Newsletter - marketcommentaryhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentaryen-us2017-03-27T21:27:01.3863871-05:00THE STOCK MARKET IS PRICED FOR PERFECTIONhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18302/28/2017 1:05:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">The Trumprally, which began during the overnight session the night of November 8th has,in our view, built perfection into prices, which we think were already pricedto near perfection.<span style="mso-spacerun: yes;">&nbsp; </span>In the bull case, fundamentalswere already improving and President Trump&#8217;s proposed cutting of regulations,taxes, and instituting pro-growth fiscal spending, just adds fuel to the fire. <span style="mso-spacerun: yes;">&nbsp;</span>It seems to us that every possible benefit ofthe doubt is being given to the new administration in an economic and politicalclimate that is unprecedented in our lifetime, and possibly our country&#8217;shistory.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">In addition,there is nothing that says that President Trump will get all he wants from Congress.<span style="mso-spacerun: yes;">&nbsp; </span>The most positive outcome is being discountedby the stock market presently and if there is resistance or delay with hisprograms, the stock market will suffer.THIS BULLISH STOCK MARKET IS VERY LONG IN THE TOOTHhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18272/2/2017 8:20:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">This bullmarket is close to eight years old, and if it continues for another month, itwill be the second longest bull market in the history of the stock market.<span style="mso-spacerun: yes;">&nbsp; </span>Being heavily invested in a stock market thatis historically just about the longest on record, and is also extremely over-valued,has got to be dangerous. However, for some strange reason the sentiment ofinvestors in this stock market is just about as bullish as it can be.<span style="mso-spacerun: yes;">&nbsp; </span>In fact, the Investors Intelligence, MarketVane, January Michigan Sentiment, and VIX all show extreme bullishness to thepoint that you would have to call it &#8220;euphoria&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>And as you know, bullish markets often end when&#8220;euphoria&#8221; begins.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Manyinvestors believe that the rationale of being fully invested is due to the lowinterest rates, and even if the Fed raises rates, it will be a while beforethey raise rates high enough to get to normalized levels (basically around theinflation rate of 2%).<span style="mso-spacerun: yes;">&nbsp; </span>However, you haveto keep in mind that the peg rate of the Fed over the next year ranges from 2%to 2.5% or higher.<span style="mso-spacerun: yes;">&nbsp; </span>Therefore, the onefact that the bulls are leaning on is about to evaporate.<span style="mso-spacerun: yes;">&nbsp; </span>Keep in mind that the Fed did say they wouldraise rates 4 times in 2016, and they only raised rates once.<span style="mso-spacerun: yes;">&nbsp; </span>We suspect strongly that they will raiserates further, and faster, than in the past, especially since their two mandateshave reached the levels they set, and they don&#8217;t want to get too far behind thecurve.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Otherreasons that the U.S.THE STOCK MARKET HAS REACTED POSITIVELY TO TRUMPhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18261/3/2017 11:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 12pt;"><font face="Calibri">The pasteight years provided a phenomenal environment for stocks, bonds, and realestate due to the tremendous expansion of the Fed&#8217;s balance sheet and theresulting eight year zero interest rate policy.<span style="mso-spacerun: yes;">&nbsp;</span>During that eight year period the world became familiar with terms likeQuantitative Easing (QE) and Operation Twist as the Fed moved into unchartedwaters in both the magnitude and length of its easing programs.<span style="mso-spacerun: yes;">&nbsp; </span>What began as an emergency program to rescuethe U.S. and the world from the Global Financial Crisis turned into a longer termattempt to stimulate growth through the inflation of financial assets; thetheory being that wealthy people would spend more and that wealth would&#8220;trickle down&#8221;, <span style="mso-spacerun: yes;">&nbsp;</span>and result in economicgrowth.<span style="mso-spacerun: yes;">&nbsp; </span>As it turned out, it should alsobe mentioned, that the Fed alone pretty much carried the economic football asthe budget sequester limited the impact of fiscal policy as the U.S.PRESIDENT-ELECT TRUMP WANTS ECONOMIC GROWTHhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=182512/2/2016 4:30:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We have toadmit to being as surprised as everyone else at the stock market&#8217;s reaction tothe Donald Trump victory.<span style="mso-spacerun: yes;">&nbsp; </span>And it is notbecause we think the policies of the incoming administration will be lessgrowth oriented than the Obama or the not to be Clinton administration.<span style="mso-spacerun: yes;">&nbsp; </span>Quite the contrary.<span style="mso-spacerun: yes;">&nbsp; </span>President-Elect Trump&#8217;s policies will befriendlier to business and to the taxpaying public than the alternative. <span style="mso-spacerun: yes;">&nbsp;</span>The problem is that those policies could alsoexplode the debt, which we believe is the most significant financial threat tothe country&#8217;s growth and economic well being.