About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Monday, May 30, 2016

Stock Market -- Long Term Issues #1

It can be mighty important to gain roughly correct perspective on the long term potential for the
stock market. Looking back over the past nearly half century, I have been prescient at times and
other times I have been well off base. I have had the good fortune when I have been in the wrong
to correct the view before the errors became fatal. I do not think I have a strongly held view of
the future this time out. There are only issues instead. If you are the indulgent type, read along and
see how the series of several posts on the long term outlook planned for the next few weeks strike

I am not uncomfortable with the idea that 2009 marked a generational low for the stock market.
Stocks have been bought for growth primarily since the end of WW 2. The chart coming up shows
the SP 500 since 1950. ^GSPC  (Chart is in log form. Some of you may have click off "linear.")

The tops on the chart form a nice trend line until the 1990s when a quantum rise in the p/e ratio
took the SP 500 into large bubble mode for the first time since the 'roaring twenties.' If the trend
line from the tops in the 1950s and 60s is extended all the way to the present day, you will observe
a 'bubble echo' for the 2003 - 07 period which was followed by a deeper bust in 2008 - 09. That
bear market was the worst in many years and, lo and behold, the subsequent bull run has brought
the market again above the top of the trend line from the 1950s.

Thus, on a long run basis, the market is again hyper - extended, although less so than in 2007, and
very much less so than in 2000. The long term history of the stock market going back 200 hundred
years shows that buying hyper - extended markets, even dinky ones, is not a rewarding strategy.

The first longer term outlook issue then is that we have a very expensive market to cope with.
Secondly, there has been a significant trend break in the bull market running off the 2009 base.

There has been near term support at SPX 1800 and the rally this year has been strong enough to
reverse a downtrend and leave the market in limbo. Last year's rollover in the MACD measure
(second panel) also not a good omen at least in view of recent history.

In the next post in this series, figure we'll put some fundamental meat on the bones of the charts.
Interesting here as lead in is that the SPX has come off a lengthy period of net per share growth
that has been well above the long term average.


1 comment:

Neha Agrawal said...
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