Bear Market 2014/2015
Since bottoming out in march 2009 the stock market has more than doubled in less than 5 years. This has been the longest bull market( out of 25 bull markets) since 1929. Honestly, the last 20% gains in the stock market have been a fools rally with no fundamentals behind them. The market is way over-bought folks.
The only reasons equities keep rising is because the stock market is the only place where you can see any real return on your money, thanks to the fact that bond yields are below inflation and interest rates are kept at all time lows.
We all saw what happened to the market when the Fed announced that they will begin slowing down QE in June 2014. Just watch the market when QE is over and the easy money is gone/ interest rates go up. I can easily see another 2008 crash coming where we can all pick up on same great bargains in the market.
The correction may not happen tomorrow, next month or next quarter , but the market can't go up forever. And when it does correct I hope we are there to profit from it.
The world is in a deflation vs. inflation struggle. As long as the latter prevails then equities will continue to rise.
The S&P is up some 150% from its 2009 low (666). But in a world of excessive liquidity the money has to buy some assets. When 30-year debt is trading 3.3% you might as well as have equities in your portfolio. Stocks are the best investment vehicle to maintain your purchasing power (as central banks are so keen on stimulating asset prices).
Personally, I'm holding stocks until August. I will go to cash in late August because September, October and November are very dangerous months. I will re-buy in late November and judge the situation in January. If January is bullish I will be long again in 2014, following the same seasonal pattern.
The danger is that if interest rates start rising then debt instruments will become more attractive, transfering $ out of equities and into bonds. I'm very closely monitoring the fed fund futures... if I see spikes in 2015 rates then I'll be moving $ out of equities. If oil goes above $120 I'm also getting out of equities.
This seems like such an original point-of-view... but for some reason I feel like I've heard it before...........
they didnt anounce they will be slowing down QE in june 2014, they anounced that if forecasts are met the program will be totally over in the middle of 2014. The will be slowing down much sooner then that (like sewptember) provided the world doesnt implode this summer.
I am no permabear but i am sympathetic with the OPs view...it is somewhat troubling that the fed barely taps on the breaks of QE and we have a total meltdown in EM debt, chinese money markets implode, us real rates spike, etc...the US stock market has held up relatively well well but elsewhere alot of stuff is really getting killed.
It seems to me that even if the fed immediately recants, says they were just kidding, and goes back to the QE forever mantra we still have seen a good preview of what will happen when this thing eventually winds down and its not particularly good-looking.
i agree just pointing out that it lends credence to the OPs contention then we need to feel some equity pain. But I am with you...every year they wait makes it harder...doing this with a 4.5 trillion dollar balance sheet a year from now will only be even more painful.
Yeah the longer they keep QE going the more it will hurt the economy when they end it. I see QE ending being what begins the next market meltdown/ correction.
To borrow from Macro Man's blog, the beatings will continue until morale improves :).
When assets flow out of fixed income (high yield has been on a multi-year tear, etc.), where do you think it goes? Cash? The Great Rotation could help buoy equity even in the face of a tapering (not suddenly ending) QE.
Stocks are only marginally higher than the pre-crisis highs in real terms though. Actually, some foreign indexes (e.g. I believe the Dax) remain below their 2007 highs. And now companies will be able operate with less risky credit risks (counterparties), healthier balance sheets (less liabilities), regulation has failed to be enacted, and there even exists a prospect of lower taxes after Obama finishes his 2nd term.
A lot of $ remains in the debt mkt and even if interest rates rise there will remain a lot of people wishing to invest in the corporate earnings of America's top companies. If inflation only gradually increases and the Fed can pursue a slow but persistent increase then I can see stocks continuing to return/make new highs. Most fortune 500 companies have locked in incredible cost of borrowing rates for the near future and are sitting on a lot of cash... earnings should remain positive. If anything I would be more concerned about international equities, especially at countries with high inflation. If Brazil rates go even higher (now its at 8%) then bonds will look even more attractive... assuming 20% equity returns after a 4 year recovery is unrealistic.And with a more hawkish Fed the USD will gain strength making foreigners more attracted to US denominated assets. Stocks won't lose stem until 2017 imo... volatility will increase and 10% pullbacks may be common but you have to be positioned long for the perpetual new highs.
It may sound loony, but I'm more concerned about the re-emergence of peak oil arguments than the consequences of QE (in the relative short-term... 5 years. Monetary policy tends to lag much more significantly than reactions to supply/demand conditions in integral commodities such as energy sources. Oil going to $150 a barrel has been far too overlooked as a cause of the crisis.. and the mortgage fiasco has been overexaggerated.