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">On thepositive side, there are a number of pro growth initiatives in the Trumpplan.<span style="mso-spacerun: yes;">&nbsp; </span>A partial list would include, infrastructurerelated spending and jobs resulting from the fiscal response, rebuilding adepleted military including new investment in weapons systems, scaling back oreliminating Obamacare, tax cuts for individuals and corporations, reducing themaze of Federal regulations that are choking certain business activity includingenergy production, building the Keystone and other pipelines, possible corporate investment inneglected real plant and equipment due to a shift to optimism from pessimism,and importantly, repatriation of corporate profits that are being heldoffshore, mainly in Europe.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">On theopposing side, there are at least several negatives.<span style="mso-spacerun: yes;">&nbsp; </span>Among those are building a wall financed byMexico that causes friction and reverse immigration of low skilled workers(ultimately very inflationary), minimum wage laws, which are not only inflationarybut actually can destroy jobs, renegotiation of trade agreements that slowsbusiness activity, trade tariffs that are ultimately borne by the U.S.The CB's have to Learn You Can't Go To "Cold Turkey" from "Wild Turkey"http://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=182311/2/2016 11:30:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We have beendiscussing (in the most critical way possible)&nbsp;the Central Banks all over the world for the past 16 years.<span style="mso-spacerun: yes;">&nbsp; </span>In fact, a journalist called us this pastJanuary and asked what we thought of the stock market?<span style="mso-spacerun: yes;">&nbsp; </span>We responded that we expected the stockmarket to decline sharply during the year 2016 as the Fed raised rates.<span style="mso-spacerun: yes;">&nbsp;</span>The journalist countered that every time the Fed raised rates in thepast the stock market still did quite well.<span style="mso-spacerun: yes;">&nbsp;</span>So far the journalist has been correct and we have been wrong.<span style="mso-spacerun: yes;">&nbsp; </span>We believe this will change again within thenext few months since the Fed will be forced to finally reverse the damage done over the past 8 years.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We tried toexplain to the journalist that we are presently in a completely differentsituation than we were in the past, when the stock market rose as the Fedraised rates because the economy was doing well and/or there were inflationaryrisks.<span style="mso-spacerun: yes;">&nbsp; </span>Now we have gone through QE1,QE2, QE3, and &#8220;Operation-Twist&#8221; where we drove rates down to zero (ZIRP), orclose to it for the past 8 years.<span style="mso-spacerun: yes;">&nbsp; </span>Thistime the Fed has grown its balance sheet from about $800 bn. to over $4.5tn.<span style="mso-spacerun: yes;">&nbsp; </span>This enormous amount of money has tobe eventually wound down.<span style="mso-spacerun: yes;">&nbsp; </span>This injectionof money printed by the Fed has not driven us into an inflationary bubblebecause there is very little &#8220;velocity&#8221; (the pick-up of transactions).<span style="mso-spacerun: yes;">&nbsp; </span>The injection of money does not lead toinflation since the money printed by the government or Fed does not get thepublic to spend the money and they save it instead.<span style="mso-spacerun: yes;">&nbsp; </span>This is called a &#8220;liquidity trap&#8221;, which is whatJapan went through for the past 27 years.<span style="mso-spacerun: yes;">&nbsp;</span>The high debt that we have generated, as well as Japan, has caused adeflationary environment, which neither one of us seems able to achieve anytype of &#8220;escape velocity&#8221;.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">This time isalso different from the past rate hikes since now our Fed is about to raise FedFunds right into the face of a manufacturing recession (down for over 6quarters in a row).<span style="mso-spacerun: yes;">&nbsp; </span>We also arethreatening to raise rates right into the face of virtually every other centralbank that is still in the loosening phase of printing more money and lowering interestrates.<span style="mso-spacerun: yes;">&nbsp; </span>All this while we are about totighten by increasing rates and raising the value of the US dollar.<span style="mso-spacerun: yes;">&nbsp; </span>And because of the US dollars rise andcontinued rise as we raise rates, it will be more difficult to compete with ourtrading partners and lower our exports.<span style="mso-spacerun: yes;">&nbsp;</span>Most of our trading partners are participating in a race to the bottom,as they do whatever they can to lower their currency in order to sell moregoods and services to the US.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We havegiven this journalist at least 4 more reasons why we believe the increase inrates will lead to a bear market for US stocks.<span style="mso-spacerun: yes;">&nbsp;</span>Right now, we would have to admit it looks like the journalist was rightthis past January.