Bull Market Just Getting Started?

[Vish_ram]

In addition to the above mentioned arguments for bull market, we've the following

 

1) Capacity utilization is very low, reducing the threat of inflation

2) Commodity prices are not in bull market territory

3) Unemployment is high, labor force participation is low: no threat of higher wages

4) Emerging market economies are not in high gear, so any growth in US will not cause bubbles over there

5) Looking at valuations, see http://www.yardeni.com/pub/valucb.pdf

Look at all the charts like P/E, Tobin Q (Figure 17), market cap vs GDP, you would not say we are in bubble territory

6)  Anecdotal evidence: so many people were left out in the recent run up, they are pissed off and want to make some $$. They are going to enter the market in droves.

7) Ray Dalio calls this "beautiful deleveraging", where we dont have run away inflation or deflation.

 

I think that the bull market is getting started.

 

All this flies in the face of Watsa's CPI derivative bet. What gives?

[wisdom]

Cash on sidelines and cash from QE sounds more like selling to a greater fool to me rather than fundamental analysis based.

 

Do I want to risk my capital based on that?

[wisdom]

According to Ray Dalio, this stage has the most risk as errors in policy could be made - due to bad judgement, political pressures, etc.

 

What is the risk/reward here?

 

If the de-leveraging is perfect, things continue to run.

 

Any errors will lead to massive swings in the asset prices due to the lack of confidence and no margin for error. And, it is not just one country that has to get everything right - Japan, France, US and China right now has to all get it right.

 

This does not rule out a run up until an error is made.

[giofranchi]

I think that the bull market is getting started.

 

No, wait! I can agree with Packer that the bull market might go on for yet another while… but don’t tell me it has just started… please, look at the chart! It is 5 years now the market has gone nowhere but up… Isn’t that a good enough definition of a bull market? ;)

 

giofranchi

[Cunninghamew]

In addition to the above mentioned arguments for bull market, we've the following

 

1) Capacity utilization is very low, reducing the threat of inflation

2) Commodity prices are not in bull market territory

3) Unemployment is high, labor force participation is low: no threat of higher wages

4) Emerging market economies are not in high gear, so any growth in US will not cause bubbles over there

5) Looking at valuations, see http://www.yardeni.com/pub/valucb.pdf

Look at all the charts like P/E, Tobin Q (Figure 17), market cap vs GDP, you would not say we are in bubble territory

6)  Anecdotal evidence: so many people were left out in the recent run up, they are pissed off and want to make some $$. They are going to enter the market in droves.

7) Ray Dalio calls this "beautiful deleveraging", where we dont have run away inflation or deflation.

 

I think that the bull market is getting started.

 

All this flies in the face of Watsa's CPI derivative bet. What gives?

 

I don't really have an opinon on where we are in the market cycle. I can say that it is harder for me to find single name ideas today than it was yesterday. I can also say that I really don't like the Yardeni price to earnings charts. The guy uses forward earnings in almost everything he does. I have attached two charts related to forward earnings that I think show how ridiculous they are. Not trying to go at your post... more of a thing agianst Ed Yardeni's stuff

 

[JEast]

Guys (and gales) – don’t get so pedantic, but do love the banter.  Heck, I have been buying 25+ zero coupon bonds this year!  That can’t be all that bullish, I am just saying.  That ‘Packer’ guy is smart so I think his rebuttal is much better than I could give.  I will attempt to add a little color though.

 

- profit margins are extremely high.

Red Herring – Grantham and company say this all the time.  Do these folks not see what is going on inside of businesses with their internal costs?  60% of which is labor.  In general and if you own a business in the US, why would you hire anyone with absolute uncertainty of what that employee will cost you because of confusion on regulations.  You don't, and reason unemployment rates are not coming down and margins should continue to stay high.  Do you think this will change in one year, two years?  Do think BAC’s margins are too high?

- interest rates are at historical lows.

Short-term, not long-term.

- we have QE.

And should be turned on for some time.  When QE is turned off rates are going lower (see Japan).

- growth is slow and we have de-leveraging.

That is great for existing businesses as competition will be less with little capital expenditures because of de-leveraging and uncertainty.

- mkts are fairly valued

Sounds like a semi-bullish remark.

- govt debt levels are high

Compared to what? GDP? Not so high compared to assets.  Just one point of hundreds, 25% or all oil and gas in the US is on federal lands of which we nearly drill zero.  That is about to change in the not too distant future.

- The govts are involved in something they haven't done before

And will continue to be.  If you think governments on the planet will become less involved going forward, then you are delusional.

- in the end

You don't have to be bullish or bearish monolithically, don't forget we can also be long/short.

