1999 Again?

I read an article explaining the similarities of the recent “four-fecta”: the Dow Jones, the Nasdaq, the S&P 500 and the Russell 2000 all hitting record new highs on the same day! Yes, in that respect, it is like the last time this happened in 1999. But the similarities end there, in my opinion.

LONG-TERM CYCLES

The difference between now and the 1999 bull market is that we are not in a tech bubble. Every major index was overpriced when compared to earnings. Now we’re at the beginning of slight overpricing. But when projected out on future earnings, the broad-based S&P 500 is fairly-priced for 2017 and under-priced for 2018.

According to Yardeni.com, earnings for the index will $132.61 in 2017 and then $148.11 the next year. This puts the P/E ratio at 16.52 and 14.79, for each respective year. The 2018 number is below the historic average. That’s why it’s under-valued for that year’s estimate.

We’re actually at the beginning of what I think is a long-term bull market that began in 2013. Here’s an article I wrote then expressing that opinion:  reprint-superbullmarket-senior-beacon-2013-sept-doc

Carl Icahn is worried…Should You be, too?

Carl Icahn In His Latest Video: “Danger Ahead”

For those of you who don’t know, Carl Icahn is a famous, “shareholder activist” billionaire. He’s even been called a corporate raider for those wanting to insult him.

But, in my opinion, he and his cohorts are a positive force in the market. When there’s an undervalued asset, bad management or other opportunity, these are the guys that shake things up. They own a lot of that particular corporate stock and if you do, too, then you’re in good company. And, most importantly, your stock may go up significantly.

With that said, I have to take his latest video with not a grain, but a wheelbarrow, of salt. I agree with about 90% of what he says except Icahn’s BIG PREDICTION: he thinks there will be a market crash soon that will make all crashes since the 1960’s look minor. I have to say: “Hogwash!”

For context, the worst crash since the 1960’s was The Great Recession we just endured from 2008-09. Very simply, the big fundamentals were going down. Both GDP (the size of our economy) and corporate earnings (the stock market’s major indicator of health or weakness) were going down. And we were at the end of a massive real estate/lending bubble. In other words, the market deserved to go down 50 percent. Which it did.

So, Mr. Icahn, where are GDP and corp. earnings now? Hitting new records. Like they’ve been doing for the last several years. Like they’re estimated to do for as far as can be forecast.

Just a side note: the wealthy and the politicians seem to have lost touch with Main Street. The video also mentioned various bubbles, one of which was an art bubble! Who cares about an art bubble except the ultra-wealthy? It certainly doesn’t cause a tumble in the U.S. economy….

Here’s a link to the complete video via The New York Times: video

Take a look at Icahn’s video. It is really worth watching. Let me know what you think about this billionaire’s thoughts. Please feel free to comment below or contact me any time at RonPhillipsAdvisor@gmail.com

The Outlandish Prediction by Bill Gross

Bill Gross is know as “The Bond King.” And with good reason: he co-founded PIMCO and helped grow it to almost $2 trillion in assets. Two trillion! He’s recently left the company, headed to Janus and he always has strong opinions.

A recent Bloomberg headline read: “Bill Gross Says the Good Times Are Over”. Is this really so?

I’ve written about Mr. Gross in the past. He’s also well-known for creating/popularizing the term “new normal.” Basically, new normal means the U.S. will experience a European-style economy: regular high-unemployment and stagnant/low GDP growth in the area of 1-2 percent yearly. My previous article disagreed with this notion. We were simply experiencing multiple bubbles popping over the last full decade (Tech Bubble, Housing Bubble, Commodities Bubble, Credit Bubble, etc. from 1999-2009).

With unemployment steadily dropping and GDP growing 4 and 5 percent in the most recent quarters, The Bond King is being proven very wrong.

But is he right about the current stock market party being over? Yes and no.

I completely agree that we’ll have a market correction (10-20% drop in stock prices) at any time. The U.S. markets have made record new highs and been up for six years straight. So, yes, the party’s over…in the short term.

But long term I think the party’s just begun. If you look at the past 90 years of the market, we have long up and down cycles. They usually last 15-22 years. It’s very, very clear when you look at a chart of stock index prices for this 9-decade period.

Our latest down cycle started around the year 2000. I think the long term cycle, or secular bear market, ended in 2013 when the DJIA broke through to new records. That’s roughly fourteen years. Right on track with history.

Now, in my opinion, we’re starting a new secular (long term) bull market. The kind that can last 15-22 years. But it could be shorter. Things have sped up: information, investment trading, technology, product cycles, careers, etc. This could compress the current secular bull to a shorter time….

Why might we be in a super-bull market? The fundamentals. Michael Jordan said “You can have all the physical ability in the world, but you still have to know the fundamentals.” The fundamentals of the U.S. economy and stock market have never been better. We’re hitting new records in GDP and corporate earnings as far as estimates go into the future.

For example, GDP will go from $17.4 trillion in 2014 to $22.1 trillion in 2019, according to the IMF. And S&P 500 earnings have hit new records for the past four, or so, years and are estimated to hit new records this year and next.

Those are the big fundamentals. Add to that lowering unemployment, real estate sector growth, growing consumer wealth and saving, and lowering consumer and corporate debt and that equals a very positive future.