<span style="mso-spacerun: yes;">&nbsp; </span>At first, we lookedlike geniuses as the US stock market dropped sharply in January.MALAISEhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=182210/6/2016 9:00:00 AM<p style="margin: 0in 0in 10pt;"><font face="Calibri">Back in 1979 President Jimmy Carter addressed the nation andtold his fellow citizens the country suffered from a &#8220;crisis of confidence&#8221; inwhat became famously known as the &#8220;malaise speech&#8221;.&nbsp;&nbsp;&nbsp; Back then the country was suffering from&#8220;Stagflation&#8221; or inflation with sluggish growth.Central Bankers Have Failed to Stimulate Thus Farhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18219/1/2016 3:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">As most ofour viewers know, we have not been happy with the world&#8217;s central bankers overthe past twenty years and have expressed those feelings.<span style="mso-spacerun: yes;">&nbsp; </span>The U.S. Fed is the most important centralbank among the major central banks of the world, as the U.S.WHY THE WORLDWIDE BUSINESS CYCLE HAS SLOWED DOWNhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18208/5/2016 2:00:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">This commentdiscusses the assumptions we have been using in our commentaries over the past20 years or more.<span style="mso-spacerun: yes;">&nbsp; </span>We have been consistentlyreminding our viewers that the debt built up over the years has a major bearingon the economic health of the U.S. economy, as well as the economic health ofother developed countries, who have also built up significant<span style="mso-spacerun: yes;">&nbsp; </span>debt positions.<span style="mso-spacerun: yes;">&nbsp; </span>It should be clear to investors that are asconcerned about the debt how these same countries&#8217; GDP slowed down, just likethe U.S.The Central Bank Bubble Is Worse Than The Dot.Com & Housing Bubbleshttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18187/7/2016 5:05:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We warnedour viewers, over and over again, how the Dot.Com Bubble and Housing Bubblewould play out.<span style="mso-spacerun: yes;">&nbsp; </span>We are now warning ourviewers that the unwinding of the &#8220;Central Bank Bubble&#8221; will be worse thaneither of the other two bubbles.<span style="mso-spacerun: yes;">&nbsp; </span>Itseems like most investors continue to show apathy even with the warnings by usand quite a few others of the &#8220;unintended consequences&#8221; of the central banksdoing things that have never been done before.<span style="mso-spacerun: yes;">&nbsp;</span>Those investors are in good company because it appears to us that theleaders of the major central banks of the world do not have any idea of the &#8220;unintendedconsequences&#8221; either.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Think for amoment about exactly what changes the Federal Reserve took in continuing tokeep the Federal Funds rate at zero or close to zero for approximately the past8 years.<span style="mso-spacerun: yes;">&nbsp; </span>This is called ZIRP (ZeroInterest Rate Policy) and the Fed, or any of the central banks that followedthe Fed&#8217;s lead, had any idea of the &#8220;unintended consequences&#8221; of this policy. <span style="mso-spacerun: yes;">&nbsp;</span>However, if you think they took a chance withZIRP, just think about the chances our Fed took while building their balancesheet up from $800 bn.Operating Versus GAAP Earningshttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18176/2/2016 8:15:00 AM<font face="Times New Roman"></font><span style='color: black; line-height: 107%; font-family: "Arial","sans-serif"; font-size: 11pt; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA;'><font face="Times New Roman" size="3"><p style="margin: 0in 0in 0pt;"><span style='color: black; font-family: "Arial","sans-serif";'>As we write this month&#8217;s comment the S&amp;P 500 stands at 2,099,1.33% away from its all-time high of 2,134. So we thought this would be a goodtime to discuss whether stocks are cheap or expensive relative to historicalnorms.The Ending of QEhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18164/28/2016 9:05:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">The endingof QE-3 formed a stock market top formation that presents a very strong technicalresistance that will be&nbsp;DIFFICULT to overcome!!</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">The stockmarket swings (based on the S&amp;P 500) have been extremely volatile since theend of QE-3 in December of 2014.<span style="mso-spacerun: yes;">&nbsp; </span>Infact, ever since QE-1 ended in 2010, QE 2 ended in 2011,&nbsp;Operation Twistended in 2012, the market rose slightly and then fell sharply soon afterwards.&nbsp; Now that the Fed&nbsp;ended QE-3 and have started raising&nbsp;rates the stock market&nbsp;has been very volatile and we suspect that the swings will wind up breaking down&nbsp;through the lows of 1812 and 1810 that took place early this year.Corporate Buybacks Aren't What They Used To Behttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18153/31/2016 3:30:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><br></p><font face="Calibri"><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">&#8220;FinancialEngineering&#8221; as it applies to a corporate structure usually is defined as theaggressive use of various techniques to enhance shareholder value by affectingthe balance sheet.<span style="mso-spacerun: yes;">&nbsp; </span>Probably none hasreceived more attention over the last several years as stock buybacks.