 

Cool and tough stuff, eh.  I have folks that I highly respect that are 60% plus in cash and others that are fully invested.  Both can be correct in the sand pile they play in -- and you can too.

[Investmentacct]

 

We probably can go back to 1999s (about 14 years) s&p 1553 and find market has gone nowhere in real sense.

 

I think that the bull market is getting started.

 

No, wait! I can agree with Packer that the bull market might go on for yet another while… but don’t tell me it has just started… please, look at the chart! It is 5 years now the market has gone nowhere but up… Isn’t that a good enough definition of a bull market? ;)

 

giofranchi

[wisdom]

BTW - I agree with Packer and JEast as much as I agree with my statements. I have no ability to predict or know.

 

There is no black or white in this - but, we can share thoughts and learn to hold opposing views at the same time. It is good to get a different perspective.

[oldye]

In addition to the above mentioned arguments for bull market, we've the following

 

1) Capacity utilization is very low, reducing the threat of inflation

2) Commodity prices are not in bull market territory

3) Unemployment is high, labor force participation is low: no threat of higher wages

4) Emerging market economies are not in high gear, so any growth in US will not cause bubbles over there

5) Looking at valuations, see http://www.yardeni.com/pub/valucb.pdf

Look at all the charts like P/E, Tobin Q (Figure 17), market cap vs GDP, you would not say we are in bubble territory

6)  Anecdotal evidence: so many people were left out in the recent run up, they are pissed off and want to make some $$. They are going to enter the market in droves.

7) Ray Dalio calls this "beautiful deleveraging", where we dont have run away inflation or deflation.

 

I think that the bull market is getting started.

 

All this flies in the face of Watsa's CPI derivative bet. What gives?

 

Just read the Opec report the other day, they're forecasting European GDP to contract by about .5% this year, U.S growth has been revised down to around 1.5%. That is roughly 50% of the world's GDP growing at 0.5% a year right now with a lot of central bank monetization.   

 

As far as lack of marginal workers, they're out there in droves and more will come back in the fold if the economy heats up, which it probably won't, its been almost 6 years since 08, we're due for another 'correction.'

 

 

 

 

I think Hoisington is right and as soon as QE stops, rates will drop.  What happens to the GDP's of all the oil producing countries when the price of Oil hits 75 again?  They're barely growing as it is, I think the reason a lot of oil stocks are cheap is because this is being priced in. 

 

[giofranchi]

 

We probably can go back to 1999s (about 14 years) s&p 1553 and find market has gone nowhere in real sense.

 

I think that the bull market is getting started.

 

No, wait! I can agree with Packer that the bull market might go on for yet another while… but don’t tell me it has just started… please, look at the chart! It is 5 years now the market has gone nowhere but up… Isn’t that a good enough definition of a bull market? ;)

 

giofranchi

 

Well, you don’t want to make things too complicated, do you? … What you have written is what happens during “secular bear markets” … But do you really want to talk about that? If you do and care (but I am not sure!), 2009 as the end of the "secular bear market" is simply inconsistent with history, meaning what can be observed about “secular bear markets” of the past:

1) Inconsistent with the mean duration of “secular bear markets”: 9 years instead of 17 years.

2) Inconsistent with market valuations: in 2009 market valuations were still much higher than they were at other “secular bear market” bottoms.

3) Inconsistent with logic: in 2000 valuations were the highest ever reached, and the secular bull market just ending was one of the longest lived. Why then should we expect a shorter and a more benign “secular bear market”, instead of a longer and a tougher one?

 

giofranchi

 

[Investmentacct]

Thanks Giofranchi, it was just an observation. Agreed with what you say. We all here would prefer to have 2009 type of year, so that we do not have to think, but buy.

 

Thanks for 17 year reference. I re-read below two articles from buffett from 99 and 01 circa.

 

http://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071/

 

http://money.cnn.com/magazines/fortune/fortune_archive/2001/12/10/314691/

 

 

We probably can go back to 1999s (about 14 years) s&p 1553 and find market has gone nowhere in real sense.

 

I think that the bull market is getting started.

 

No, wait! I can agree with Packer that the bull market might go on for yet another while… but don’t tell me it has just started… please, look at the chart! It is 5 years now the market has gone nowhere but up… Isn’t that a good enough definition of a bull market? ;)

 

giofranchi

 

Well, you don’t want to make things too complicated, do you? … What you have written is what happens during “secular bear markets” … But do you really want to talk about that? If you do and care (but I am not sure!), 2009 as the end of the "secular bear market" is simply inconsistent with history, meaning what can be observed about “secular bear markets” of the past:

1) Inconsistent with the mean duration of “secular bear markets”: 9 years instead of 17 years.

