SOME AMAZING YEAR-TO-DATE STATS….

I have to admit that the current rally is surpassing anything I would have ever expected at the beginning of the year.  We’re in that “can’t lose” market environment where every little dip is bought, every data point is positive and stock literally don’t go down.  And when one digs a little deeper into the story behind this rally you can see just how amazing it’s been.  Here are the year-to-date stats (that’s 2.5 months for those keeping track):

Germany’s DAX: +20%, 96% annualized

S&P 500: +11%, 52% annualized

S&P 500: up 67% of all sessions, just one -1% day in 51 trading sessions.

Nasdaq 100:  +19%, 91% annualized, up 73% of all sessions.

Homebuilders Index: +23%, 110% annualized

S&P Financials: +21%, 100% annualized

Apple, the world’s largest company: +45%, 216% annualized

Minsky once said that stability creates instability.  But there are no signs of instability here….

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Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Coolidge Low

    The bet is inflation. The market is now betting 100% against Bernanke. We have entered the first true stage of the market loosing confidence in the Fed.

  • WellRed

    100%? 10-year yield at 2.4%. Stop being hysterical and look at some longer term charts.

  • WellRed

    Also, inflation has no impact on stock prices as a result of higher nominal discount rates. In fact, inflation has historically been bearish for stocks. Get a history textbook.

  • Coolidge Low

    Which history textbook would you recommend. I can think of a couple.

  • BostonBeans

    One never should annualize returns that are < 12 months. It's pretty meaningless. I know you know this, but still, why do it ?

  • http://www.pragcap.com Cullen Roche

    Perspective on the rate of change. That’s all.

  • whatisgoingon

    There is a divergence on the VIX that is resisting new lows as the market puts in new highs.

  • kman

    “stability creates instability. But there are no signs of instability here”

    not yet, otherwise it wouldn’t be stable. It needs a trigger.

  • http://breedinginstability.com Mountaineer

    “Minsky once said that stability creates instability. But there are no signs of instability here….”

    It’s there, plain as day, in the manic rush of financial firms vying to prove to The Market who is the most “fortress-like” by begging the Fed to be allowed the pleasure of making the same mistakes all over again. Minsky knew that the illusion of adequate capital and liquidity was one of the greatest inherent flaws of finance capitalism. How soon we forget…

  • anon

    “Minsky once said that stability creates instability. But there are no signs of instability here….”

    No signs of instability, but all the signs of stability. Isn’t that the point? Markets are vulnerable because everything looks so stable and thus complacency is high?

  • innertrader

    The DEBT is absolutely amazing… and if you don’t think it’s eventually going to matter, then tell me again about stability.
    First, it’s election year… second, it’s election year! Look at last year, highs last trading day in April (close to perfect), lows in Oct (Perfect), what more could you ask for? There will be a time and as a trader I have an idea about that, but I never (very rarely) pick a top or bottom!

  • Rob T

    Sounds about right to me. Forward VIX isn’t pricing in stability, however. I’m thinking 4/15 401(k)/IRA rotations marks the top, if not a little bit sooner.

  • Larry

    @ Coolidge, you said: “The bet is inflation. The market is now betting 100% against Bernanke. We have entered the first true stage of the market loosing confidence in the Fed.”

    I beg to differ. Au contraire, the market is betting in favor of Mario Draghi and the ECB. The market has total confidence that the ECB, with help from the Fed, has the Euro Sov Debt problems under control for this year. And it is not so much inflation that investors are betting on, but growth above 2%, with modest inflation. As long as Mario and Ben continue to keep the EZ crisis bottled up, and we continue to see 2% + growth, this rally can continue.

  • Old Dog

    Human nature has a natural optimism bias. We wouldn’t be here if it didn’t. Future generations require we have it.

    People are growing progressively weary of the pervasive pessimism that permeates all facets of our economy.

    They are going about the matter of getting on with their lives and have quit waiting on the impotent geniuses running this show to fix things.

    Life goes on regardless of our worthless leaders. If you are waiting for the economy to crash you will be increasingly lonely.