<span style="mso-spacerun: yes;">&nbsp; </span>It seems that not a day goes by that CNBC andthe financial media are reporting that companies have initiated or increasedshare buyback authorizations, and there has been a great deal of attentiongiven over the last many months to whether share repurchases represent ajudicious use of a corporation&#8217;s capital.<span style="mso-spacerun: yes;">&nbsp;</span></span></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">In thisreport we will attempt to shed some light on this topic and also examine whatmessage the market may be saying about large companies that are doingbuybacks.<span style="mso-spacerun: yes;">&nbsp; </span>This is possibly one of themost important questions facing market participants today since the U.S. hasbeen in a zero or near zero interest rate environment for 87 months (anunprecedented amount of time.)<span style="mso-spacerun: yes;">&nbsp; </span>Duringthat time corporations have raised record amounts of long term debt athistorically attractive levels, while at the same time remaining voraciousbuyers of their own shares.<span style="mso-spacerun: yes;">&nbsp; </span><span style="mso-spacerun: yes;">&nbsp;</span>The major buyback companies as a whole haveoutperformed over the last 7 years, since the bottom on 3/9/09.<span style="mso-spacerun: yes;">&nbsp; </span>However, this recently has not been the caseas we will illustrate.</span></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">Now in thisera where it seems there is an index for any financial asset class that can bemeasured there are indexes of companies that are buying back their ownshares.<span style="mso-spacerun: yes;">&nbsp; </span>The performance metrics of thetwo most popular are reasonably similar so we will focus on just one, theS&amp;P 500 Buyback Total Return Index (SPBUYUT).<span style="mso-spacerun: yes;">&nbsp; </span>This index is calculated by S&amp;P back to1994 (numbers sourced from Bloomberg), though it appears a more recent creationsince trading volumes and ranges don&#8217;t appear until 2013.<span style="mso-spacerun: yes;">&nbsp; </span>This index is equal dollar weighted andrebalanced quarterly.<span style="mso-spacerun: yes;">&nbsp; </span>It is a subset ofthe S&amp;P 500 consisting of the 100 companies that for the 4 previousquarters have repurchased the largest percentage of their market capitalizations.<span style="mso-spacerun: yes;">&nbsp; </span>We will compare this to the S&amp;P 500 TotalReturn Index (SPXT).<span style="mso-spacerun: yes;">&nbsp; </span>This index iscapitalization weighted and like SPBUYUT reinvests dividends.<span style="mso-spacerun: yes;">&nbsp; </span>It is thus a reasonable &#8220;apples to apples&#8217;comparison.</span></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">While wewould argue that returns on financial assets have been inflated by anexperimental and dangerous environment the Fed has created through QE and ZIRPthe numbers tell us that since the market low on 3/9/09, SPXT has returned 252%while SPBUYUT has returned 374%.<span style="mso-spacerun: yes;">&nbsp; </span>Ashorter and more recent time frame, however, tells a somewhat differentstory.<span style="mso-spacerun: yes;">&nbsp; </span>Since the 3/9/09 market low thereare 29 rolling 4 quarter periods we examined.<span style="mso-spacerun: yes;">&nbsp;</span>Of the 29 periods, there have been five where SPBUYUTunderperformed.<span style="mso-spacerun: yes;">&nbsp; </span>There were 2 in 2012 andthe most recent 3 (through this writing on 3/29/16).<span style="mso-spacerun: yes;">&nbsp; </span>The largest of the 5 is the last 4 quarterroll and the underperformance number is 7.02%.<span style="mso-spacerun: yes;">&nbsp;</span>So we believe that the market is starting to punish companies that are themost voracious buyers of their own stock.</span></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">There areseveral arguments made by buyback opponents that go as follows:</span></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><ol style="list-style-type: decimal; direction: ltr;"><li style="color: rgb(0, 0, 0); font-size: 14pt; font-style: normal; font-weight: normal;"><p style="color: rgb(0, 0, 0); font-size: 11pt; font-style: normal; font-weight: normal; margin-top: 0in; margin-bottom: 0pt; mso-list: l0 level1 lfo1;"><span style="line-height: 107%; font-size: 14pt;">Buybacks steal from the future byexpending resources that should be used to fund/ensure future growth inexchange for the short term gratification of a higher stock price that is theresult of the buyback.<span style="mso-spacerun: yes;">&nbsp; </span>Worse yet, iffinanced with debt, the debt has to be serviced and paid back eventually.</span></p></li><li style='color: rgb(0, 0, 0); font-family: "Calibri",sans-serif; font-size: 14pt; font-style: normal; font-weight: normal;'><p style='color: rgb(0, 0, 0); font-family: "Calibri",sans-serif; font-size: 11pt; font-style: normal; font-weight: normal; margin-top: 0in; margin-bottom: 0pt; mso-list: l0 level1 lfo1;'><span style="line-height: 107%; font-size: 14pt;">Buybacks do not return money to allshareholders (as dividends do) but rather only to selling shareholders; (thatare now no longer shareholders) </span></p></li><li style='color: rgb(0, 0, 0); font-family: "Calibri",sans-serif; font-size: 14pt; font-style: normal; font-weight: normal;'><p style='color: rgb(0, 0, 0); font-family: "Calibri",sans-serif; font-size: 11pt; font-style: normal; font-weight: normal; margin-top: 0in; margin-bottom: 8pt; mso-list: l0 level1 lfo1;'><span style="line-height: 107%; font-size: 14pt;">Corporate managements have aninherent conflict of interest when, as is typically the case, theircompensation is determined by EPS metrics that are influenced by the buybacksthey authorize.