Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

"BEARISH" anyone?

$tock Market Direction

Posted: 18 Jan 2015 08:00 AM PST


Market Direction: BEARISH alert issued 01/15/2015

Last Week Review: Stocks finished lower on the week, down about 1%, after several volatile sessions. Disruptions from commodity and currency markets moved equity prices. Yields on fixed income also fell, taking the yield on the 10-year Treasury to the lowest level since May 2012, currently at 1.8%. Fourth-quarter earnings season – the period when most companies report earnings - is picking up into the busiest period. So far results have been good, and we believe solid earnings growth should continue into 2015 on the back of strengthened consumer attitudes and employment growth. Coupled with economic growth, rising earnings have historically helped support rising stocks over time, which we believe will be the case in 2015.

Really????? tb

Comments

  • I'm not heavily bearish, but I do believe that the problems that are being ignored by our markets will not be sooner than later. I'm not selling anything, but absolutely believe that I'll get a better pitch to add/add to things if I wait a bit. Again, I'm not selling anything, but anything that someone's considering selling, I think the recent rallies like Friday is a good opportunity to do so.
  • I'm sitting on tilt...anticipating many opportunities in 2015, need to start a new buy list and sell list...been fooling around getting taxes ready..first things first
  • No. I think there will be opportunities in 2015. See Wealthtrack posted earlier for insights.

    mutualfundobserver.com/discuss/discussion/18373/wealthtrack-guest-ed-hyman-evercore-isi-john-kim-ny-life-insurance-part-ii#latest
  • edited January 2015
    I think the next few weeks may serve to reinforce the need for diversification in a portfolio. Seems like Mr. Market is looking for a good reason to execute the long overdue meaningful correction.
  • "Seems like Mr. Market is looking for a good reason to execute the long overdue meaningful correction."

    Long as I don't get executed! :)
  • edited January 2015
    You mean the enormous 3.9% annualized total return that the market has delivered for the past 14.3 years warrants yet another meaningful correction?

    I'm sorry.

    At this rate, the younger generation is never going to invest the market.

    In fact, if the bears are right and there is another meaningful correction, I'll start to wonder who in their right mind from any generation would want to actually invest in the market?

    And, what about the "meaningful" corrections in wide ranging individual Dow 30 names and sectors that have already taken place these last several months? Not yet bad enough?

    Just crazy.
  • Charles,

    Just curious - where did you get the 3.9% return
    for the past 14.3 years?
    Anyway to know what the return would have been
    if you were holding 40% in bonds?

    Thanks.

  • And why "14.3" exactly? Makes me wonder if we're picking a specific time frame to prove a point?
  • The 15 year *total return* for the S&P (SPY ETF) is 4.03% so Charles' return looks pretty spot on. Some of the better junk corporate open end bond funds returned over 7% in that same time frame.
  • This is an opinion of the person who has been right many times in the past:
    ---
    Interesting Week Ahead

    On Friday, the S&P 500 rallied after breaking through the 100 DMA in the last
    hour of trading. The double bottom mentioned in my last post has now been
    confirmed a day later than I expected due to the Swiss fireworks on Thursday
    (which, of course, I couldn't have predicted). Depending on how the Chinese
    economic data comes out Sunday night, we could be approaching the 2080-2100
    S&P 500 resistance area on Thursday morning as we await the ECB's QE decision.

    In light of the Swiss action on Thursday, it now seems likely that the ECB will
    announce a big QE program on Thursday. Unlike the Fed, IMO the ECB will not be
    taking this action to reduce interest rates; rather the ECB hopes to reduce
    the value of the Euro, helping European exporters. If this happens, then
    the Eurozone economy should strengthen. A massive devaluation of the currency
    helped the US economy in 1933-1934; I don't see why a massive devaluation of
    the Euro wouldn't have the same effect in the Eurozone.