  • VII

    @Larry
    Well said.
    What have stocks done for 12 years? NOTHING but lose money for long term investors. Still negative from 2007. What has the mkt done since 12/31/11 nothing great. Up 12% over 15 months.
    What have bonds done for 12 years? Lights out performance!
    What if this is all about to change? What if this is the start of a real Bull Market? What if housing recovers, if ZIRP takes hold and companies start to go from temp to permanent? What if all that cash gets used to do stock buy backs? What if the new tech advancenments everyone is wait ung for is right in your hand? Is allowing people to work and communicate there business with a tweet etc.
    What if we have a central banker who will NOT NOT let stocks go down? Who is so committed to the wealth effect he’s all in? And theres nothing we can do to convince him to let up? He’s convinced other central bankers that it works. Those politicians who want to stay working need these toe of central bankers. What if any one who wants to stop the recovery is shouted down? If anyone who chooses to protect the people is replaced with an unelected official until GREECE, ITALY grows its way out?
    Is it so hard to imagine that just maybe stocks will make up the lost ground of 12 horrible years?
    What if this market goes to where it shoul have since 2000?
    There are so many non confirmations. TRannies, RUT, DOW THEORY, Frontier markets, NYSE etc. etc. BUT do you know what is confirming the SPX….yes..exactly…the SPX.
    I won’t know why and I don’t care. If central bankers are flooding the market with money, real or imagined and they along with policy makers will literally alter laws and accounting norms to allow companies to hide losses….then what the hell are we doing complaining about someone who is begging us to get wealthy. Who will bend, twist, and commit everything he has to inflating assets.
    Why are we tripping on the future. Take what’s being given to you and do some good with it. Start a business, pay a credit card off, help someone. What if…….this market is for real? What if in 36 months you turn your computer on and zero hedge has a front page that reads….GOLD looks to be forming a bottom at 750 and the market is so over extended look to short at 1950 SPX.
    Everyone wants to make money and own stocks there just terrified since 2000, 2008 to revisit that move. Markets neverring a bell at the bottom and maybe what were seeing is what weve wanted since 2008 to happen.
    We won’t know until 2015 what this really is. Do you want to read another Mauldin, Hussman, Rosie, piece explaining why what is happening shouldn’t have? Count me out. I’ve sat at the bar with those men for too long. The drinks suck and the conversation is fucking depressing.

  • Jos Evans

    VII – Legend

  • Zeff

    I just dont understand it. I dont know whether its right or wrong when housing/economy was in the dump Fed lifted stocks with Q.E. Then, economy is moving, stocks are rising further. Its more like the top branches of the trees are bearing fruits but the trunk is held together by a tape. Its just strange for a novice investor like me. When stocks should have stayed down, they didn’t (QE) and i feel its going to haunt us in the future. You never know.

  • Larry

    @VII, you nailed it!! Just like Chuck Prince, as long as the music is playing, I’m dancing. You gotta keep dancing ’til the music stops! Gotta buy me some more SPY today.

  • Mr. Market

    Indeed, amazing stats. However, the markets don’t seem to trust the current rally. Because in 2012 the $IRX “”peaked”” in mid february 2012 at 0.12% and is now back down 0.075%. Not an encouraging sign.
    And I don’t believe the FED is responsible/to blame for this slump in T-bill rates. It’s “”Mr. Market””.

  • Mr. Market

    China is slowing down. So, I certainly would give Hussman, Rosenberg a significant amount of credit.
    http://soberlook.com/2012/03/chinas-official-admission-of-slowing.html

  • innertrader

    Once again, it’s oBama’s “re-election year”! Watch what happens to all the FED agencies “numbers” after the election… they usually do it late on a Friday afternoon.

  • Dunce Cap Aficionado

    Agree, the crux of Minsky’s quote is the lack of signs of instability is a sign of instability.

  • Derfem

    “We won’t know until 2015 what this really is. Do you want to read another Mauldin, Hussman, Rosie, piece explaining why what is happening shouldn’t have? Count me out. I’ve sat at the bar with those men for too long. The drinks suck and the conversation is fucking depressing.”

    Capitulation ?

  • http://wellsfargomustdie.blogspot.com Wells Fargo Must Die

    I would not be at all surprised to see the market reach S&P 1600 by year end. The market always goes up unless it has reason to go down. The amount of doom and gloom out there is huge. That’s the best contrary indicator you can have.

    It’s an election year, low interest rates, European bailouts as far as the eye can see, probably no natural or political disasters as in 2011, coming off a flat year. That’s the makings of a +25% year.

