Bull market will charge higher for 15 more years says strategist

http://finance.yahoo.com/news/bull-market-will-charge-higher-for-15-more-years-says-strategist-201423577.html


Forget the naysayers! This bull market has another 15 years left in it. At least that’s what Brian Belski, chief market strategist at BMO Capital Markets, says while admitting “the believability of this market is very low.”

Belski’s call doesn’t mean we’re in for a decade and a half of smooth sailing. “Stocks are rarely linear for long. Near term we could be in for some bumpy trading...If we get some sort of a surprise correction to kind of cleanup...near-term complacency,” he says, “longer term we are in the camp that U.S. equities are the place to be. They are the most stable asset in the world.”

As such, Belski argues, “North america will drive growth going forward for the next five years at least.” He suggests that will give emerging markets in Europe the time they need to straighten out their issues.

One of the clues to this call, Belski says, is simply being contrarian. He notes, for instance, many on Wall Street were calling for a rough start to 2014 before a better second half. So far it would seem we’re shaping up for precisely the opposite. “You have to be really concerned and careful about following consensus too closely because for all intents and purposes it’s been wrong for five years,” he notes.

If you’re still nervous to plunk down your cash for such a long haul Belsky says let the yield curve be your guide, and not just for the intermediate term but thje long term too.

Doubling down on his call he says “we are several years away from any inversion of the yield curve.”

The stock market: Is it worse than it was in 2000?

http://www.marketwatch.com/story/the-stock-market-is-it-worse-than-2000-2014-08-08?mod=latestnewssocialflow&link=sfmw

You know how I reported that this is now the third biggest stock market bubble in U.S. history?

I was wrong.

By one way of looking at it, it isn’t the third biggest bubble at all.

It may be the biggest.

Yes, really. Bigger even than 1999-2000 - the daddy bear of all stock-market bubbles.

Yikes.

That’s because the average overvaluation today may actually be higher than it was back then. There are fewer wacko bubble stocks - but there are also far fewer good-value stocks.

We tend to think of 1999 as the off-the-charts nuttiness classic of all time, the “Caddyshack” of stock-market wackiness. And when you look only at the big picture, that’s right.

For example, when you look at the total value of the stock market compared to gross domestic product, or the total value of stocks compared to cyclically adjusted earnings, or the total value of stocks compared to the cost of rebuilding every company from scratch (a measure known as the Tobin’s q), then 1999 remains the grand champ. We remain well below those levels today.

Alas, there’s a caveat.

That big picture in 1999-2000 was thrown out of proportion by a relatively small number of psycho stocks - like Cisco Systems CSCO +0.02%  , a jumbo cap which traded at a ridiculous 150 times forecast earnings (the historic average for stocks is about 14 times). Large-cap growth stocks, such as Cisco, and Microsoft MSFT -0.19%  , and Intel INTC +0.02%  , and Yahoo YHOO +0.02%   and eBay EBAY +0.02%   and Amazon AMZN +0.02%   were in crazy bubble territory.

But everything else on the stock market was relatively normal. Indeed “value” and “old economy” stocks, especially smaller value stocks, were cheap. I remember buying stock in clothing retailer Joseph A. Banks, then a small company, in the summer of 2000 when it was about five times earnings.

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Can I afford to retire at age 62?

Financial adviser Tom Henske weighs in on the financial steps folks may need to take in order to retire at age 62.

Back then my Daily Mail colleague in London, an acerbic Irishman named Brian O’Connor, memorably characterized the tech bubble as “5% of the economy pretending it was 50%,” and he was right. But the other 95% of the economy was actually pretty cheap. So long as you avoided tech, you were actually OK.

Not any more.

To get the details I asked my data guru in Switzerland — Joachim Klement at Wellershoff & Partners — for an analysis not of stock market “means” but “medians.”

People who know the difference can skip the next two paragraphs.

For the rest, let me briefly explain. The “mean” is what we usually think of when we think of the “average.” You add up the totals and divide by the number. So 10 people on Skid Row plus Bill Gates have a “mean” or “average” net worth of $7 billion. They have zero billions, he has $80 billion, and when you add them all up and divide by eleven you get $7 billion apiece. You can see the problem.

But the “median” is often a better measure. To get the median you line everybody up in a row - from the tallest to the shortest, the richest to the poorest, or whatever - and then pick the guy slap bang in the middle. Bill Gates and ten people on Skid Row have a “median” net worth of $0 billion. Yes, there are issues both ways. But the median treats Gates, correctly, as an outlier.

