Why I think everybody's assessment of the market is wrong
Long story short: I think everybody that thinks we had a rally is crazy. I'll explain why, but just below I will offer two small disclaimers.
I subscribe to many or most of TMFs paid services, and as this blog is provided by TMF free of charge, and as this blog brings me enjoyment in life, I want to say that i'm not trying to condone thestreet.com, but... I recently signed up for a trial subscription to Real Money Silver at thestreet.com. Its pretty itnersting, you can read blogs over the course of the day from Doug Kass, Jim Cramer, Rev Shark, Tim Melvin, and many more. Its really interesting to read the conversation and watch thoughts unfold over the course of the day. Some do TA, some long/short, some general commentaries, lots of different angles.
And lots of them talk about the huge "rally" we've had recently, how the sock market has been soaring like a rocketship, how wall street is getting looney with optimism, and so on. And talk like that isn't uncommon here on TMF either.
I would just like to shed some perspective on the "rocket ride" that stocks have taken.
1. stocks aren't up in 12 years, and in many foreign currencies its longer than that
2. stocks are 40% below their recent highs, thats pretty serious. In fact 1974 and 1982ish are the only other time stocks have been 40% below recent highs since 1950 (from looking at a graph of the S&P on yahoo finance).
3. stocks are now 40% below where they were over 9 years ago. that hasn't happened since the great depression.
4. stocks are now below historical averages for pribe/book, price/sales, price/gdp, mkt cap/gdp and more. adjusted for interest rates they are lower than they have ever been. (fed model, for whatever thats wroth, it worked pretty good until 2008)
5. try as it may, the market has failed, and will probably continue to fail for some time to break out of what is in essence a trough of ~~~850-950 that it fell into after the collapse of Lehman Bros last fall.
In light of those things I submit to the group, for your scrutiny, correction and commentary, that it is not really sensible to view stocks as on a "rocketride", or even to view the markety as rallying. The market remains firmly entrenched in this trough, which is now 9 months and counting, by far the longest that stocks have remained this far below a previous peak since the Great Depression except in 2002/2003.
So, recapping. The only other times, since the Great Depression, that stocks have crashed this much (as in as far down as they are TODAY, not at the March lows) are 1974 (also a doomsday end of the western world environment) and 2002 (also part of this same massive secular bear market, which isn't hardly over yet, which was spawned by the epic preposerousness of the Nasdaq bubble).
We aren't in some wild bull market thats about to crash. That was 1999. We aren't about to enter a bear market.
We are in (or in the middle of) the greatest bear market since the Great Depression, one that began in 2000, not one that began in 2007. This is it, you're looking at it, soak it up, remember the pain and the joy and the opportunity and the risk. We are almost 10 years into what may well be a 15 year secular bear market. Yes, stocks are up considerably from S&P 670, but they are down 40% from 9 years ago, in the NASDAQs case, they are down 60+% from 9 years ago. The NAS's #'s outright rival those from the great depression and exceed any other bear market in US history.
Its horrible out there, savings are shattered, blood is in the streets, the markets aren't up, they aren't exhuberant, tehre is no bull market. Stocks are firmly in the toilet.
This blog doesn't have much investment advice, other than I guess I could reiterate my view that if your time horizon is long, stocks are still cheap. Its just to say that the market as a whole, and all of these vaunted professionals that comprise the bulk of it, and many in the blogosphere...
All have amazingly short time horizons. If the market had spun sideways, fluttering up and down from 850-950... these would probably all be true:
1. nobody would be mentioning a rally
2. nobody would say wall street is exhuberant
3. nobody would have a positive headline, rather
4. people would be posting headlines about how wall street remains stuck in its horrible dip, no mercy and no end in sight
But instead, with stocks still 40% off their levels from 9 years ago, people are screaming that its a bull market, yapping about rocketships and how stocks are way high and rocketing higher.
And, meaning no disrespect to anybody - in fact lets just assume that everybody everywhere is smarter, better looking, and has better hair than I do - I disagree, and I'm genuinely flabbergasted by it all.
Stocks are in the toilet is and remains my outlook. We have not had a rally, we have had a dip/bounce from/to the trough we've been in for 9 months and counting.
The question isn't when the rally will end or begin again, its when will the markets break out of the trough? For a bear, perhaps, the question is one of breaking out to the downside, for a bull, perhaps, theq uestion is to the upside.
And, happily, i'm up a tiny amount today in real life. :)