    If the ECB takes the action that I expect on Thursday, then IMO there will be a
    massive rally in European equities, especially banks. In order to fuel the rally,
    foreign investors likely will liquidate US Treasuries (where presumably they
    have been parking their funds), leading to an increase in US Treasury rates.
    Moreover, there probably will be a massive liquidation of US Dollars as foreign
    investors convert dollars into Euros in order to buy European equities. If this
    happens, then the US Dollar should weaken, at least in the short run, especially
    if speculators have to cover their long USD bets. (I don't have the latest COT
    data, but my understanding is that speculators are massively long the USD.)
    If the USD weakens, at least temporarily, then crude, gold, gold stocks, and
    other commodities/commodity stocks should get a bid. Finally, if crude rises,
    US long-term interest rates rise, and the European equity markets are skyrocketing
    on Thursday morning, my best guess is that the US equity markets will rally
    with the S&P 500 finally breaking above 2100. Of course, the US bond market
    will tank, further reinforcing the strong move in the US equity market as traders
    rotate out of bonds into stocks.

    In the long run, I expect that the ECB will achieve its objective of weakening
    the Euro. If so, then the USD will strengthen, gold and oil prices will weaken
    and US-centric stocks will flourish. But Thursday's move should initiate a
    pretty strong contra-trend rally until it fades in a few days or weeks.

    The above is what I think will happen on Thursday. But I don't have a better
    crystal ball than anybody else. Please feel free to post your own predictions
    for Thursday. Regardless of who is right, I think Thursday's ECB decision will
    be the most important event in 2015.
  • Some recent comments here have mentioned increasing their holdings in Europe. That might be a very good guess at this time.

    So far, 2015 has started out with events none of us could have foreseen. Tuesday futures are up but not in a big way. Oil looking to go down. Today will be a busy market day.

    Recent comments on this thread and others have been cautious. A sea change forthcoming?
  • Hi @DavidV

    You noted: "This is an opinion of the person who has been right many times in the past:"

    May we have a name for this person?

    Thank you.
    Catch
  • edited January 2015
    Howdy @AKAFlack

    I checked VWELX which has been a moderate allocation fund with about a 60/40 mix of equity/bonds. Per M*, the 15 year annualized return is at 7.77%. The Vanguard site indicates the annualized return since inception,July 1, 1929, is 8.32%.

    I will presume you have data readily at hand for the measurements/returns you queried.

    Regards,
    Catch

  • edited January 2015
    @Old_Joe

    The 14.3 year window represents the start of the market cycle from Sep 2000 through last Friday. It's basically last two full cycles (current one still on-going).

    Bear from Sep 2000 to Sep 2002
    Bull from Oct 2002 to Oct 2007
    Bear from Nov 2007 to Feb 2009
    Bull from Mar 2009 to Present

    Yes, it's data mining.

    But I did it to counter the folks that constantly talk about the "over extended bull" (eg,. Mr. Gundlach's 2015 market outlook) and "tripled investment" since the beginning of the current bull market from Mar 2009.

    Yes, if you were lucky or smart enough to have only been invested in the S&P since Mar 2009, you've earned 22.9% annually. But if you were unlucky (or dumb enough...like me) to be invested the past 15 years, stocks suck.

    At 4% per year return and volatility 5 times that level (say 20% per year), who would invest in stocks? Nobody. I can absolutely understand the trend toward alternative investments.

    If the current bull market does not continue, the "lost decade" is gonna turn into the "lost generation" for stock investors.

    I think Scott has written about this before. But I suspect there are a lot of young people entering work force today that want nothing to do with the stock market, 401Ks, etc.

    @AKA_Flack

    If you were invested in VBINX Vanguard Balanced Index since Sep 2000 through last Friday, you've earned 5.2% per year total return. At just a bit more than half the volatility, about 12%.

    @Junkster

    JNK was not around back in 2000, but if you just invested in Vanguard's Total Bond Index VBMFX you've made 5.3% per year total return with only 4% volatility. The winner!
  • @Charles, I think you're right about a lost generation, not just because they don't want anything to do with the stock market, but they have almost no incentive to save and they have unprecedented amounts of debt when they leave college.
  • Thanks Charles- I have more faith in your work than to suspect deviosity, but I was wondering if there was special significance to that seemingly unusual time-frame.

    "But if you were unlucky (or dumb enough...like me) to be invested the past 15 years, stocks suck."

    Yes, and yes.

    Regards- OJ
  • edited January 2015
    Charles said:

    @Old_Joe


    I think Scott has written about this before. But I suspect there are a lot of young people entering work force today that want nothing to do with the stock market, 401Ks, etc.