2) Inconsistent with market valuations: in 2009 market valuations were still much higher than they were at other “secular bear market” bottoms.

3) Inconsistent with logic: in 2000 valuations were the highest ever reached, and the secular bull market just ending was one of the longest lived. Why then should we expect a shorter and a more benign “secular bear market”, instead of a longer and a tougher one?

 

giofranchi

[ERICOPOLY]

 

We probably can go back to 1999s (about 14 years) s&p 1553 and find market has gone nowhere in real sense.

 

I think that the bull market is getting started.

 

No, wait! I can agree with Packer that the bull market might go on for yet another while… but don’t tell me it has just started… please, look at the chart! It is 5 years now the market has gone nowhere but up… Isn’t that a good enough definition of a bull market? ;)

 

giofranchi

 

Well, you don’t want to make things too complicated, do you? … What you have written is what happens during “secular bear markets” … But do you really want to talk about that? If you do and care (but I am not sure!), 2009 as the end of the "secular bear market" is simply inconsistent with history, meaning what can be observed about “secular bear markets” of the past:

1) Inconsistent with the mean duration of “secular bear markets”: 9 years instead of 17 years.

2) Inconsistent with market valuations: in 2009 market valuations were still much higher than they were at other “secular bear market” bottoms.

3) Inconsistent with logic: in 2000 valuations were the highest ever reached, and the secular bull market just ending was one of the longest lived. Why then should we expect a shorter and a more benign “secular bear market”, instead of a longer and a tougher one?

 

giofranchi

 

Falling from the 5th floor of a building onto concrete ought to hurt  more than falling from the 2nd floor onto concrete.

 

Perhaps though, falling from the 5th floor of a building into a safety net doesn't hurt more than falling from a 2nd floor onto concrete.

 

(we forgot to mention the policy responses)

[CorpRaider]

In addition to the above mentioned arguments for bull market, we've the following

 

1) Capacity utilization is very low, reducing the threat of inflation

2) Commodity prices are not in bull market territory

3) Unemployment is high, labor force participation is low: no threat of higher wages

4) Emerging market economies are not in high gear, so any growth in US will not cause bubbles over there

5) Looking at valuations, see http://www.yardeni.com/pub/valucb.pdf

Look at all the charts like P/E, Tobin Q (Figure 17), market cap vs GDP, you would not say we are in bubble territory

6)  Anecdotal evidence: so many people were left out in the recent run up, they are pissed off and want to make some $$. They are going to enter the market in droves.

7) Ray Dalio calls this "beautiful deleveraging", where we dont have run away inflation or deflation.

 

I think that the bull market is getting started.

 

All this flies in the face of Watsa's CPI derivative bet. What gives?

 

Just read the Opec report the other day, they're forecasting European GDP to contract by about .5% this year, U.S growth has been revised down to around 1.5%. That is roughly 50% of the world's GDP growing at 0.5% a year right now with a lot of central bank monetization.   

 

As far as lack of marginal workers, they're out there in droves and more will come back in the fold if the economy heats up, which it probably won't, its been almost 6 years since 08, we're due for another 'correction.'

 

 

 

 

I think Hoisington is right and as soon as QE stops, rates will drop.  What happens to the GDP's of all the oil producing countries when the price of Oil hits 75 again?  They're barely growing as it is, I think the reason a lot of oil stocks are cheap is because this is being priced in.

 

1.5% GDP is pretty darn good with sequester and big tax hikes.  With no additional austerity, I bet most would project, what, 3.0%+ GDP? 

[ERICOPOLY]

As far as lack of marginal workers, they're out there in droves and more will come back in the fold if the economy heats up, which it probably won't, its been almost 6 years since 08, we're due for another 'correction.'

 

Australia has expanded for 20 years now without contraction.  What is the record?  Six years sounds like a lot unless you've already seen 20.

 

[wisdom]

The assumption is that the govts have maxed out all the policy responses - this is the reason it hasn't been mentioned. They have to play all the cards perfectly from here on out.

 

Australia has had a golden run because they have commodities that China needed and their proximity to China made it cheaper to ship them from Australia.

 

But, China is changing its model and this will impact Australia as their mortgage debt is at historical highs. This will be unsustainable if the Chinese do not buy as much in natural resources. Australia's advantage is the low level of govt debt.

 

The cost of labour in Australia is so high, that they cannot compete in a global world for anything other than mining. What happens when China doesn't buy as much. Look at the recent mining projects that have been cancelled by BHP, Rio Tinto etc and the new port being built by Glencore, etc that will  be operating at 50% capacity and thus, the Chinese owners will have trouble making payments on the financing.