    It doesn’t matter if the earnings are cooked or it’s easy money or the world may fall apart in 2020. The market is only interested in the here and now. The economy is growing again and if Mitt Romney is elected president you will see a year-end blowout spectacular as Blue Skies Are Here Again forever more.

  • Leverage

    Only if it worked that way! No, you won’t get wealthy, or at least the majority won’t get wealthy.

    Money is not distributed amongst the population or trickles down. So yeah, get into debt and ‘do something with it’, when the wealth effect is over, then you are left with nothing and are poorer. Apparently we never learn the lesson.

    Go get some credit cards, borrow and invest on the SPX, does risk management on return on capital matters? No, someone will inflate assets all the way, you CAN count on it.

    This is not creating wealth, this is creating an illusion. And every illusion has an end, the trick is know when. if you don’t know when it will be you shouldn’t be playing that dangerous game based on ‘certainties’.

  • MrV

    I somewhat agree but why does getting on with life equal goosing the stock market, speaks volumes about the current mentality don’t you think?

  • Leverage

    American bias? Or circumstantial bias? Not looking that way where I’m living or for a lot of people even in USA, in a recession and from here on if situation does not change will get worse.

    Unemployment worse, incomes worse, inflation worse, everything worse… So yes, Big Deficit and load of liquidity from the FED have helped some people (more than others) in USA. But what you are saying is not the reality for a lot of people.

    This is the real problem IMHO, there is a big disconnect amongst the population, elites, etc. and the worse it gets well… you know how it ends, even if you don’t want to aknowledge. DOW can (because there is plenty of money in the system to gamble) get to 30000 but that does not mean shit in real economic terms, this already happened in the GD btw, nothing new.

  • john

    Markets are examples of herding behavior. The markets also turn before the economy because they are much quicker in there ability to move liquidity than in the business environment itself. Social mood is on the verge of collapse, this retrace of the 2008 collapse is almost complete and then we take out the 2008 lows as all available aspects of monetary and fiscal policy result in deflation.

  • Blobby

    Considering the Fed owns the bond market I hardly think looking at 10 year yields tells you anything about inflationary expectations..

  • VII

    @ Derfum
    You would say this from 1300, 1325, 1350, 1400, 1425 etc. my job is NOT is to never worry about capitulation. I don’t capitulate because I should never think strongly about bullish or bearish. NEVER will I hold a stance either way.
    Do u know what the return is on the SPX is since 1896 if the SPX hits 1431? OUT OF 31 cases 27 are up with 4 negative out12 months. The avg return is 18 %. BUT the samples show huge returns in many years. And that is from 1430. So there is time for capitulation for those who can’t see or won’t see what’s right in front of them. You’ll have some back filling….back down maybe Iran gives you a good 7% or if your lucky 15 % from the point it happens.but guess what it goes right back to trend after that point of attack to when the market honey badgers(doesn’t give a shit about no nukes) the ” crisis”
    There is someone on this site who is reading this and he has samples which say without 1 negative year the market should be up to 1800 in 2 years. How? Why do you want to know the facts which you will just dismiss out of hand? Why do you care about the facts which don’t line up with Dr. Hussmans 7 yr returns of 4%? I never wanted to be an animal…bullish or bearish. I want to be a human being who lets the data tell me to buy, sell or go to cash.
    Let me say this….if the market gets to 1431. …. You better put down your need to point out capitulators because you’ll be drinking with zero hedge in 12 months at the I’m right market is wrong pub.
    In 2008 investors had to unwind massive leverage positions. 4 years into this what is going to take the market down?
    John mauldins, piece on the end game, Dr. Hussmans 7 year returns, zero hedge reporting of central banker Weimar days coming to a theatre near u, Greece defaulting( it already did) Italy( u think Monticello will let his country default… His mama would spank his ass) china? What is going to take the market down?
    A bunch of people upset because they want in?
    CHINA- what happened in 2000-2002 in the U.S? Tech and the nqsdaq bubble popped a recession. BUT what also happened while everyone was getting margin calls on JDSU positions….rates were lowered and in 2000 real estate exploded….this country went on a boom vis a vi wall st assistance to leverage up. That ended poorly like all wall st bubbles. BUT WHAT IF EVERYONE IS LOOKING AT CHINA FROM THE LENS OF CCI, copper, Iron Ore, Real Estate and other correlations which is old news of EM growth?
    What if china does the exact opposite of what happened to us in 2000? They move from real estate speculation/ investment/ CCI build out to….consumption! What if everyone is looking at china through the lense of Australia, Brazil and every other economy who benefited from the Chinese growth story? These countries are slowing dramatically and everyone is saying china is in a hard landing. Even the Chinese leaders have said there economies are slowing. But what if…like 2000 but reversed they now invest all the money tat was going to CCI, australia, copper into TECH, HEALTHCARE, FINANCIAL SERVICES. So yes the china real estate market may end up badly but with state capitalism what if like so many who could not see real estates boom until 2004 your missing out on chinas tech, sonsumer transition occurring right now….because your so focused on correlations that are changing. These non confirming correlations will not make sense until later. For 10 years tech languished…now..with china transitioning to a consumer driven economy why the shit would I care about Australia, or copper not ratifying this recovery? If china has as many people and as much money as they say they have….you will fight the SPX/ apple, oracle and any other great American business service company along with the fed at your peril.
    CAPITULATE???? you betcha ya I did. Just in time to capture the next big move.