For the love of all that is good, please do not worry about "peak oil". And oil causing the credit crisis? You're going to have to elaborate on that...
Oil precipitated the crisis, rather than causing it. At any rate, I am with NS on this. I might live to regret saying this, but, among the many potential causes of the next economic crisis, "peak oil" ranks somewhere near to "an attack of giant prehistoric reptiles on Tokyo".
+1
let us seperate the term "peak oil" from any discussion about energy prices and how they efeect the economy. I do not subscribe to any peak oil hypothesis but I do believe that high prices at the pump have been a persistent and underapreciated drag on the economy over the last four years. Gas prices have been high for so long that young people on this board dont even realize that oil near 100 and gas prices near 4 bucks a gallon are not even close to normal...real wages have done nothing and gas prices have almost doubled since QE1...that has definitely contributed to the lackluster consumer recovery in my opinion.
I wasn't trying to imply that oil @ $150 caused the subprime crisis. But the oil spike certainly contributed to the global economic slowdown (even negative quarterly GDPs in many countries) in addition to the fragility caused by the debt crisis. You had toxic loans on bank balance sheets but also the view that many Fortune 500 corporations couldn't operate profitability in the long-term at $150 oil... and it extends beyond airline/trucking/transportation companies.
I mean, obviously oil prices are related to economic growth, but that's not exactly a "breakthrough revelation". Have they played some small role in a sluggish recovery? Sure. Are they a major contributor? I doubt it.
As for $100 oil being "not even close to normal", I think that the data show that gas is expensive relative to the 90s, but certainly not so expensive that it can explain the economic slowdown.
I'd be interested to see what that chart looks like if one overlaid yoy GDP growth on the inflation adjusted gas price. 1981 wasn't exactly a stellar year for real GDP growth either.
No access to BB right now, but this gives a sense:
This chart has inflation adjusted gas prices at all-time highs and shows them to have almost tripled since the late 90s. Aside from the late 70s-early 80s energy crisis, which was a miserable time for the US economy, prices havent been higher since 1918 on ur chart. So yes I stick with "not even close to normal". It is also notable that inflation has run ahead of wage growth in this recovery so this chart would look even worse vs wages which is what people care about in reality.
Also, another thing is that oil is more important to the consumer economy now than it was in the earlier part of the 20th century, so even if inflation-adjusted prices up to 1950 are not all that far off from today's prices, they are going to affect us a lot more negatively today. Taking that into account, today's oil situation is only closely comparable with the late 1970s - early 1980s, and we know how that turned out...so yeah, I think "not even close to normal".
Forgive me, but I don't find gas prices being ~5% higher than their historical highs to be very concerning. Not to mention the fact that real wages have increased many times over during the same time frame and the fact that average fuel efficiency is a multiple of what it was 30+ years ago. As a percentage of income, the cost of gasoline is undoubtedly far below historical highs.
These posts ignore so many fundamental changes in technology and the broader economy that I'm not even sure where to start. Perhaps I should have presented the data a different way:
These are hardly "recession-inducing" trends.
ok im done debating here b/c ur initial contention was that current gas prices were not abnormal which was absurd and now you have changed to say that abnormal gas prices arent a problem which is a different debate. I dont care about this topic per se but there is a large body of economic research that points to high gas prices depressing consumption (ex gasoline purchases) significantly...you should look into it.
I'm not sure what you're reading, but my initial contention was "I think that the data show that gas is expensive relative to the 90s, but certainly not so expensive that it can explain the economic slowdown". I believe that contention has been vindicated by the data I have posted. Re: my initial argument, there is a large body of economic research that points to the mortgage market as the primary driver behind the economic collapse c. 2008, I invite you to look into that as well.
i dont understand why this chart is any different then the previous one...once again you show spending on gasoline doubling both in nominal dollars and as a percent of disposable income since 2001. The only two times we have been at this level were 2008 and the early 80s which were both nasty recessions.
I will say once again that i do not think we are having a recession this year, but gasoline prices are a drag on the consumer and have been for some time. These charts, combined with your ridiculous attitude, prove my initial contention that young people on this board (like you) dont even remember that gas prices are not at normal levels.
when did i ever say anything about the mortgage market? i said gas prices were "far from normal", you disagreed, and then posted a series of charts that proved my point (along with arrogantly worded commentary).
The interesting question here I think is whether an attempt to formulate a relationship between a flow variable like GDP and a price level of gasoline even makes sense. Wouldn't it be more sensible to presume that it's the magnitude of the change in the price of gasoline that matters, rather than the absolute level?