</span></p></li></ol><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">Thesearguments make sense to many, including us.<span style="mso-spacerun: yes;">&nbsp;</span>It is likely true, however, that when the markets are near the high endof their all time ranges, most investors either don&#8217;t care or overlook thesefacts.<span style="mso-spacerun: yes;">&nbsp; </span>When the extended bear marketthat we see coming arrives in earnest, we believe the finger pointing andrecriminations will arrive with it.</span></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">In summary,our regular readers know that we believe the U.S."Stormy Seas" Both in the U.S. and Globallyhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18143/3/2016 11:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Arial">We havewarned in the past about the potential for a world-wide deflationary bearmarket accompanied by a U.S., and possibly, global recession.<span style="mso-spacerun: yes;">&nbsp; </span>We believe this recession and deflationarybear market have begun and expect it will last through most of 2016 and into2017.</font></span></p><font face="Arial"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Arial">Two weeksago Barron&#8217;s Magazine ran a cover story titled &#8220;Stormy Seas&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>The authors were essentially on the otherside of this debate, by claiming &#8220;Despite Turbulent Markets&#8221;, the U.S. economywill avoid a recession and grow at a healthy 3% pace this year.<span style="mso-spacerun: yes;">&nbsp; </span>However, even if Barron&#8217;s is correct and theU.S.More Fed Criticismhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18132/5/2016 8:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Last month&#8217;scommentary (which we also made a &#8220;special report&#8221;) was essentially a responseto a financial reporter who asked us why we were so negative on the stockmarket in 2016 just because the Fed, more than likely, was going to raiserates.<span style="mso-spacerun: yes;">&nbsp; </span>He stated that the stock marketalmost always rose during the previous rate increases.<span style="mso-spacerun: yes;">&nbsp; </span>We explained the difference between the Fedtightening now, with enormous headwinds to overcome, relative to the times whenthe Fed raised rates in the past.<span style="mso-spacerun: yes;">&nbsp; </span>Wewent on to also explain why the same headwinds to the Fed tightening wouldprobably also cause a U.S. recession (and maybe even a global recession).<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">The priorcomment was written in late December just after the Fed had raised the Fed Fundsrate by 25 basis points.<span style="mso-spacerun: yes;">&nbsp; </span>Before thispast commentary<span style="color: red;"> </span>very few people were warningabout a recession, here or globally.<span style="mso-spacerun: yes;">&nbsp;</span>However, now we are reading a lot about criticism of the Fed, andvirtually everyone that appears on the financial networks seems to have astrong opinion about the probability of a U.S.Difference between Past Fed Tightening and Nowhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18111/4/2016 8:30:00 AM<p>A reporter asked us about the prospects of the stock market if the Fed raises the Fed Funds rate, since at the time there was a strong possibility of a rise in the rate to around 25 basis points.&nbsp; We explained that, in our opinion, the ending of the ZIRP (Zero Interest Rate Policy) and increase in Fed Funds will be a significant negative for the stock market.This Stock Market Is Long In The Toothhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=180812/3/2015 1:45:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><font face="Calibri">At Comstock we continue to believe that the world is in an acceleratingdeflationary environment.<span style="mso-spacerun: yes;">&nbsp; </span>This is theresult of many interrelated factors we have written about in the past.<span style="mso-spacerun: yes;">&nbsp; </span><span style="mso-spacerun: yes;">&nbsp;</span>Themost important of these is the exceedingly large levels of debt that exist inthe world today.<span style="mso-spacerun: yes;">&nbsp; </span><span style="mso-spacerun: yes;">&nbsp;</span>In an effort to combat this deflation andstimulate the real economy the Federal Reserve has done three quantitativeeasings (QEs) and an &#8220;Operation Twist&#8221; (purchase of long term and sale of shortterm government securities).<span style="mso-spacerun: yes;">&nbsp; </span>Theseactions grew the Fed&#8217;s balance sheet from $800B to over $4.5T.<span style="mso-spacerun: yes;">&nbsp; </span>Also, as part of this program, it hasmaintained a zero interest rate policy (ZIRP) for 84 months.<span style="mso-spacerun: yes;">&nbsp; </span>This has not only punished traditional saversbut has forced many of those savers to take risk in financial markets withmoney they cannot afford to lose.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span>But thereal economy has not been stimulated in any meaningful sense.<span style="mso-spacerun: yes;">&nbsp; </span>The main effect has been the inflation offinancial assets, real estate and certain art.