  • Coolidge Low

    @Larry

    If you believe that the economy is not going back into the crapper, that the economy might actually be improving, then you are not in the deflationary camp anymore (I am not in the economy is improving camp) per se. If the US economy is improving, then what on hell does the world do with all the liquidity? I believe the market is betting that the US economy is improving. That there is a world shortage of safe assets and that investors are positioning for inflation of which Bernanke is not in a position to control it. Meaning, Bernanke is not going to pull the punch bowl anytime soon. The buffoon might even initiate another round of QE!?! The market is betting against Bernanke’s ability. Just because yields are low does not mean the world is ready to bet against an out of control central banker so they bet on the assets they can and hide in whatever they can. If the US economy is improving and Bernanke does not pull the liquidity (broad based usage) then as an investor what are you betting on?

    I, on the other hand, do believe that economically we are heading back down and that stocks have completely decoupled from the economy. Multinational companies which were the drivers of this market this time last year are looking at slower overseas growth. Small business are still taking it in the keister and with interest rates on the zero bound who in their right mind is going to buy real estate? With the insane amount of liquidity, equities and hard assets can continue to rally….. but IMO the bet is inflation and not the long term growth outlook of either the US or Europe. It is capitulation against an out of control central banker.

    Europe is a different story and I believe the goal is not to fix Europe, but it keep it in shambles until the US is firmly back on its feet.

  • Derfem

    VII, I was wildly bullish last summer and beginning of autumn, move from oversold positions while “Consumer Metric Institute” index was sky rocket. At the time, Technicals were way oversold and I had honestly a target at 1315 SPX. I just follow my trading plan and sold half the longs at that moment. Now, I just move up the stops for the remaining but NEVER adding to position when the tech are this way overbought.

    That said, stats from 1896 would be better divided in “up move during bull” and “up during secular bear”. I’m not reading about all these bears, I just read the technical tape, with a bit of fundamentals on the way. I’m not talking about Iran or events, but about FACTS: (1) Europe is digging its way into recession (2) China is hard-landing (no longer a matter of “if”) (3) Japan is far beyond the Keynesian end-point.

    So, maybe I will miss a big move, but the facts are there and the consequences too: (1) capital repatriation from EM to DM and USA (dollar bull / SPX bull) (2) commodity countries and currencies will follow the way of China. It would be a great thing for long term, as EM will begin to rebalance. But thinking that USA is immune from these troubles is like European leaders who were thinking Europe will be immune from USA bubble pop in 2007-2008… So playing the hot potatoes is funny, but it begins to look like euphoria.

    On a last note, remember Gundlach on bonds. Maybe he was completely wrong and do not understand anything about monetarism. But never forget this man is one of the 3 best bonds traders worldwide. Carefully listen and understand his call, and be really sure of your arguments if you decide to take the other side of the trade.

    On a trading note, I think this market have now 1480 in target (can come very fast), but forget any long play at these levels.

