August 25, 2011
– Comments (7) |
RELATED TICKERS: JNJ
Tomorrow's Market Decline Doesn't Matter
What about next week's?Or the week after?When will it matter?Oh wait...It matters if you short or put the market!
I liked the article. However, it underestimates the likelyhood of the coming "lost decade". A lost decade is not the short term...
But yeah, one day's action usually doesn't matter too much in the long run.
Based on the stock market's current valuation, we're not looking at another lost decade (not that it can't happen, of course, but it isn't the most likely outcome.) The expected returns on U.S. stocks over the next 7-10 years is somewhere around 5%-7% nominal, i.e. lower than the stocks' historical average return, but significantly positive.
I hear you Alex. But I don't agree :(. You're basing this on projected price to earnings(?) or past quarters earnings normalized to the previous decades average earnings (Shiller approach)?
I haven't manually popped the numbers, but assuming Shiller's approach as a more reasonable long-term predictor, we have some more downside risk.
What I'm trying to say is, the future earnings estimates are rubbish.
And furthermore, I give you a lot of credit in your "Cash is King" articles over the last several months (last several years?). I wish you'd include gold and silver in this group (Money is King, not cash), but I understand where your disagreement in this area is.
Do you still maintain "Cash is King" or are you now more interested in equities?
Might be mincing words here, I'm pretty sure we both agree that solid dividend paying secular stocks are the safe play here (should definitely be advising some gold exposure too but alas..), I'm not sure where BAC pokes his ugly nose in....
"The expected returns on U.S. stocks over the next 7-10 years is somewhere around 5%-7% nominal."
Expected by who?...analysts that are wrong nearly 100% of the time? And inflation adjusted? The last ShadowStats and Billion Price Index inflation figures I saw were both just above 10%. Not sure that this will continue, but I wouldn't call negative real returns "significantly positive".
I'm a big fan of the Shiller P/E; I'm well aware that it shows that stocks are still overvalued, and I have factored this into my estimate. In order for overvaluation to imply a negative expected return over a 7-10 year period, the premium over fair value has to be exceptional (think March 2000), certainly much higher than it is currently.