Klement looked at the top 1500 stocks by market value. What did he find?

When you look at medians, or in other words the typical stock, valuations are higher today than they were at the peak in 1999-2000.

For example, the median stock today is 20 times earnings. In January 2000, it was 16 times.

The median stock today trades at 2.5 times “book” or net asset value. At the start of 2000 it was just 2.2 times.

The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times.

Only on dividend yields (1.3% today versus 0.8% back then) are we better off.

There are some caveats. Each individual measure is subject to a lot of variability and noise. Price-to-earnings ratios, for example, can seem artificially high in a slump because profits are depressed (and can seem artificially low in a boom because profits are temporarily elevated). According to Klement’s data, median p/e ratios were actually higher than today at certain points in the past, such as in 2002. For that matter, price-to-book ratios were briefly higher than today back in the later 1990s. So no individual measure can tell the whole story.

Furthermore, there are some constraints with the dataset. Klement looked at the top 1,500 companies on the market and then traced the valuation backwards for each one. However, that analysis suffers from what’s called “survivorship” bias. Stocks which dropped out of the index don’t show up. That will skew the results.

Overall, we should beware trying to force too much precision from general data.

Nonetheless based on the medians, rather than mere means, today’s stock market valuation seems at the very least to be in a similar ballpark to 1999-2000.

Does this mean the stock market is inevitably going to “crash”? Of course not. I have absolutely no idea if the market is going to crash, or, if so, when. I remember Peter Lynch’s famous dictum, that investors have lost far more money over the years fearing a crash than they have ever lost in an actual crash.

But it does mean that, if history and mathematics are any guides, the long-term returns on stocks from today are probably going to be mediocre.

Bull markets don’t die of old age': Time to start buying

http://finance.yahoo.com/news/-bull-markets-don-t-die-of-old-age---time-to-start-buying-192326664.html

Pity the young bankers and wannabes now finishing up their summer internships on Wall Street. Young and frisky, dressed like swells and capering about Manhattan oblivious to the dangers lurking beneath the pavement. They laugh at the old-timers with our nervous twitches and superstitions. The better-educated among the new breed have an academic mastery of the dot.com meltdown and Great Recession but market crashes are like earthquakes; if you haven’t actually experienced the sensation of the world dropping on your head you really don’t know anything.

Hubris has to be beaten out of investors. Wondering if the February selloff was going to screw up your chances at scoring a Goldman Sachs (GS) internship doesn’t count.

Hank Smith of Haverford Trust has peered into the doe-like eyes of young Wall Street but he’s not overly worried about their adaptability. “We have a bunch of new hires fresh out of college who don’t even remember the bear market of ‘09 and ‘08 and we’re still shaking,” Smith tells me in the attached video. When he looks at the kids he sees the future. In the case of the millennials that future includes eating out of cat food tins if they don’t start building nest eggs.

Smith has stayed on the right side of the market for the last few years by sticking to a simple premise: whether because they’re too young to know better or too old to trust equities investors remain under-exposed to stocks. As long as the fundamentals don’t unravel (a big qualifier for many) the dips will be short-lived and shallow. 

Yes, that includes the present pullback which is still only about halfway to the official 10% drop which defines a “correction.”

Smith has lived long enough to know better than to doubt the potential for a substantial and lasting stock market drop but says the laundry list of concerns cited by bears today aren’t rally killers.

“Bull markets don’t end because of age. They don’t end because of exogenous political events. They end in anticipation of a recession.”

Despite the age of this bull the earnings data and economic figures just don’t portend contraction in Smith’s mind. If Smith is correct then anytime starting about now would be a good point at which to start putting extra cash to work in stocks.

Fund Flow Records Smashed:

Fund Flow Records Smashed: Equity Funds Get Record $352 Billion Inflow, Bond Funds Lose Record $86 Billion
Read more at http://globaleconomicanalysis.blogspot.com/2014/01/fund-flow-records-smashed-equity-funds.html#Fg9ZcEV7uBXYESOE.99

 

 

TrimTabs Investment Research reported today that U.S.-listed equity mutual funds and exchange-traded funds took in a record $352 billion in 2013, smashing the previous record inflow of $324 billion in 2000.  Meanwhile, U.S.-listed bond mutual funds and exchange-traded funds redeemed a record $86 billion, topping the previous record outflow of $62 billion in 1994.