    There's so many issues at work. You don't have financial education at school. I think there's an element for a younger generation of investing in what's "sexy", which often turns out to be a fad (sometimes it doesn't, certainly - for every Facebook that works, there's a Zynga and Groupon that doesn't kind-of-thing) and when that fizzles, it's discouraging.

    There's an emphasis on what's hot rather than what's sustainable and what pays a dividend. Rather than, say, Zynga, they can look at something like VF Corp (VFC), which has raised dividends for 40-something years, is the largest apparel company in the world and has brands that they are familiar with, like North Face. That's a real example of a solid company that would appeal to a younger person that's demonstrated a remarkable track record over many decades. I do think that when you show a young person that, every quarter, they get to own a little more stock and they don't have to do anything, it really clicks and they get that appeal. I certainly did.

    Basically, no one is there to kind of show them that this isn't a race and you're looking to create something longer-term. This is not about tomorrow, it's about 10, 20, 30 years from now. They should be trying to set up something that's working for them, with dividends compounding over time.

    I think there's a lack of risk tolerance combined with a lack of risk understanding when it comes to investments. Given lack of financial education, young people likely don't know how to approach evaluating a potential investment.

    I think there's a lot of people who can't afford to. They have huge student loans. Yes, people can say that investing is something that you can't afford not to do, but people who have student loans, rent that goes up a ridiculous amount every year, health insurance, cellular bill, internet bill, rising grocery costs, car costs and a hundred other things are going to say no.

    Or young people don't want anything to do with it. Or don't understand it. There's so many things, but they aren't getting any better.

    I do think that if there's another 2008, you will lose not only the interest of a younger generation, but quite a few others, as well.


  • edited January 2015
    I was looking for some mixed drink having that 14:3 ratio - but came up dry.
    Thanks for explaining.
  • I am bearish on equities BUT except in one instance (the Y2K scare) my "opinion" of being bullish or bearish has never made me a plug nickel. I was dumb as dirt being bearish on bonds *all* last year but had my second best year ever primarily being 100% long the junk munis) I am bearish now on stocks because of the action in the junk bond market and have been for some time. Junk topped in the late June/early July period but stocks have held amazingly well. So once again I have been pretty much dumb as dirt. I have no illusions I can predict or forecast.

    PS - As for JNK, never or trade or invest in a junk ETF!!!!!!
  • catch22: Gary already provided a link from investorvillage. I have been following the poster for some time and found his analysis rather accurate.
  • @LLJB - hard to save anything or even attempt to when you have that dark cloud of unprecented debt hanging over you. Couple that with companies unwilling to hire you full time or willing to pay you a decent wage and what's left?
  • Maybe the key to whether our bull market continues is if companies decide to invest the unprecedented levels of cash they are sitting on.
  • LLBJ "but they have almost no incentive to save and they have unprecedented amounts of debt when they leave college. " Why unprecedented?, never before? no incentive to save? maybe their future?.......
    I don't understand your logic, maybe you can rationalize it???
  • @Tampabay, I don't mean a lack of an incentive to save for the vacation they want to take later this year, or to buy clothes, etc. The problem, though, is that interest rates are low enough that there's no real benefit to put your money in a savings account and as @Charles pointed out, volatility in the stock market along with elevated valuations makes taking risk with the small amount of money young people have relatively unattractive. There will certainly be kids who get good jobs and who do save for the future, but at the margin I think saving is far less attractive that it has been for most of my life. And it doesn't mean there's zero incentive. Of course, their future is a great thing to save for. But how many 22 or 25 year old kids have any clue why its so important to save for the future, especially considering the lack of financial education?

    As to unprecedented debt, I think the statistical information is out there and I've certainly read a lot about it, which doesn't make it true, but at a fundamental level the cost of gong to college has gone up much fast than inflation for 25 years. The school I went to costs twice as much today than if the price had gone up in line with CPI. We've been through 15 years of mediocre returns in the stock market (on average) and two periods where many of these kids parents were significantly damaged financially. It doesn't seem like a big surprise to me if someone says kids leaving school today have far more debt in absolute terms, and even more so relative to their opportunities, than anytime in history.

    That's not to say every young person is in the same situation, or that every kid has more debt, or that no one is saving. But on an overall basis, on average, I think the point is compelling.
Sign In or Register to comment.