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Secular or Cyclical Bull Market?

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March 31, 2014 – Comments (19) | RELATED TICKERS: UPS , AWAY

Well this bull market is now in its fifth year.  You read and hear a lot about how this year or the next might see a steep drop based off of the past.  With that said you might want to get defensive.  However, that would be true if this was a cyclical bull market which I submit is not.

First you often hear pundits cry how shallow the recovery is, that we should have greater growth by now.  That would certainly be true if we were in a cyclical one.  Except companies have yet to run any real cycle. I submit demographics will control with boomers starting to retire. And it is this that will continue to keep things tepid for years to come.

Rates will remain low (maybe some token raises down the road) because there is no overheating of the economy and inflation will remain relatively tame.  Older people spend less yet since  GDP is 70% spending this will keep things from overheating. 

Cramer has bemoaning how all these new IPOs seems comparable to what happened during the dot.com bust.  Except boomers are not coming back into this market.  Period. Hence you don't have that large group of suckers to dump shares of stocks of profitless companies on.  They aren't getting fooled again.

In light of the above, and absent any major overhaul of corporate taxation or serious Immigration legislation, this bull can go on for quite sometime.

19 Comments – Post Your Own

#1) On March 31, 2014 at 10:35 PM, Valyooo (99.41) wrote:

We don't agree often, but I totally agree with you on this one.

 

For one, the money supply can go much higher, because without the fed buying bonds anymore, the long end will rise, but the short end has no reason to rise right now, so the yield curve will widen and banks will lend more.

 

For two, the demographic charts point towards a housing shortage next year.

 

For three, when p/e's start to expand, they tend to keep expanding until they get way, way overheated, and we are not there yet.

 

For four, there's no greed. Everybody remembers 2008 vividly.  In 2007, people acted like 2000 was a fluke.

 

Add in the technicals are great, theres no imminent war, and the time-cycles are aligned, and I think this bull market could last another 5-10 years (With bumps along the way, of course).

 

I agree though, demographics will be the major thing holding it back. 

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#2) On April 01, 2014 at 2:01 AM, jiltin (28.65) wrote:

I do not understand this =>

When FED tapers, how money supply can go much higher?

How  banks will lend more? Banks are service providers and they make money between secondary market and buyer. 

They already started laying off lending officers.

 

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#3) On April 01, 2014 at 9:00 AM, Valyooo (99.41) wrote:

Why does the fed tapering play into money supply? The money supply is mostly bank created money through loans. The fed is performing an asset swap. There's no reason for the banks not to increase the money supply

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#4) On April 01, 2014 at 10:34 AM, awallejr (81.55) wrote:

Jiltin you are seeing bank layoffs from the mortgage department. And the reason is simple most of the refinancings are done and house closings have slowed largely through lack of supply.  Banks still make other loans such as commercial, corporate, underwritings, etc.

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#5) On April 01, 2014 at 11:07 AM, ElCid16 (96.43) wrote:

Nice stuff, guys.

Cramer has bemoaning how all these new IPOs seems comparable to what happened during the dot.combust.

Yeah, I think Cramer's a bit off: IPOs Dotcom vs Today

when p/e's start to expand, they tend to keep expanding until they get way, way overheated, and we are not there yet.

Bespoke Invest conducted a little study on the largest bull markets of the past century.  The study included the current bull market.  I expanded on the study in this post and assessed the starting and ending valuations. 

Of the bull markets Bespoke studied, the ending P/E values ranged from 9 to 27.5.  The average ending P/E value for these big bull markets is about 20.  Considering that we're around a P/E of 17-18 right now, it wouldn't be crazy to suggest that the bull market still has room to grow.

 

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#6) On April 01, 2014 at 12:03 PM, awallejr (81.55) wrote:

I think there is a mistake with the start P?E for current bull market.  Your link has it as 16 which I don't think is accurate.  Value Line shows their P/E low on 3/9/09 as 10.2.

And I do want to point out that there actually will be a decreasing of the money supply once QE ends.  It might mean little or not.  I don't really know.  The FED buys Tbills and mortgages with principal.  They recover, however, principal plus interest.  It is this interest that acts as a tightening.  However, since these instruments can last as long as 30 years, the impact might be negligible.

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#7) On April 01, 2014 at 1:53 PM, ElCid16 (96.43) wrote:

I think there is a mistake with the start P?E for current bull market.  Your link has it as 16 which I don't think is accurate.  Value Line shows their P/E low on 3/9/09 as 10.2.

I think you must have completely missed the point of my comment.  My comment was referring to ending P/E ratios and the extent to which the current bull market could continue rising (and the P/E ratio continue expanding).  This comment was intended to piggyback on Valyooo's comment about further P/E expansion.

 

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#8) On April 01, 2014 at 2:37 PM, awallejr (81.55) wrote:

I was just commenting on the article link.  He has it starting at a 16 p/e whereas I believe it is 10.  I agree that there is room to rise p/e-wise.  You can also still get great buys now as a result of these sector rotations.  I don't look at new high charts, I look at new lows hoping to find buying opportunities.