Moreover, you could argue that trends have changed since the recession. Specifically: http://3.bp.blogspot.com/-zOkGOPvRuhc/UXWJ-rPZUvI/AAAAAAAAZ54/Tt4UU43cY…
This entire line of logic is predicated on the idea that gas prices c. 1995 were "normal" and the prices today are "abnormal". Going with a LT real average of $2.50 / gal., the low c. 1996 of $1.50 is just about as abnormal as the 2012 average of $3.55. I cannot understand how you disagree with my contention that gas prices are at a high enough level to produce a long-term economic downturn based on the data I have retrieved.
As long as we're going to be patronizing here, I think that your attitude reflects that slightly older people on this board (like you) have been misled into believing that gas prices in the 1990s are reflective of long-term "normality".
I said, "I think that the data show that gas is expensive relative to the 90s, but certainly not so expensive that it can explain the economic slowdown". My point rings true. If you believe otherwise, I'm fine with that, but the data indicate precisely what the quoted text suggests.
Forgive me, your commentary has been so much more humble. Allow me to go back to my young, misguided ways.
gas prices relative to income are in about the 95th percentile on both your charts. i dont know how you would define normal but by any definition i know that is abnormal. I also never said gas prices caused the recession i said they have been persistent and underapreciated drag on the consumer...which they have been. If you insist on disagreeing with me, look at gasoline related questions in confidence surveys or listen to CEOs of stores like WalMart who talk about high gas prices hurting their businesses all the time. You seem to want to respond to me believing gas prices caused the recession or are the sole reason the consumer is soft...I said nether of those things.
And I stand by my comment that you sound like an arrogant prick.
The debate on how high gas prices effect the statistical measure of GDP is a different one then we were intitially discussing, but I agree that if one is tryng to derive a direct relationship with GDP then its the changes that matter, not the levels. However, gas prices are a funny thing and alot of the confidence and spending effects of high gas prices are level and time dependent...for example if gas prices are unchanged at a very high level for a few years, and wages are also flat (which kind of describes the last four years), consumers will gradually adjust to this new normal and begin to spend less whereas initially they may have seen the spike as temporary. I think this is one of the reasons that consumer confidence, which is directly linked to spending, is just now after 5 years of economic expansion, breaching the pre-crisis all-time lows...high gas prices have been a slow-burn drag on sentiment and behavior.
Look, gas prices are undeniably linked to overall economic performance. In no way would I argue otherwise.
The point at which you exploded was, again, "I think that the data show that gas is expensive relative to the 90s, but certainly not so expensive that it can explain the economic slowdown." Your persistent and equally arrogant argumentation against that claim indicates to me that we disagree about the extent to which gas prices have caused the downturn or the associated sluggish recovery. That is the argument to which I have been responding.
I don't know where you're pulling 95th percentile from, but the in the second graph, there are 5 observances in the last 40 years where gas as a percentage of income was higher than it is today. To the extent you are referring to the first graph, it's equally worthy of note that gas prices in the 1990s were in the 5th percentile of the LT distribution.
Also notable is that the last time gas prices fell in-line with today's level preceded one of the swiftest economic recoveries in US history. My argument is at least equally worthy of merit as is yours.
I meant no arrogance in my responses (this is, after all, a text-based internet forum), but I would submit that your replies paint you as just as much of a prick from my perspective. In all likelihood, I think we're both a lot less "prick-ish" in real life. But that's the reality of electronic communication.
Indeed gas prices were low in the 1990s which is part of the reason americans were so peristently happy and the economy was so good for most of the decade. In the early 80s by the time we got out of recession in 1983 gas prices had dropped precipitously as you can see on the above chart. So I dont think high gas prices caused the booming economy of the mid and late 80s although they definitely played a part in the double-dip recession of the late 70s-early 80s.
Is the inflation adjusted oil price exclusive of oil prices !? Becuase gas is included in the CPI-and you'd be double counting....
I don't understand why this post got monkey shit. Anyway, I think that the first half of 14 will be okay
Bernanke will most likely be replaced by someone like him- if not, someone even more liberal with the rates.
can we forget about oil and go back to the core original discussion? interested in what y'all have to say...
Exactly. The market is all about timing.
Without question, at some point, the S&P will sell off >50%. But in order to actually make money, you have to correctly predict when this will happen.
Warren Buffett uses the Stock market cap to GNP ratio = (Stock Market Cap / GNP) x 100 which as of today is @ 105%. This means the Stock Market is modestly overvalued. I wouldn't but stocks till a correction occurs.
I would however be interested in getting some gold. Does anyone know how Gold commodity works?
We are headed for a correction, it is just a matter of when. The most likely scenario now is a fed pull back
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