<span style="mso-spacerun: yes;">&nbsp;</span>We strongly believe that ZIRP has made the financial markets much morevulnerable than normal. </font></p><font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><font face="Calibri">As is evident from trends in GDP and its revisions, the US economycontinues to grow at an anemic 2%-2.5% since the bursting of the Housing Bubblein 2008.The Global Debt Controls the Global Economyhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=180611/5/2015 4:40:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">The mainreason the US economy is struggling to recover from the &#8220;Great Recession&#8221; of2007 and 2008 is because the debt load is so very difficult to overcome.<span style="mso-spacerun: yes;">&nbsp; </span>The global debt has increased by about $60trillion since 2007 and there is no way to have a smooth and quick recoveryafter the debt has grown so much so quickly (see first attachment).<span style="mso-spacerun: yes;">&nbsp; </span>Keep in mind that the reason for the &#8220;greatrecession&#8221; was due to the overwhelming debt incurred by almost every country(this includes the developed nations as well as the emerging markets).<span style="mso-spacerun: yes;">&nbsp; </span>The main reason for the increased debt burdenstarted with the Federal Reserve reducing the Fed Funds Rate to 1% in June of2003 and keeping it there for a year.<span style="mso-spacerun: yes;">&nbsp;</span>They thought that they were giving relief to the U.S. due to thebursting of the dot.com bubble.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span>Theywere not aware of the possibility of being the main cause of the &#8220;housingbubble&#8221; (which they were).<span style="mso-spacerun: yes;">&nbsp; </span>In fact theFed had no idea they were the cause of the dot.com bubble after Fed Chairman Greenspanwarned global investors about the possibility of &#8220;irrational exuberance&#8221; in1998.<span style="mso-spacerun: yes;">&nbsp; </span>After the market dipped it cameroaring back enough for Greenspan to reverse his warnings to state, &#8220;everythingis OK now&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>Our Federal Reserve alsotried to alleviate U.S.THE CENTRAL BANK BUBBLE IIhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=180410/1/2015 8:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><font face="Calibri">We would be hard pressed to name an event where the outcomewas more closely watched than the 9/17/15 Fed meeting.<span style="mso-spacerun: yes;">&nbsp; </span>That was the meeting that was finallysupposed to be liftoff from the zero interest rate policy (ZIRP) of the Fed.<span style="mso-spacerun: yes;">&nbsp; </span>The Fed held steady, which was dovish, andthe market&#8217;s reaction was up&#8230;for about an hour. Post announcement, the marketrallied about 1.7% from low to high before closing down on the day.<span style="mso-spacerun: yes;">&nbsp; </span>In the text of the Fed&#8217;s announcement wasreference to world economic conditions, specifically China, as a reason toremain at zero.<span style="mso-spacerun: yes;">&nbsp; </span>That sounded pretty farfrom the traditional &#8220;full employment and low inflation&#8221; mandate and the marketdidn&#8217;t like it one bit.<span style="mso-spacerun: yes;">&nbsp; </span>One week laterJanet Yellen gave a speech where she said that liftoff was likely this year.<span style="mso-spacerun: yes;">&nbsp; </span>That more hawkish statement, which came afterthe close on Thursday 9/24, caused the market to be strong through a good partof the day on Friday&#8230;until the market decided it didn&#8217;t like it and closed lower.<span style="mso-spacerun: yes;">&nbsp; </span>There were also statements from present andformer FRB members both for and against liftoff.Deflation Finally Broke the Markethttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18039/3/2015 3:00:00 PM<p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">We ended thelast special comment, &#8220;DEFLATION&#8221;, by explaining the support and resistance levelsof the stock market and concluded that the stock market will break below thesupport level of 2040 on the S&amp;P 500.<span style="mso-spacerun: yes;">&nbsp;</span>We continue our very strong feelings that we still have much moredownside risk.<span style="mso-spacerun: yes;">&nbsp; </span>We will also explain whywe believe the deflation we have been warning you about for years will spreadinto a much more globally based deflation than was experienced in thepast.<span style="mso-spacerun: yes;">&nbsp; </span>The reason for this is thatsignificant economies around the world are overloaded with debt levels that aresimilar to the United States.<span style="mso-spacerun: yes;">&nbsp; </span></span></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><span style="mso-spacerun: yes;">&nbsp;</span></span></p><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;">The mainreason we believe the stock market will decline sharply is because thedeflation we discussed with you over the last few years has finally permeatedthe globe and the only thing missing from the &#8220;Cycle of Deflation&#8221; (firstattachment) is the significant stock market decline.<span style="mso-spacerun: yes;">&nbsp; </span>As the chart shows, we have been stuck in thepart of the cycle called &#8220;competitive devaluation&#8221; for years. Many of ourtrading partners have been attempting to devalue their currencies in order tocompete and export deflation.