BTMFD, anyone? Almighty Goldman is saying the market is a mite too frothy at this point, and they're expecting a 10% pullback. That's all well and fine, but what's 10%? Seriously. Ten points is a dip these days, not a correction. In my view, the only way the market could really correct from here would be for prices to remain stagnant for the next decade while earnings catch up. A 10% pullback from here would only cause more dumb money to pile into the market. This is what years of quantitative easing wrought: a new normal that includes ridiculous valuations. I personally don't care, because I buy the dips and trade with tight stops. But if I were trying to plan for a couple decades out (a la 401k), I'd be hating life right now.
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Life at the Goldman market prediction group.
Harry : Geez Marv what should we tell CNBC for the market outlook segment. Marv: Grab that hat over there and put in a bunch of positive and negative percentages Harry: Ok Marv: Now draw one out Harry: Negative 10% Marv: We have our prediction right there.
Ignoring the 10% prediction which someone pulled out of their ass, what makes you think valuations are ridiculous? Your common valuation metrics appear higher than normal, but given the return on lower risk assets is lower than normal it seems fair. Some metrics like Shiller PE and Market Cap/GDP look very high historically, but they've been very high for the better part of 2+ decades now, so I'm not sure that's a great argument. And even on those metrics we're nowhere near the crazy territory we were in back in 2000. I thought this piece was really interesting if you can stomach the length: http://philosophicaleconomics.wordpress.com/2013/12/23/valuation-and-returns-adventures-in-curve-fitting/
TLDR version of article: The "best" predictor of forward 10-yr stock returns is equity allocation (% invested in equities vs other instruments), we're currently above normal but not drastically so, best estimate of the forward 10-yr return is ~5-6%.
Market research is not GS strongsuit, they also said oil prices were going to flop the past few years. Their ER teams are piss poor
Every time I see a piece of research saying "sell this" or "buy now!" I always remind myself that these guys are paid (directly or indirectly) through people trading. Inactivity kills them. They don't care whether you win or lose as you as you trade.
Read this a few days again - fascinating analysis.
@"Edmundo Braverman" : You know as well as anybody that no one has been able to consistently time the market in the short term. How many new highs did the Dow and the SP500 hit during, say, the 1990s bull market? False fears like this are bullish, in my view.
My, someone bullish on the markets. Quite the contrarian i see!
@zeropower : It's not being contrarian JUST for the sake of being contrarian. Stocks move on the gap between expectations and reality, and expectations are so fearful and dour right now that even growth that is "just okay" has positive surprise power.
Expectations are dour?? Retail money is piling in, ratio of bearish to bullish inst investors is at all time lows, and every single sell-side firm (that matters) is overweight on equities for 2014.
Forgive me, but you claiming 'false fears like this are bullish' is about as novel as the new ipad. Your idea may work, but don't for a second think you're being original.
If you'll forgive ME, let's look at some false fears from last year that never materialized in a banner year for equities:
All those were thought to just DESTROY markets last year. All this worrying and freaking out lowers people's expectations, and reality crushed them. That likely continues this year, in my view. We aren't at the peak of a bull market until euphoria reigns (not just optimism, full euphoria) reigns.
Still plenty of volatility, though. There always is. Stocks don't always go straight up. But you knew that.
Money is pull in... money is pull out... Normal things on the market! The problem is the real value of money and stocks... These are doom day for everyone under 60 years old! False dollars, false euros and false all! All is changed from 10 years ago and there is a growing poverty everywhere.
Anybody of you know how to create real value in this period and real growth?
God damn it. I thought someone was predicting an imminent 10% correction in GS and was going to be pissed that someone gave away my only position in the @"Simple as..." equity trading game.
Actually that's way I read it earlier too. Then I remembered GS had a pretty solid beat this morning.
You should participate in the Equity Challenge. Should be a good time.
I'm still pretty bullish on this market. I don't think that the market is really that irrational at all right now -- look at Best Buy blowing up and down 30% today, along with a whole lot of the retail universe that were last year's high fliers (GameStop, Pier 1, Bed Bath, etc). And when I look at forward earnings valuations, with the exception of a few stocks, most seem to be trading at reasonable forward multiples. So my gut tells me all this means markets are still responding and pricing in whatever they think earnings are, and not just relying on QE as a distortionary force. Which isn't to say that I don't think QE mattered, because I think it actually significantly boosted the real economy.
So in general, I still feel pretty good being long this market, and don't see a giant crash coming.
ps - to whomever was calling somebody out for not being 'contrarian' enough...who gives a shit? I'd rather be right.
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