  • Leverage

    Some good points Derfem. There is absolutely no point for a new secular bull market right now, there is no grand theme right now, not even bright from a demographic point of view! (and it matters a lot on 20 years frame) and the capacity to generate bubbles is limited unlike the last decade. The reality, the data, is mixed at best and trending to worse with bad shaping leading indicators. I don’t think USA can decouple and if you know about China you are not going to buy the consumption argument in the short term (if it does it will be a long term change, it’s not gonna affect the market right now).

    I found the call to short the market by VII risky, but I don’t find compelling arguments for committing a big position into this either. I don’t have an exact upside target (probably around 1440, or maybe we don’t go much higher from here). I don’t feel like a drop in the immediate term either so I would play income strategies if I had to (I don’t because I’ve winners in commodities & forex; btew if going long why not buy natural gas because it should be bottoming if inflation is picking and growth increasing again, which is not) using derivatives, like net selling puts expiring in May/June.

    Long term investors may better look at credit market and build a balanced basked IMO rather than buying equities, not much alpha but better safe than sorry.

  • http://deltafinancials.com Delta Financials

    To be fair, through much of this rally, the market did what makes a market bullish – climbed a wall of worry.

    Plenty of interesting things going on, though. The dollar index has risen lately, but equities have climbed higher – that could potentially be healthy. We’ve also seen commodities (other than oil) muddle through thanks to China and the strong dollar. China’s trade deficit also points to structural healing.

    That’s tempered by the fact that we’re seeing an output jump in line with post-recession like symptoms. That momentum will slow down. Trade is pretty key, the way I see it.

    The Nasdaq is approaching historically wide levels on divergence to long term MAs. So, we’re close to getting overbought in the near-term, but I think part of the new normal is to think a lot about next week and very little about next year.

  • VII

    @ Derfem

    Read leverages comment…” there is no point for a bull market right now”
    That sums it all up. You and he think there has to be a point. That we can’t decouple from the world. Who cares. All your saying wether u realize it or not is that no matter what the SPX does from 1440-1480 it’s wrong and your right.
    The ONLY thing that matters is not what gunderlach says or I say but what the SPX does or where u invest.
    You like leverage are convinced that the market shouldn’t go higher and if it does your still right? Cause your framing the SPX price around decoupling? Who cares about that….the mkt will decide wether it will or won’t. Until it gives me reason to sell I’m holding it.
    Regarding secular bear secular bull/ cyclical bull bear…..
    I’m not here to argue one way or another….
    I will send you my teams data by Sunday night…..
    Email me V2wealthproject@ gmail.com….. You decide. My team was bearish since FEB 2011… It was a good call until oct. I don’t expect to catch the October low but December had enough evidence to change. So from 1275-1375 I should have captured this…worse I shorted @ 1315 and doubled at 1350 SDS. Now my team who has avg returns prior to 2012 of 18% has been terrible wrong.
    The piece I got today had the exact language Ii pay them to not have….”our call appears to be wrong and we will try to keep an open mind”. WTF? TRY? That is the point. If things turn I will close out BUT I will never again tell the market to go up or down.
    Take a look at what I send to you Derfum and leverage. I hope this helps you in some way…email me and I’ll send it by Sunday.
    This is from my current team and NOT from what a good friend from OHIO has sent me. I don’t know if the mkt will hit 1480 but based on the information I will invest accordingly. If something changes I will reduce but never again will I get too negative and fearful as I was in jan. feb.

  • VII

    @ leverage

    UNG is down 87% .
    Price has not bottomed yet but if you want to watch a chart that is one to get familiar with when it breaks.

