A friend, someone scared into an excessively conservative invested position by the 2008’s market crash, asked question the above. My answer was “No.” My reply was based on my long-term view detailed in “Session 7.” I believe world economies will continue to grow and, over time, due to competition for resources (Chinese and Indians becoming consumers) and rising global wage demands (concurrent with consumerization) inflation will bubble up. This is not to mention expansive monetary and fiscal policies (money printing) that governments around the world will probably use, as a last resort, to spur growth.
With interest rates very low, even after the back-up we’ve seen in the last few weeks, and potential inflation on the horizon, it appears a good time to own assets (common stocks being one asset class). Under this scenario it would seem to be a terrible time to lend money; but, still a great time to borrow (even at 4.5% a 30 year home mortgage is a steal). It may now be time to again consider a single-family home an asset.
The next question from my friend was, “Even with the market (S & P 500) up more that 100% from its lows?” My answer was “Yes.” I view the 660 level on the S & P as an aberration, caused by a financial panic not likely to recur in the near-term (i.e. we will have other financial panics, but it will take time for Wall Street to figure out the next gambit a la 2008). Viewed in a larger context, the S & P 500 peaked at 1552.81 in March of 2000. That was thirteen years ago. In October of 2007, as we approached the meltdown, the S & P peaked a few points higher at a then new closing all-time high of 1565.18 (intraday high 1576.09). We closed on Friday, July 19 at 1691.09, approximately 140 points higher than March of 2000….less than 10% higher than 13 years ago.
Here are a few interesting metrics on the S & P, circa 2000 versus 2013:
Date Close Earnings* Multiple* S & P yield 10 Year Tsy yld
03/24/00 1552.81 $53.47 29.04 1.16% 6.29%
07/19/13 1691.09 $106.46 18.43 1.90% 2.54%
* Multiple on trailing twelve month earnings
In the simplest terms S & P 500 earnings have doubled since March 2000, the dividend has increased 64% and it is now competing with a ten-year U.S. Treasury note that yields 2.54% (down 60% in thirteen years). The market is charging only 10% more than 2000 prices vs. consumer price index inflation averaging about + 2.5% per year.
One last item before I get into the usual caveats, no one believes this market. Tune in your favorite cable purveyor of financial news….Bloomberg, Fox, CNBC. There is “no joy in Mudville.” The pundits range all the way from cautious to down right negative! This bland (at best) sentiment in the face of a really strong market, based on past experience, is extremely positive and will probably persist for a long time. Worry when they begin to change their tune.
As for the caveats, obviously, no tree grows to the sky. We have had a tremendous run with scant corrections thus far. There is always that unforeseen event, the bolt from the blue, that can knock the markets for a loop. We are due for some corrective action. Having said this, I believe that right now we are in a wonderfully benign market environment. If you have money on the sidelines, you do not need to put it all to work at once, but you should consider getting involved. You might take twenty-five percent of the amount you wish to put to work and invest that now. Wait three months (earlier, if the market has a sharp market break) to put another quarter of the funds to work, then another quarter in three months and so on.
Finally, I refer you back to the example of our last post (Session 48). Investors coming out of the sixteen-year flat market, 1966-1982, asked the same question, Is it too late to buy stocks?” They had a choice, 15% long-term treasury yields (which was the safe choice, but proved out over time to be the wrong choice). You really don’t have that fixed income alternative. So, my opinion, as it pertains to buying stocks, is NOW is not too late!
What do you think?
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.