That's the big misconception. I think it has been pumped up...indeed. But. Corporate earnings are good. Corporate balance sheets are fantastic. Strip out the energy companies and earnings last year were very good overall.
Fundamentally stocks are trading at around 14-15 multiples. Not cheap. But not at the 30 multiples in 2007 when we hit that 14,000 high then was oversold to the hilt in Feb/March 2009. The world was ending. That was a once in a generation correction my friend.
Stocks long term are priced where they should be. Some expensive, some rock bottom cheap and some just right (it is a true stock pickers market right now not an indexing market like 2013). Markets are recalibrating and normalizing right now. I will say it again. 2 more years then get very cautious. This bull cycle is not over yet. This is a normal and healthy correction during a bull cycle. Also Oil has really been a left hook. China an upper cut. But it is all priced in now.
A real recession like correction is still a ways off. Our economy is doing fine right now. Not amazing, not bad. But getting better.
So keeping interest rates at zero for ~7 years and pumping ~$4 Trillion into the system via QE didn't have much of an impact?
Corporate earnings are not good- we've had multiple quarters in a row of declining earnings and revenues, which are technically in a recession. Sure, it's not as bad if you strip out energy, but that's like saying "take away their best/worst plays and things look different". Well, no kidding, but you can't do that- they all count.
Likewise, corporate balance sheets are far from fantastic. Corporations added $29 Trillion dollars in debt since the financial crisis, their debt-to-earnings ratio is at a 12 year high, and last year they had the most downgrades of corporate debt since the financial crisis in 2009.
P/E ratio's aren't sky-high, but they are a decent amount above historical averages even after this drop. Margin interest is at all-time highs (well, lower than the all time high set in April, but higher than any other time, including the nasdaq bubble). All of this with unprecedented levels of Fed intervention.
Just curious- why are you optimistic for 2 more years and then pessimistic?
Ok clearly your quite bearish. Were you able to to take advantage of 2009-2014? I hope so.
I said no question the zero rates and QE helped, and it was needed badly from where we were in 2008/2009. We are seeing the hang over here. But to think it's all due to QE and zero interest rates is crazy. Companies are doing good. The economy is recovering. Bears scream and pound and once a decade they get it right.
Bull cycles typically last 7-10 years. I am just using my own investing experience since 1987. My own money and wealth has taught me my lessons...not a text book.
I will leave it at that.
Good luck and I hope you do well. If the market corrects some more....so be it. If we go down to 14,000 again so be it. I am highly confident in the companies I own, the dividends they pay and the fact that we will again go north and make new highs.
Like the last 100 years.
Really I don't want to keep going back and forth....it's not worth it. Not because I can't answer.....I just don't need to anymore. For every point I make their will always...always be a bear counter point. It's like those debates you see on CNBC.
This is probably the most hated stock rally in history because so many bears missed the entire run from 6700 to 18,000!!!!
Good luck to everyone though.
I'm not necessarily bearish right now (far from a bear in general), I'm actually looking for reasons to be bullish which is why I like to hear other viewpoints. Unfortunately, it usually comes down to the same things that you're saying- platitudes like "balance sheets are fantastic, corporate earnings are good", etc., but that's just not reality right now. If you have actual data that shows this to be the case, I'd love to see it, but simply saying it doesn't make it so. Debt-to-earnings are at 12 year highs, and earnings and revenues have been falling- how is that "fantastic" or "good"?
Yes, I certainly took advantage of the huge drop, but that's in the past and I'm trying to position myself for the future. I'm not sure if you're actually reading the posts at this point, but clearly I never said the
entire move was due to QE and ZIRP- if I thought that was the case I'd be expecting an apocalyptic scenario. However, putting things into perspective, if you think that say ~20% of the move was due to those policies, and we've had a 175% move up during that time, that's a pretty substantial amount.
No worries if you don't want to keep going back and forth- I'm more interested in data than rhetoric myself.
Things also depend on what companies you look at and what you own. I am specifically talking about my portfolio and what I manage for my clients.
It's all high quality mega/large cap names. I don't buy much in the way of small cap or mid cap on an individual basis (here and there but quite rare). I utilize actively manged institutional share class mutual funds for small cap stocks both value and growth (and is the space that is taking a beating and is under extreme debt pressure in some cases), small oil and shale companies are in over their head with debt. But when I am looking at my portfolio here are the names we are talking about and why I don't have long term concerns:
I started this equity portfolio (I am not including my fixed income and hedge positions just the individual stocks) in earnest in 1995 and have of course bought and sold, covered calls, added back, add to etc etc (when I had accumulated just shy of 100K of my own savings since turning 17 and started investing in stocks). Maybe if you see what my money is in you will understand why I block a lot of noise out and look at this massive amount of QE and low interest rate environment with some caution but not immense concern moving forward for the next 20 years.
