Well I'm not saying stocks should get a 30PE ... but even a discount to 20PE accounts for the risk premium. As far as 'during this kind of environment' is a short sighted argument. Euphoric times have always been most risky to long term returns... And we certainly aren't in euphoric times. Much safer to buy here than S&P at 1400-1500 (although it didn't feel that way before).
The inflation argument is wall street BS myth to get people to overallocate to equities. They dont tell you the market could drop 60 percent in one year.
They're probably in them only for the trade... capital appreciation on the anticipated drop in long rates <2%. After that they'll short bonds or move to something supported by inflation...
I agree. Historically, there have been many more rangebound periods and very few long-term secular bear markets, despite all the "next Great Depression" calls. This could be a lot like 1966-1982, where there was no net movement for almost 18 years. We're below the '97 highs right now, so this rangebound period is already 12-years old. Given the fact that 1981-2000 was the best 20-year period for stocks on record, it's not surprising we're getting this mean reversion for a couple of decades. It doesn't mean it's the end of the world. This year we're extremely oversold by any historical standard or benchmark. The 1100-1200 area is right in the middle of the channel formed since 1999. I think it's a very likely target...especially with the huge gap just above 1100. I'm just not sure how fast we'll get there.
True, but unlikely when the government is about to embark on a $1,000,000,000,000 spending spree. Right now, Wall Street continues to spread fear and panic (and this includes Paulsen), as their friends accumulate. The market action has been impressive lately, especially whenever Obama makes an appearence. 2009 will be marked by government sponsored job growth under the auspices of a very competent government. Foreign events may send the market in a direction, but I think the overall bias will be to the upside throughout the year. Inflation is probably a non-issue while monetary velocity remains so low. I doubt that velocity will pick in in 2009 or in 2010. I think a turnaround in growth is pretty much baked in starting the 2nd half. Anyway, that is how I am playing it as I steadily accumulate at these levels, keeping cash in reserve, in case I am wrong and the market breaks lower.
I agree. Institutions that have parked their money in .01% Treasuries can only keep it there so long. Everything that was redeemed will find its way back in some allocation mix. Currently, it seems to favor large caps (commodities are in the dog house), but it could reverse to small caps once risk aversion diminishes. My guess is that accumulation is already in process and it will gather steam as it becomes clearer which industries will most benefit from government fiscal and monetary policies that Obama will put in place.
the market is simply stuck in a trading range. Like the trading range between June 2002-April 2003 this one will also break to the upside. Go long and ignore the doom and gloom headlines. No one cares about the hedge fund redemptions or GM.