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WSJ Essay: 5 Yr Bull Market May Be Over, Or It May Not

tl;dr= 50/50 shot of a crash; either it will or it wont. ...
Mauve shivering home
  03/23/14
WSJ March 22, 2014: "If the current bull market matc...
Sinister Unholy Space Genital Piercing
  01/18/18
lol economists are worthless.
Aggressive halford
  01/18/18


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Date: March 23rd, 2014 9:22 AM
Author: Mauve shivering home

tl;dr= 50/50 shot of a crash; either it will or it wont.

SUNDAY JOURNAL

Wall Street to Investors: Time to Cash In Some Chips

Some Pros Grow Cautious as Bear Market Turns Five

By GREGORY ZUCKERMAN CONNECT

March 22, 2014 8:13 p.m. ET

Like the old song goes: "You've got to ... know when to walk away...."

Even as investors are celebrating the bull market's five-year anniversary—the Dow Jones Industrial Average has risen 149% since its March 9, 2009, financial-crisis bottom—there's a growing sense among some Wall Street pros that it's time to slow down.

While the market could keep rising for the foreseeable future, cashing in some chips by selling select shares and being cautious about new investments likely is a wise move, some analysts and investors say.

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Last week, the Dow rose 1.48%, while the S&P 500 stock index rose 1.38%.

The Dow, which set an all-time record on Dec. 31, has had a mixed first quarter. After a selloff in January, it has clawed back and is now off just 1.65%. The S&P, meanwhile, is down just 0.62% from its all-time high set on March 7 of this year (and up 176% from its 2009 low).

But at these levels, stocks no longer are cheap. The S&P 500 now trades at about 16.5 times its earnings over the past 12 months and about 15.4 times expected earnings over the next 12 months. That compares with a 10-year average price/earnings ratio of 14.7 based on the past 12 months' earnings, and 13.9 based on expected earnings over the next 12 months. A year ago, the figures were 14.3 and 13.5, respectively.

In other words, stocks have entered expensive territory. The market's P/E ratio is about the same as when stocks peaked in October 2007.

The market isn't cheap based on other valuation metrics, either. The S&P's gains since it reached lows in early 2009 nearly match the 180% gains of the average performance of bull markets going back to 1921, and are above the 115% median gains of bull markets in that period, suggesting there may not be huge additional gains ahead.

If the current bull market matches the average of bull markets past, it would have about five weeks left to run.

"Sentiment has moved into a danger zone," says Doug Ramsey, chief investment officer at Leuthold Group. The investment firm's weekly sampling of 30 investor-psychology measures finds sentiment has moved to a three-year optimistic extreme. The last time it found a comparable reading the market dropped almost 20%.

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Even James Bond knows that sometimes it's best to take some money off the table. Daniel Craig, far left, as James Bond in a scene from the 2006 film 'Casino Royale.' ©Sony Pictures/courtesy Everett Collection

Douglas Kass of Seabreeze Partners Management says he's concerned about "speculative excesses," such as a revived market for initial public offerings and soaring biotech and tech stocks. Indeed, shares of electric-car maker Tesla are up 553% over the past year and now trade at more than 100 times their expected earnings over the next year.

There are other reasons for concern. China's economy is showing signs of weakening to its slowest pace in a decade. A highly indebted real-estate developer recently collapsed amid a slowdown in the country's once-raging property sector.

Meanwhile, the price of copper—often seen as such an accurate barometer of global economic strength that it's gained the nickname " Dr. Copper "—has been falling. Copper is down about 13% this year to its lowest levels in about four years. Other raw materials, like iron ore, aluminum, lead and zinc, also have fallen. China is the biggest consumer of many of these materials.

At the same time, U.S. mortgage rates are rising. Thirty-year rates are at about 4%, up from just over 3% a year ago, as investors exit bonds in anticipation of reduced bond-buying by the Federal Reserve.

Consumers face other challenges, including rising food prices, partly due to drought conditions in parts of the country. Consumers usually get a boost around this time in a recovery, as wages begin to rise. But there's little sign of a sustained wage rebound. "Pricing power is almost completely absent from core sectors, and downward pricing pressure prevails in many such sectors," says Daniel Alpert, founder of Westwood Capital. "That would tend to be adverse to earnings and the high market multiples we have seen lately."

"The reason that so many are on the fence about this is that earnings per share can be, and are being, highly engineered via share buybacks," says Mr. Alpert. Earnings per share can rise if shares are purchased by companies, reducing the number of shares outstanding. "And as long as companies have high levels of cash with which to effectuate such buybacks, the pain of top-line pressure may be blunted for a time. But this environment is not a sustainable one or evidencing a healthy real economy," he says.

It's likely too soon to dump shares en masse. When bull markets reach the five-year mark, they've historically climbed another 26%, according to S&P Capital IQ, as long as they survive another year.

Some see evidence the economy is gaining traction, which could help. Veteran investor Jeremy Grantham argues that the market is as much as 65% overpriced but likely will continue going up until it reaches a real danger zone.

Indeed, until the Federal Reserve begins raising interest rates, the market could maintain its strength. And some bearish investors, such as Mr. Kass, were skeptical last year as well, a stance that proved folly as the S&P 500 climbed 30%.

Still, at current levels for stocks, investors don't have the same margin of safety they once had. That's what some well-respected investors, such as hedge-fund manager Seth Klarman, who runs Boston-based Baupost Capital, have warned about in recent weeks.

So what should investors do? Rather than sell all their shares, better to start building a stash of cash to exploit the next downturn, analyst say. It also makes sense to look for expensive stocks to sell.

Blaze Tankersley, senior managing director at Baycrest Partners, says investors should be cautious if they can't use a 20% downturn in the market as a buying opportunity and even more cautious if they hold more-speculative shares.

Tobias Levkovich, chief U.S. equity strategist at Citigroup, says weakness in consumer stocks will continue, noting recent revisions in analysts' earnings estimates. Retail and media stocks are especially unappealing, says Citigroup. Mr. Levkovich says consumer stocks are be an area investors should consider trimming.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

(http://www.autoadmit.com/thread.php?thread_id=2525053&forum_id=2#25242927)



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Date: January 18th, 2018 12:59 PM
Author: Sinister Unholy Space Genital Piercing

WSJ March 22, 2014:

"If the current bull market matches the average of bull markets past, it would have about five weeks left to run."

(http://www.autoadmit.com/thread.php?thread_id=2525053&forum_id=2#35183601)



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Date: January 18th, 2018 1:00 PM
Author: Aggressive halford

lol economists are worthless.

(http://www.autoadmit.com/thread.php?thread_id=2525053&forum_id=2#35183604)