<span style="mso-spacerun: yes;">&nbsp; </span>China justrecently devalued their currency by 4% and Jack Lew stated in a recentinterview this morning that China will be accountable to the U.S.DEFLATION!http://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18028/6/2015 12:00:00 AM<p style="margin: 0in 0in 10pt;"><font face="Calibri">We have been warning our viewers since 1999 about the word&#8220;deflation&#8221;, and the negative stock market action when the deflation occurs.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">In fact, we authored the chart, &#8220;Cycle ofDeflation&#8221; (first attachment) which shows the flow of the typicaldeflation.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">The deflation starts with excessdebt and over-investment leading to excess capacity and weakness in pricingpower.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">This leads to the devaluation ofthe countries&#8217; currency.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">When thatstarts to affect exports the deflationary country typically gets into a&#8220;currency war&#8221; with its&#8217; trading partners.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp;</font></span><font face="Calibri">This competitive devaluation leads to protectionism and tariffs followedby &#8220;beggar-thy-neighbor&#8221;, where countries affected by deflation resort toselling goods and services below cost in order to keep their plants open.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">As you can see this is a vicious cycle thateventually leads to plant closings and debt defaults until pricing powerreturns.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span></p><p style="margin: 0in 0in 10pt;"><font face="Calibri">&nbsp;</font><font face="Calibri">The full effect of this deflation has notreally permeated the USA, but you can see&nbsp;many indicators point to moredeflation.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">The U.S. has not experienced serious deflation&nbsp;since the &#8220;great depression&#8221; but we can use the example of thedeflation that took place and is still taking place in Japan.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">Their deflation started in 1989 and hascontinued for the past 26 years.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span><font face="Calibri">Theircurrency (the Japanese Yen) started declining as far back as the early 1980&#8217;sas their debt accelerated sharply.</font><span style="mso-spacerun: yes;"><font face="Calibri">&nbsp; </font></span></p><p style="margin: 0in 0in 10pt;"><font face="Calibri">As you can see in the second attachment (Total Credit MarketDebt as a % of GDP) the U.S.The Fed Continues to Project Weak Growthhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=18017/2/2015 8:30:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><br></p><font face="Calibri"><p style="margin: 0in 0in 8pt;"></p><font face="Times New Roman"><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">To say the least, the Fed&#8217;s own projections of GDP growthcontinue anemic at best.<span style="mso-spacerun: yes;">&nbsp; </span>For 2015 theFed now projects 1.9% growth in GDP followed by 2.55% in 2016 and 2.3% in2017.<span style="mso-spacerun: yes;">&nbsp; </span>We have stated many times that therecovery since the bursting of the &#8220;Housing Bubble&#8221; is the most tepid recoverysince the great depression and as you can see, the Fed is forecasting more ofthe same.<span style="mso-spacerun: yes;">&nbsp; </span>We have also stated that theprimary reason for this is that debt, i.e., government, corporate, householdand student loans, are eating us alive.<span style="mso-spacerun: yes;">&nbsp;</span>At the same time, the Fed is predicting relatively &#8220;full employment&#8221;with an unemployment rate of 5% starting in 2016.<span style="mso-spacerun: yes;">&nbsp; </span>It turns out that the only way to get to a 5%unemployment rate is to eliminate those people that were not able to find workand have given up from the equation.<span style="mso-spacerun: yes;">&nbsp; </span>Ouranalogy here is to say the Fed is like the golfer that gives himself every puttover 20 feet and then tells everyone he&#8217;s &#8220;scratch&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>It is not reality!</font></p><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">&nbsp;</font></p><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">From time to time, however, there are bright spots thatseemingly appear.<span style="mso-spacerun: yes;">&nbsp; </span>One such spot isautomobile and truck sales that were very strong in June.<span style="mso-spacerun: yes;">&nbsp; </span>It turns out that those sales were achievedthrough a record percentage of leases and/or record length car loans.<span style="mso-spacerun: yes;">&nbsp; </span>Said another way, debt is the reason thatauto sales were good.<span style="mso-spacerun: yes;">&nbsp; </span>We therefore donot believe this is a &#8220;turn for the better&#8221;.</font></p><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">&nbsp;</font></p><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">If we are wrong,&nbsp;the Fed will have to raise interestrates sooner and faster than the market expects.<span style="mso-spacerun: yes;">&nbsp; </span>If we are right,&nbsp;the economy willcontinue to grow at somewhere between anemic or even negative rates.