    Wealth effect- tell me this.
    My wife owns 787 shares of RSU grants, 3800 Non qualm, and 387 LTIs all available to excessive April 28, 29, 30th.
    Let’s say because of the FED risk assets for her Company a member of the S&P 500 ident from 50 to 73 at exercise.
    Just on the RSU grants that is a difference of 40,000 up to 58,000.
    Do you know what my family will do with the 58000 we will receive on April?
    1. Fund my sons 529 I shares account.
    2. Pay down principal on my mortgage
    3. Fix up my house
    4. Savings for a vacation
    5. Savings for holiday spending money( it gets tight every nov. dec.)
    6. Invest it in my business.
    7. Help my pastor with his new church
    Now you say there is no wealth effect…then what the fuck is that. I paid off debt, put money away for my sons college education, contributed toward a contractor and his legal or illegal families( looking for a better life) workers, will buy some things from small business etc etc. That is just one person. Imagine if my wife worked for apple and she had 787 shares of RSU grants @ 600 that’s $472,000. And u can sit here and tell me that no wealth is being created??? WTF…what do u think the bonuses are for all the companies who benefited from ZIRP are? HUGE…maybe 180% of target! Yeah 180% that what I’m seeing from my clients.
    Anyone worka s an executive director, director for apple, google? What did u get in 2012? Where is that money going? College, debt reduction, small businesses, state tax receipts, for many apple employees..second, third homes.
    But DR. Hussman says in his Phd course at Stanford that wealth effect are transitory and people don’t spend money unles it’s permanent. SO HE LIKE YOU have a theory that is telling me I’m wrong. That what I’m actually doing with the wealth effect does not fit your theory so even though I’m passing on my wealth into the economy in every crevis of the U.S from retail, to education, to the poor, to church, taxes, housing and my future…it’s not what the theory says. I like many are doing exactly what BEN says…I’m using my money to help our economy. Insight of your dogmatic view that the facts are not true?
    I may sound like a different VII than 6 months ago….your right.
    Call it my Cullen MMT- MMR moment.
    I will never sleep or drink from a pessimist cup again. The world and the US may or may not decouple . We may end up n a recession in 12 months. So what…Im in a class today and at lunch I met a Korean immigrant who opened a fish restaurant. His second one. One in 1 year. Greece, decoupling, china hasn’t stopped him from investing in his families future. He tookbernankes ZIRP and borrowed cheap money and started a business. Wonderful man. Your complaining abou ZIRP and its affects on the future and some Korean immigrant took what the fed offered and is creating a franchise. Working his ass off mind u. If anyone wants to meet me and say hello…or punch me in the face…I’ll be ther at 5.20 to pick up take out for my family. It’s on Ventura blvd in sherman oaks ca. I wearing a grey top with blue jeans, blue shoes with an iPad . Brown hair..6’3. I’ll give you the restaurant name..fish dip? I think. I’ll check this at break. Maybe I can meet a TPC friend and we can have some laughs.
    Col

  • ArthurK

    Funny how you can distort the truth with statistics.

    S&P April 2011 = 1378
    S&P March 2012 = 1406 (todays highs)
    Percent return last 12 months = 2%

    Shown above:
    S&P 500: +11%, 52% annualized

    If only prices move in a straight line – always up

    If anyone is willing to buy the S&P from me today for a 40% premium so that you can make the last 10% please let me know.

  • VII

    Fish dish in Sherman oaks…I’ll be there today at 5.20 if anyone is around.

  • Octavio Richetta

    Yes, amazing start. I am negative beta so i am -2.5% YTD, but cool about it. Now enjoying a single malt scotch sitting outside in a bar by the central square in Trenque Lauquen, Argentina. Best time of the year, currently 75F.

    On April 5, we head up (or is it down?) to Venezuela. Time to see how the Guajiro Indians amd the sheep at our Morrocy Natonal Ocean Park farm , are doing. My guess is that Chavez won’t be around much longer but that will not be the end of chaos.

  • Larry

    @Leverage, you said: “Long term investors may better look at credit market and build a balanced basket IMO rather than buying equities, not much alpha but better safe than sorry.”

    Why not put half into dividend-paying defensive equities like utilities, consumer staples, and blue-chip pharma, and the other half into the credit market in vehicles like LQD and CIU. It is probably a toss-up as to which half does better over the next 6 to 12 months. Both halves yield a similar 3.5 to 4.5%. I would also give Jeff Gundlach an allocation to DoubleLine tot return. If I read you right, you seem to be negative on equities after the recent 25% rally, is that right?

  • Mike C

    Part of me hears your argument, but after 1998-2002, and 2006-March 2009, isn’t buying this market here today at 1400 just a bunch of greater fools. Sure, one should have bought the market in October under 1100, but that opportunity is gone. What is Shiller’s P/E at 1900?

    I don’t know…we’ve seen this movie before, do we get suckered in for the third go around?

  • Leverage

    Buy high yield and investment grade (ie. 30/70), if you are long term investor you are holding to maturity (buy at least 1 to 5year). Protects capital better and chases yield, if market goes down a rise in quality paper prices will make it up for whatever lose you have on high yield and probably better.

