S&P intra-day March 24,2000 - 1,553
S&P October 11, 2007 - 1,576
S&P May 3, 2013 - 1,614
There has not been a lot of progress for buy-and-hold investors since 2000. That's 13 years ... almost half an investing lifetime. We will only hear "new all-time high" from most news reports and returns will mostly be calculated from the March, 2009 low and appear to look very positive historically.
Be aware, there is some growth bias from new companies added to the S&P as they replace declining companies dropped from the index.
Don't forget the banks are still working under the suspended mark-to-market rule which means they can legally misrepresent the value of real estate assets on their balance sheets. If that rule were restored Monday morning, the banking crisis would be restored by lunchtime.
Inflation-adjusted, priced in gold, or adjusted to the monetary base, the S&P results are less than mediocre.
The Shiller P/E is at 23.97 compared to a long-term mean of 16.47.
OK. Being negative may help avoid losses, but it rarely captures the majority of the upside.
For younger investors, those who began investing during the past eight years, the market has been a valuable generator of capital gains and dividends, but risk increases as higher highs continue without an equivalent amount of core growth.
Pimco's Mohamed El-Erian is at the same crossroad. His experience is telling him to be careful, but he knows central bank intervention can still take this market higher. As he puts it,
"In a classroom you can discipline a single a person. However, if the whole class misbehaves it is an entirely different issue. Currently the whole class is misbehaving and that is a very different paradigm than what we have seen in the past ..."
That's how we get people paying their monthly mortgage on a house backed by documentation signed by an $18.00-per-hour robo-signer. That's how we get large banks paying $881 million drug money laundering fines and still making a profit on the unpunished crime.
El-Erian also warns,
"... it is also important to understand that all waves eventually break. The question is whether you crash or “walk off” the surf board. This wave will crash. When it does it will depend on how you are positioned that will determine whether you suffer or not."
Despite the warning, it is pretty clear El-Erian plans to ride this wave a little longer. He may be hedging and taking steps toward diversification, but he is still riding the wave.
Central bank largess has given us new nominal highs, but how far beyond this point can we expect to trend?
We've had a year's worth of gains in the first four months of 2013. In today's world, that can continue, but just keep things in perspective.
This wave will break. "This wave will crash." "When" is the unknown.