Me blabing random stuff on the markets and other info.
Parden my spelling and gramar.
First of all I don't make my purchases based on what I think the market is gonna do. PRICE is my focus when buying equities.
OK I am gonna step back now and look what has occurred, starting with some CHARTS.
My market timing on CAPS has been closely linked with the charts from the 1970's. That in my mind is the only time frame which is comparible to what has happened in the markets these last couple years. Stock evalutations ( relative prices and I am talking stock PE's ) At both periods of time - the 1974 lows and the 2009 lows were completely absurd. Pull up a 8 month chart from September's 1974 bottom (63.5) to June of 1975 (95.2). That comes out to a 1.5 gain. Now go to Feb of 2009 bottom (735) and go out 8 months. Oct.of 2009 (1100 on the S&P 500) That comes out to a 1.5 gain. The BEARS last year kept saying too far too fast last year I can post many examples. But that turned out to be false. It is kinda crazy in my opinion that many people say you can't go back and look at the past to predict the future. The past IS the key to predicting the future. Why? Are system is set up that way. And humans have the same behavioral patterns. It is hard to change. We can't help it. And if u use common sense and look at the BIG picture when looking at investments it is quite easy. Companies can be looked at in the same way. The companies don't change on a dime for the most part. So past performance is likely to continue if nothing major changes inside the companies.
Now lets look forward on the S&P. I am going to go with 1235 on the S&P by December of this year or January of 2011. That is based soley on the same time frame from the June of 1975 (95.25) to December of 1976 aproximately (107) about a 1.125 gain. Now these next 4 to 5 months I am looking for a pretty decent pullback hence I down arrowed some of the 3X bull etfs. Something has to happen in these next 5 months for the market to correct. Why now? Cus it happened before and it WILL happen again. Longer term the S&P is going back to 1500. It will take awhile though. Why wont the market go up like crazy these next couple of years? RISING INTEREST RATES. Earnings will go way up in these next five years companies will have record earnings again in a few years but the stocks share prices are not gonna scream up with those earnings. What a person pays for earnings should depent on RATES. PE gets involved here. Lets use a PRICE TO EARNINGS MULTIPLE OF 15. 1/15 = 6.66% Think of that 6.66% as a yield (BOND YEILD) on your money. Now that yield will be pressured by INTEREST RATES and US TREASURY YEILDS. The governments around the world just fought the finiancial crisis( because of housing market and land values took a nose dive) by pumping money into the system. This WAS needed but it will have its drawbacks. INFLATION will happen big time and the price of treasuries will fall like no other hence YEILD on bonds will go up. Interest rates have to go up to fight inflation. Anyone remember what rates were in the early 80's? They were around 17-20%. My mom remembers that because she was a real estate agent. I think at that time commodity prices soared along with GOLD. What has been going on with commodities. Look at the last 10 years. Gold has been on a tare lately. I HATE GOLD but I do understand why gold is going higher. That is also why I the charts from that period because rates and yeilds are going to react the same way thus putting the downward pressure on stock PE's. Now the great thing about the rising rates is EVALUTIONS on stocks will probably not get out of control. PLUS one can dollar cost average in for the next 6 years and when the rates finally peak. It will be like a loaded coil. When rates are at there highest there is only one way for them to go- LOWER. Guess what happens to stock prices? They soar. RATES go down and PE's go north. And when stock prices start to soar EVERONE needs in on it. Thats when your bubble occurs. Hence housing bubble in 2004-2007 Low rates and low cost of borrowing. Which is probably a long long way out. Its dumb though because no one wants to buy a house when RATES ARE HIGH. And that is the BEST time to buy because PRICES ARE LOW. Mom said it was really tuff back then to move the houses. Look what happens though when rates start falling the prices soar!
Basically keep buying stocks and stay away from bonds and CDS and cash. If one has a 10 to 20 year time horizon this is a great time to buy equities even at these levels. If your a trader.... good luck and I would watch out for a correction these next 4-5 months. If anyone could get anything out of my random blabing, good. If not thats OK, because I don't think I can go through this blog and figure out what I am saying either.