    Going long high yield is not worse than going long high beta equities right now and you can protect your principal easier if you get the right exposure mix. If you buy defensive equities and market goes down, these will go down too (but less), given cyclicals have and still to underperform maybe defensive is not that cheap relatively to the whole market, but quality paper will go up because people will be desperate to chase some yield again.

    Problem with investment vehicles (ETF) is that you are holding a share of the vehicle but not the asset itself, so you are basically rolling over. Just like if you buy and sell futures & roll over but never hold to expiry date. But still you can build a decent basket of different vehicles and stick to it. If the bond market is over you or you do not want to get much involved you can buy a fund which does trade for you (yes Doubleline is good).

  • Leverage

    There hasn’t been any significant debt reduction at household sector, in fact its again at old levels, it has risen again and that’s one of the reasons data is mixed instead of messed up (heh). Again private debt and credit rose a lot, yes asset prices have an effect on balance sheets. Question is you need increasing demand to keep prices going up so liabilities do not cause trouble, a big government deficit is helping and that’s probably the strongest argument right now for bulls, but that deficit as large as it is is probably only large enough to offset private sector deleveraging forces (like it was in Japan which already went though it).

    In the end is all about supply and demand, so the question is if you believe if exponential functions can work in the real world, apparently the FED thinks it as do you right know (they’ve convinced you). If incomes can’t keep rising to keep with asset prices (hint: they can’t right now, that’s also a fact), these will fall and have a destructive effect on balance sheets (and if they can then you have inflation and lose purchasing power, but the stock market will rise, however it if it will rise enough to make it of it’s to see, given real adjusted-for-housing inflation in last decade was closer to 8% and the stock market never broke the 2000’s highs). There is the momentary wealth effect. Tell about wealth whoever is left holding the liability at the end of the party and who does not have a direct line to helicopter drops from a CB’s like banks.

    This is not theory, it happens time and time again and has been happening since thousands of years ago. So you party, but there is always someone with a liability and when he can’t keep up increasing liabilities the prices crumble and go down.

    BTW it’s not about being right or wrong for whatever reason, don’t you think you are just holding the same position than 6 months ago: you have your ideas and stand by them, these ideas are not neutral or in a vacuum, affect your actions and are affected by your perception. Now you think the wealth effect works and it’s fine, is no more neutral position than the one you had 6 months ago. You have a model in your mind just like you had one before, it has changed, but you have one, no one is agnostic (either you ‘believe’ or ‘not’ in something).

    P.S: If you are in profit why sell your whole winning position unless you want to start a new position in other asset and need liquidity? But that’s how you trade, because when you trade you know you are gonna be wrong a lot of times, at sometime you capitulate (name it however you want) and change position. Good execution is how you make money in reality and that’s what differentiates someone good at speculating and someone who is not, and that including dumping bad ideas and not building on them.

    If I sell is not because I think it was time to go short ahead of a rising market trying to get tops (because the tops are made by the holders and buyers who stop buying) but because I though I could put the money to a better use elsewhere or doing something else. Unless you are a very big institutional player or using obscure instruments and assets (and in that case only should be a minor fraction of your portfolio), with proper brokers you can play it that way safely nowadays, specially in bullish markets when there is good liquidity, no need to get ahead of the market, just follow trends.

    I’ve a lot of backup plans in case I fail, none of it includes buying equities :D I got more profits from goldbugs in one week than what the SPX has risen YTD, so why the hell should I care about SPX if we are not talking about the real economy and are talking about financial shenanigans. Most people does not get a share of that ‘wealth effect’, that’s not the way the ones carrying increasing liabilities get away it, and that’s the ‘real economy’.

  • innertrader

    To follow up on what I’ve been saying about the election year lies concerning our socialist gov released official stats, check this out! Don’t forget, they will do whatever it takes to get barrack hussein oBama re-elected!

    http://globaleconomicanalysis.blogspot.com/2012/03/gallup-struggles-to-explain-bls-jobs.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

  • Alberto

    I will not buy a market where corporate insiders have been huge sellers of their own stock, exceeding $6bn last month (with the ratio of selling to buying hitting the astronomical 13-to-1 mark).