“The Fed finally succeeded last year in its long-running campaign to coax fund investors to speculate,” said David Santschi, Chief Executive Officer of TrimTabs.  “The ‘great rotation’ that some market strategists long anticipated is under way.”

In a note to clients, TrimTabs explained that U.S. equity mutual funds and exchange-traded funds received $156 billion in 2013, the first inflow since 2007 and the biggest inflow since the record inflow of $274 billion in 2000.  Global equity mutual funds and exchange-traded funds received $195 billion, edging past the previous record inflow of $183 billion in 2006.

“Retail investors are particularly enthusiastic about non-U.S. stocks, which should make contrarians wary,” said Santschi. “Global equity mutual funds took in $137 billion last year, which was more than seven times the inflow of $18 billion into U.S. equity mutual funds.  These highly disproportionate inflows occurred even though non-U.S. stocks as a whole badly lagged U.S. stocks.”

TrimTabs also reported that bond mutual funds and exchange-traded funds redeemed $86 billion last year, the first outflow since 2004 and the biggest outflow on record, surpassing the previous record outflow of $62 billion in 1994.

“Bond funds have suffered seven consecutive months of redemptions for the first time since late 1999 and early 2000,” noted Santschi.  “Nevertheless, the outflow of $196 billion in the past seven months reverses just a fraction of the inflow of $1.20 trillion from 2009 through 2012.”
Read more at http://globaleconomicanalysis.blogspot.com/2014/01/fund-flow-records-smashed-equity-funds.html#Fg9ZcEV7uBXYESOE.99

 

Buffett Waits on Fat Pitch as Cash Hoard Tops $50 Billion

http://www.bloomberg.com/news/2014-08-04/buffett-waits-on-fat-pitch-as-cash-hoard-tops-50-billion.html

Warren Buffett has never had so much money to spend.
Cash at his Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A) rose past $50 billion at the end of June, the first time it finished a quarter above that level since he became chairman and chief executive officer more than four decades ago.
The stock market hasn’t helped an investor who has said he likes to wait for the “fat pitch,” an opportunity to buy a company at a price promising favorable returns. Even after last month’s decline, the Standard & Poor’s 500 Index has almost tripled from its 2009 low. Berkshire’s size has also become a hindrance because few businesses are big enough to merit Buffett’s attention.
“I don’t think the list of his ‘fat-pitch’ companies is all that exhaustive,” said David Rolfe, who oversees $8.6 billion including Berkshire stock as chief investment officer of Wedgewood Partners Inc.
Buffett, 83, has struck some of his biggest deals in the last few years, adding to the earnings Berkshire already gets from operating businesses including auto insurer Geico and railroad BNSF, which was acquired in 2010. Second-quarter net income rose 41 percent to a record $6.4 billion, the company said in an Aug. 1 regulatory filing.

Photographer: Scott Eells/Bloomberg

Most of the businesses Warren Buffett, chairman and chief executive officer of... Read More

Class B shares rose 1.7 percent to $127.99 at 9:31 a.m. in New York, extending their gain to 8 percent this year. The S&P 500 has climbed 4.3 percent since Dec. 31.

Insurance Claims

The profits have replenished Berkshire’s coffers at a rate of more than $1 billion a month and left him with the challenge of finding bigger investments. Cash stood at about $55.5 billion on June 30, more than double the amount Buffett has said he likes to keep on hand should his insurance businesses have to pay unusually large claims.
Some of those funds are going back into Berkshire’s capital-intensive units. In the last 15 years, Buffett has bought electric utilities, natural-gas pipelines and the railroad, which routinely require billions of dollars in spending to maintain and upgrade equipment. In June, he said he was prepared to double his outlay on renewable-energy projects after committing $15 billion over the last decade.
Buffett still needs to find other outlets for the cash. He’s shunned paying a dividend, arguing that shareholders are better off letting him invest the funds. He rarely buys back shares.

Heinz, IBM

When opportunities do arise, Buffett has shown he can move decisively. The cash pile fell to $35.7 billion on June 30 last year as he teamed up with buyout firm 3G Capital to take HJ Heinz Co. private. In 2011, it dipped to a similar level when he spent $10.9 billion amassing a stake in International Business Machines Corp.
While Buffett has said that low yields made him avoid bonds, not even stocks have tempted him much this year. The filing showed that Berkshire spent $2.05 billion on equities in the first half, about a third of the total from a year earlier. Its sales of stock more than doubled to $2.96 billion.