<span style="mso-spacerun: yes;">&nbsp; </span>Either way, stocks by almost any valuationmeasure are expensive and when that is the case the forward rate of returnsuffers; it always has throughout history and we expect it will now.<span style="mso-spacerun: yes;">&nbsp; </span>This is why we remain so bearish on U.S. equities!&nbsp;</font></p><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">&nbsp;</font></p><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><font face="Calibri">We would like to wish all of our viewers a happy and safe4th of July!</font></p><p style="margin: 0in 0in 8pt;"><br></p></font><p style="margin: 0in 0in 8pt;"></p><p style="margin: 0in 0in 8pt;"><br></p><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"><br></font></p></font><p style="margin: 0in 0in 8pt;"><br></p><font face="Times New Roman"></font>The Federal Reserve has Painted Itself into a Cornerhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=17996/2/2015 3:00:00 PM<p align="center" style="margin: 0in 0in 8pt; text-align: center;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">The Federal Reserve has Painted Itself into a Corner</font></span></p><font face="Times New Roman"></font><p align="center" style="margin: 0in 0in 8pt; text-align: center;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">&nbsp;</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">The Federal Reserve seems to have solved the problem of extricating the U.S. from the terrible &#8220;great recession&#8221; by employing three major monetary policies.<span style="mso-spacerun: yes;">&nbsp; </span>They started with a &#8220;zero interest rate policy (ZIRP) for the past 6 years, and then used three Quantitative Easing&#8217;s to build-up the Fed&#8217;s balance sheet from $800 billion (bn) to almost $4.5 trillion (tn).<span style="mso-spacerun: yes;">&nbsp; </span>We however, believe that the Fed&#8217;s actions will result in an even greater set of economic problems in the near future.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">&nbsp;</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">To support our view we will examine various economic data.The Debt, ZIRP, and Valuationhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=17975/5/2015 12:00:00 AM<p>As we write the US stock market, as measured by the S&amp;P 500 and Nasdaq Composite Index, hovers at or near new highs.&nbsp; We will take this as an opportunity to reiterate that this is a bubble that is the direct creation of the Federal Reserve.HAPPY EASTER AND PASSOVERhttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=17964/2/2015 8:00:00 AMCentral Bank Bubble is Similar to the Dot Com and Housing Bubbleshttp://comstockfunds.com/default.aspx?act=newsletter.aspx&category=marketcommentary&newsletterid=17943/4/2015 3:00:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 12pt;"><font face="Calibri">Comstock wascriticized during the late 1990s as we continued to warn our loyal readers thatthe dot com bubble would eventually burst and would be written about for yearsto come.<span style="mso-spacerun: yes;">&nbsp; </span>In fact, we stated that Harvardwould have case studies about the fundamentals of how many eyeballs werelooking at the internet stocks rather than P/E ratios or even EBITDAratios.<span style="mso-spacerun: yes;">&nbsp; </span>We were charging a substantialamount of money from our viewers throughout the 1980s and 1990s until we got sofrustrated by saying the same thing over and over, we decided to stop chargingfor our research reports in 1999.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 12pt;"><font face="Calibri">The researchreport entitled &#8220;Analyze This&#8221; in the mid-1990s was the last report we chargedfor and you will be able to understand our frustration by quoting the firstparagraph of it now.<span style="mso-spacerun: yes;">&nbsp; </span>&#8220;When stock markethistory is written the current period will be looked upon as a textbook exampleof the conditions that exist at a major market top, and future investors willwonder how so many did not see it at the time.<span style="mso-spacerun: yes;">&nbsp;</span>This should not be surprising since one of the hallmarks of a market topis that the majority are not aware of it, since a market top coincides with thepoint of maximum optimism, just as a bottom occurs at the point of maximumpessimism.&#8221;<span style="mso-spacerun: yes;">&nbsp; </span>We went on to describe justhow outrageous the valuations were at the time as we pointed out the extremesof earnings, cash flow, sales, book value and dividends.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 12pt;"><font face="Calibri">The periodof time during the housing bubble in 2005, 2006, and 2007 was just about asfrustrating to us as the dot com bubble.<span style="mso-spacerun: yes;">&nbsp;</span>In fact if you scroll down at the end of any of our comments you willfind a box showing &#8220;archives&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>If youclick on it and type in &#8220;housing&#8221;, you will see that in each and every reportwe warned about the housing bubble.<span style="mso-spacerun: yes;">&nbsp; </span>Andnow the &#8220;Central Bank Bubble&#8221; is becoming just as frustrating to us as theother two bubbles.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 12pt;"><font face="Calibri">We havetried to point out to our current viewers that the Federal Reserve has notraised interest rates for the past 9 years.<span style="mso-spacerun: yes;">&nbsp;</span>Instead, they lowered Fed Funds rates to zero, and increased theirbalance sheet from $800 bn. to $4.5 tn.