Free Money Trumps Sequester
-Bernanke’s promise to print $ eases investor anxiety
If a Sequester falls, does anybody hear it? This dreaded affair, an event once believed so devastating that if it were to occur the world would break free from its magnetic pull to the sun and hurtle us all helplessly through space, is literally just hours from impact and no one seems to care. Have we been lied to by our beloved politicians? Forsake the thought.
Clearly investors are much more concerned with the free money printing of the Federal Reserve, because for the market it is far and away the only thing that matters in the universe. Bernanke’s promise to defend and protect the continuation of the Fed’s stimulus policy with his life in his congressional testimony was all the market needed to forget about the Sequester. If there was ever any doubt in your mind that this market rally is solely driven by Quantitative easing, let it be put to rest now. What kills me is that so many think that all this money being created has no consequence. If that be the case, why doesn’t the Fed just give $2 million to every American and be done with it? I better not get started…
The main indicator to watch is complacency, and that is most certainly on the rise. In the past few newsletters I have analyzed the importance of corporate earnings, the post-earnings nap, and fund flows from bonds to stocks. Today I want to discuss an intensifying belief that the current bull market is not as old as many people think, but in fact very young, and therefore has more steam left in it. Some are arguing that the five month correction in 2011 was actually a bear market, and that the count should start over then. During that pullback, the S&P 500 dropped by about 19%, but other indexes did worse such as the Russell 1000 Index (large caps) which fell -20%, the Russell Mid Cap Index which dropped -25%, and the Russell 2000 (small caps) with a -30% decline. Typically, a decline of over -20% makes it an official bear market.
The distinction is critical. If you believe that we are still in the bull market that started in March 2009, you should be worried. It is almost four years old and has gained +120%. This is much larger and longer than the average bull market (since 1966), which typically gains +82% over 3 ½ years. But if you view the current bull market as starting on 10/3/11, it is still young with good upside left in it, as it is only sixteen months old and has only gained +36%.
One could easily argue both points of view, and I will remain open to either. However, when I hear the latter it reminds me of late bull market opinions where people are reaching for excuses as to why something is not what it appears, or why this time is “different”. I can remember in 1999, when internet stocks had already gone up a gazillion percent and we were trading at multiples that were not even possible, hearing analysts pound the table that these levels were justified and why they just HAD to go higher. I also remember hearing the same things literally the day before the 1987 crash when I was just a young broker pup with Merrill Lynch, Pierce, Fenner and Smith. We also saw that again with real estate just a few years ago.
Only time will tell, but I’m not willing to bet the farm, or my nest egg, or yours on it! I still expect new highs before a nasty correction or bear market this summer, and I plan on having our clients properly prepared. In this world, not losing is winning.
I still expect new highs before a nasty correction or bear market this summer, and plan on having our clients properly prepared. There are ways to make money in any market, if you know where to look. Now more than ever, “Invest for need, not for greed™”. If you are looking to get the best returns with the least risk possible, take a look at our powerful proprietary Investment Management Strategy which manages risk and delivers returns in any market.
If you would like to learn more and/or get a free second opinion on your portfolio, simply reply to this email, click our Appointment Request Form, or call for a no-cost no-obligation consultation today at (916) 925-8900.