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#9) On April 01, 2014 at 3:22 PM, ElCid16 (96.43) wrote:

He has it starting at a 16 p/e whereas I believe it is 10.

I don't think it is 10.

See here (scroll down to 2nd graph)

See here

See here

See here

See here 

Would you mind sharing your value line data?  Does value line provide a historical graph of montly closing P/E ratios?

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#10) On April 01, 2014 at 4:30 PM, awallejr (81.55) wrote:

Value Line shows last market low on 3/9/09 at 10.3 and current at 18.6.  But those were for Value Line.  I just didn't think there would be such a wide discrepancy then but remains comparable now. I don't know how to link.  It provides just the info every week.

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#11) On April 01, 2014 at 4:35 PM, awallejr (81.55) wrote:

Just a proviso, Value Line only uses stocks with earnings for their numbers.

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#12) On April 01, 2014 at 4:55 PM, ElCid16 (96.43) wrote:

Just a proviso, Value Line only uses stocks with earnings for their numbers.

:) 

He has it starting at a 16 p/e

"He" is me, by the way. 

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#13) On April 01, 2014 at 5:53 PM, TSIF (99.96) wrote:

Thanks for the mental exercise awallejr, with the additions from EICid6 and Valyooo there is some good food for thought.  Similar to EICid16's link to his thoughts on P/E, starting ending points and amplitudes seem to vary, so not overly conclusive.  It seems we go up until some sector weighs us back down, and then most go back down together in disorderly selloffs.  In 1999-2001 it was Techs and 2008-2009, financials. The P/E on techs as a sector was considerably higher than the rest of the sectors.

I do agree with the money supply.  Plenty of money to give a healthy rise, but not an over abundance of boomers willing to take on risk at this stage in their life.

Some, however, I do see starting to speculate again, as they think they won't have enough money if they don't...the sharp market rise last year slowed that, but a sideways market, could generate a little more risk, but I agree, not enough to heat things up.

Thanks!

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#14) On April 01, 2014 at 9:27 PM, awallejr (81.55) wrote:

"He" is me, by the way.

Oh heheh.  

And TSIF I think one's success will be in seeing who winds up being right, the secular proponents or the cyclical proponents.  Gareth of Inthemoneystock (who I tend to challenge) is looking at it from a cyclical point of view and so he is investing accordingly.  I am looking at it from a secular point of view and am investing accordingly. 

As an aside today I made a personal high with my real life portfolios while maintaining several beaten down stocks (SDRL, CAG, SYMC, PETS for example). 

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#15) On April 01, 2014 at 10:46 PM, TSIF (99.96) wrote:

Great job.  I'm having a good two months as well, but much riskier behavior.

I like PETS and SDRL. Pets has always struggled for traction, but the dividend is consistant. Year after year of churning in place.

  SDRL is beaten down. A cut in day rates won't help their debt load.

I've not been a fan of SYMC.  Bad use of resources, (excessive goodwill leftover), resources not used to shore up the moat. High net negative book value, and  high receivables....good cash flow, margins, ROE, etc, just bad management.

Hope your beaten up, jump up and join the party with the rest!!!!  :)

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#16) On April 02, 2014 at 9:17 AM, awallejr (81.55) wrote:

Don't worry about their debt load since they are very clever in handling it.  What they do is sell older rigs to SDLP and use the proceeds to drop 20 pct into a special dividend fund and 80 pct against debt.  Icahn is no fool so RIG is starting to follow SDRL's model.

As for SYMC they still have a solid brand and I am gambling they will right the ship.  Plus it pays a decent yield.

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#17) On April 02, 2014 at 6:44 PM, awallejr (81.55) wrote:

Just a fyi SDRL has charted out most of 2014 rigs.  Good TMF article here:

http://www.fool.com/investing/general/2014/04/02/seadrill-secures-new-contracts-for-jack-up-rigs-de.aspx

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#18) On April 02, 2014 at 6:55 PM, TSIF (99.96) wrote:

Thanks, I had SDRL on my watch list, but hadn't gotten back to them. I like undervalued companies, which was one reason I noticed PETS sub $10 in the August 2012 dump.  That was a good time for me.  SDRL was near a serious resistance point, but seems to have bounced up. I'll take a look.

SYMC has potential..I just tend to avoid potential that sits too long without going kinetic.... :)

 Thanks!

 

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#19) On April 02, 2014 at 8:39 PM, awallejr (81.55) wrote:

I am patient.  It pays a dividend so I don't mind.  I think the way to play the market now is as I have been.  Look for those beat up sectors and rummage through the wreckage. Buy yield and sell puts for added income.

I still think going yield is the way to play it now.  First, it does create ultimate support to one's portfolio.  Second, it gives you an income stream to reinvest with. And third, despite all this chatter about rising rates they aren't going parabolic anytime soon so go where they pay well.

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