AAPL
AEP
AGN
AMGN
ASH
BA
BMY
BP
BPL
BUD
CAT
CELG
CLX
CMI
COP
CSCO
CSX
CVX
DEO
DE
DIS
DD
DOW
DVN
EMR
ETN
EXC
FB
GE
GILD
GIS
GOOGL
GSK
HCP
HON
HP
HRS
INTC
JNJ
JPM
KHC
KO
LLY
LMT
MCD
MRK
NEE
NKE
NSC
NSRGY
O
OXY
PG
PPL
QCOM
RDS'A
SAVE
SBUX
SLB
SO
STR
T
TGT
TUP
UN
UNP
UTX
VLO
VGR
VOD
VZ
WFC
WMT
XOM
YUM
Just the equity portion and here is the performance numbers on it.
Worst 12 month period over the last decade was Mar 2008-2009 (-30.36%)
Best 12 month period over the last decade was Mar 2009 - Feb 2010 (+50.92%)
Worst 36 month period over the last decade was Mar 2006 - Feb 2009 (-2.98%)
Best 36 month period over last decade was Mar 2009 - Feb 2012 (28%)
10 year average annual return was 12.79%
5 Year - 14.18 S&P 500 did 7.31
3 Year - 14.82 S&P 500 did 12.57
My standard deviation over 10 years = 13.19
S&P 500 = 15.06
My alpha over 10 years = 5.79!!!
My Beta over 10 years = .85
Those are hard factual numbers of what my money has done. That is why I am not concerned.
The starting point for this exercise was Investing 500K in December 31st of 2005
You know what number looks like now? With the great recession? 1,696,834
Oh and the dividend yield on this portfolio is 3.5%
No rhetoric. Just my statement telling me how much I made. That is what my long time clients see on there statements. I remind them all the time we go through gyrations like this...remember 2002? Remember 2008 and Q1 2009? Remember 2011?, Flash Crash, this correction, that correction?
And what did we do every time we had a major down turn? Oh yeah. Re-balanced, bought more and profited and made new highs.
And what did we hear every time we had a 10% down turn or more?
This time it's different. This time we are in big trouble, this time......
I lived through 2008 with my clients. I was at a major bank at the time and knew how bad it was. And believe me we were on the brink and many many people don't even realize how close we were. But I also knew the Fed was going to back stop the banks and create a bridge loan for AIG. Once I saw the AIG bailout I felt very confident to go in and re balance and hoard stocks. I could go on and on. I truly lived this recession in the industry and kept my clients calm and I did not have one...not one liquidation. My practice grew 200% after the down turn because of how I managed their assets (and they sent plenty of introductions to me after the downturn when there neighbors ask how much are you down? And they say 18% that was winning not losing back then). I manage them like they are my own.
All I know is Walmart will still be here, Coca Cola will still be here, tractors, earth movers, planes and cars will still be needed, gas will still be pumped, electric will still be turned on and off and people will need drugs to stay alive.
Those are my facts. It's not rocket science. It's common sense and experience. My life experience right there for you.
I will tell you how to prepare for the next 10 years. Stay invested, gradually move to a more balanced portfolio as you get older, if your 5 years or less away from retirement under weight stocks down to a max of 30-35% of your total portfolio. Some clients I get them down to 20%. it all depends on their income goals and risk tolerance.
I have been doing this for over 20 years. I can tell you growing the money is the easy part.
But harvesting (for income) takes a ton more skill and discipline. I have 30% of my practice in retirement and living off their savings. Those clients are the ones who worry far more than my savers. It's challenging when you can't use CD's and Money Markets as part of the equation for harvesting income. But eventually the pendulum will swing and rates will move higher. We are not going to be Japan. Absolutely not IMO.
How do you prepare for a rising rate environment? Stay short and high quality with your bonds, buy high quality growing dividend large cap US based stocks and buckle up for some storms and wind. You don't need this pot of money yet and not for a long time. If so...stay out of the market it does not belong in there if you have no long term time horizon.
You will be fine in the long run.
For my retired clients, they have guaranteed variable annuities working for them (no more than 30% of their total net worth ever) and paying them between 15K-30K a year for life (started these 5-9 years ago with great step up riders, great death benefits and withdrawal for life benefits), their social security paying them 17-21K a year (so both of those amounts cover their mailbox bills) and a small portion of their net worth in growth (large cap stocks that pay dividends) and a majority of their net worth in a diversified investment grade (for the most part as we need high yield in there as well) and good quality muni-bond portfolio (individual and mutual funds depending on asset size).
