing Goddamned sun.
End. Of. It. Does anyone bitch about how Rome totally debased their coinage at the end? Hell no. But whoever did it had enough to hand and grabbed some land with a nice vineyard and sat back and waited for the Middle Ages to start 700 years further on.
And that's what a singularity is about. Anything that passes through is striped of all meaning. Nothing we think is important now will remain so beyond the event horizon. Nobody will remember, nobody will write about it, nobody will be held to any standard. Ever for ever."

Hi Dex,
Your interpretation of BobC’s 50/50 market odds is very naïve. Formally, your reading might be called a Probit (PROBibility unIT) statistical measure. That form of measurement reduces the stats to an overly simplistic either/or positive/negative final judgment. Based on your post, you are satisfied with an equally weighted outcomes probability. The historical data does not support that weighting.
Either/or results need not be equally weighted. When a baseball hitter makes an official plate appearance, he can register either a hit or make an out. Extending your assessment, he has a 50/50 likelihood of either outcome, batting averages notwithstanding. You will surely go bankrupt if you accept the hit side of that wager.
Allow me to recite another extreme example of the problems assigning an equal probability to a bifurcation event for the mistaken reason that there are merely two possible happenings. Weather serves as a terrific illustration.
In my part of the Southern California landscape, any weather forecaster would lose his license to practice if he assigned a 50/50 odds for rain or clear on any given day. The proper odds likely hover at the 2/98 level against rain. Bifurcation does not typically translate into equally probable events.
From a Franklin Templeton market summary, over the past 88 years, the S&P 500 recorded 64 Up and 24 Down years. That is a 73% likelihood of a positive annual return. For the 64 positive return years, the annual average return was slightly North of 22%. For the 24 negative return years, the annual average loss was just South of -13% . So, not only do the odds favor a positive annual year, the returns for the positive years swamp the less likely negative years. That’s a double positive.
These favorable equity return stats are the basis for investing in stocks. The historical data shows that fixed income investments (like Bonds) have a higher likelihood of a positive annual return than stocks, but the payoffs are more muted. That’s why most portfolios that seek growth emphasize its stock components.
I’m sure you are familiar with these commonplace statistics. Given that familiarity, I’m puzzled by your submittal. You are just plain wrongheaded if you really believe that, without further mitigating circumstances, the odds are 50/50 that equities will deliver a positive or a negative reward/penalty in any given year.
Of course you’re free to assign whatever probabilities you like to the markets, but that’s being more than naïve; that’s completely ignoring the available database at your investment peril.
Good luck, and you will certainly need all of it if that’s your understanding and use of market statistics. I hope you were just joking or that I misread your post.
Best Wishes.

Given today’s market conditions and the S&P 500 CAPE valuation, I anticipate an equity annual real return of 1.0%, and a bond return of 2.5% (mix of treasury and corporate holdings) over the next 10-year time horizon.
Add another 2.5% for inflation. I presently expect a 60/40 equity/bond mixed portfolio to generate an actual return of 0.6 X 1.0 + 0.4 X 2.5 + 2..5 (inflation) = 4.1% annual average actual return for the next 10 years. Given the crudeness of the analyses, the projection is 4% annually. Quoting anything more accurate is misleading.

On a macro level I agree. When you look at stagnating wages, labor participation rate, retiring baby boomer, increase of people on food stamps, cost of Obamacare it point to a economic malaise. Also, at some point we will get a VAT which should put an additional damper on things.

You are welcome @MJG.
I wonder if anyone has ever thought of starting up a global CAPE fund? There is DSENX for the U.S. markets but I could not find anything for international other than the ETF example above which would be time consuming for most investors.
I don't have any positions in DSENX but have it in my watchlist.

@ JohnChisum,
Thanks for this link. From this article:
"...the (Faber CAPE) strategy all hinges on your definition of worst. Mr Faber argues that the worst places to invest in are not the cheap markets belonging to troubled economies, but the investors’ darlings that have been chased to heady valuations."
The Schiller CAPE index points out that one of these worst markets are US markets.
The hard question is when will expensive markets crash and will they remain out of favor for long periods of time (a lost decade) and conversely when will cheap market rebound and how long will they remain in favor? Both trends can go on for longer than one is willing to wait.
Waiting for cheap assets to rebound can be more easily tolerated if the cheap asset pays a solid growing dividend. If the dividend payment can resemble an income stream the waiting might be very tolerable.
theres-a-new-kid-on-the-global-dividend-block-mebane-fabers-cambria-foreign-shareholder-yield-etf