 

Commodity based economies have always had large swings. I don't see anything different other than the fact that this cycle lasted longer.

[meiroy]

 

1. Recently the USA was on the ""brink of a default"" yet the market only burped a bit. Nothing really happened. The tide went out and no one gave a hoot about if people were wearing swimming suits or justy neck ties. It is officially a bull market.

 

2. 1.5% GDP growth: the government sector is pushing it down, the private sector is actually higher.

 

3. QE and interest rates. I'm not so sure the correlation is that strong, the Fed doesn't seem to be that sure about it either.

 

4. China. They are changing what exactly? 2013 have seen another MASSIVE liquidity pump and more investment into infrastructure -- it's just more of the same and getting worse. Buying time at best. I'll believe a change when I'll see it -- politically it will be extremely difficult.

 

5. Europe. I don't buy the recent optimism and think Soros has it spot on, it's all about Germany, if they do not acknowledge their role and adjust things will break apart.

 

 

[ERICOPOLY]

The assumption is that the govts have maxed out all the policy responses - this is the reason it hasn't been mentioned. They have to play all the cards perfectly from here on out.

 

Years ago they cut tax rate to zero for Muni bonds when they wanted the Muni interest rates to drop.  They could make borrowing cheaper in other sectors if they went that route.

 

The Fed buying bonds in an attempt to drop rates seems like a clumsier way of dropping mortgage rates than just cutting taxes on mortgage interest.

 

I wonder how far rates would fall if the lenders didn't have to pay tax on the interest?

 

Paying back 1/3 of your income in taxes is just as painful as not collecting interest from 1/3 of your borrowers.  Perhaps it would spur lending as you could take on more risk if you didn't have to worry about losing 1/3 of the income to the government.

[Mephistopheles]

I wonder how far rates would fall if the lenders didn't have to pay tax on the interest?

 

Paying back 1/3 of your income in taxes is just as painful as not collecting interest from 1/3 of your borrowers.  Perhaps it would spur lending as you could take on more risk if you didn't have to worry about losing 1/3 of the income to the government.

 

I can only imagine what the sentiment towards banks would be in this scenario.

[wknecht]

The Fed buying bonds in an attempt to drop rates seems like a clumsier way of dropping mortgage rates than just cutting taxes on mortgage interest.

 

I wonder how far rates would fall if the lenders didn't have to pay tax on the interest?

I feel like this type of policy would tend to be incredibly sticky, and reversing it would be even more difficult/painful and political than QE.

[SharperDingaan]

Forget the stock market measures determining bull/bear status, & look at the quality of the major business in those indices.

 

After 5-6 years of 'crises', the majority are doing very thank-you, and at today’s very low growth levels. Most have also maintained total leverage by increasing operating leverage (CM/NOI) at the expense of financial leverage - and it has largely been by scaling up to reduce variable cost/unit; ie: size matters.

 

Increase growth by a small amount (ie: 1.00% to 1.25%) & the CM on those incremental sales flows straight to the bottom line - & if your market share is already large, that total incremental CM will be massive. But …. only if you have scale, .... & are therefore a high quality large cap.

 

Look at the real companies, with ‘real’ (little transactional trading) businesses, & you will be very surprized. Some of those beat-up Greek, Spanish, Irish, & Icelandic banks are actually very attractive - simply because of their high DOL, and market share in markets that are at multi-generational lows.

 

Most would argue that we’ve been in a European bull market for a few months already ….

 

SD

 

[moustachio]

The US has had increasing production of oil for some time now and will into the foreseeable future. New housing was being built at such a low rate for some time that it would take a while at higher production rates for it to get back to historical norms. I see both of these things potentially contributing to having a longer than usual economic expansion, which could help create a longer bull market in US stocks.

 

On the other hand, there are always plenty of things to derail an economic expansion or bull market, and the US legislative government is extremely incompetent. I think the market has a lot of potential room to run still, but the risk/reward isn't nearly as favorable as it has been for the past several years and more caution should be exercised in what types of companies are suitable to invest in. I'd be cautious of using leverage in most stocks and avoid cyclical stocks where the potential downside could be higher.

[ERICOPOLY]

I wonder.  The big US financials have tax rates exceeding 30% on their US lending businesses.

 

Imagine what it would mean for them if US corporate tax rate were 12%, as in Ireland.

[Palantir]

I think the Fed could do a lot more to inject money into the economy. They've just bought mortgages and treasuries, they could just as well start buying corporates, high yield, and even equities.

 

Then again, I'm firmly in favor of pretty heavy-handed QE. I agree with the rationale Packer16 posted.