Why So Bullish

James Altucher from The Street sites Seven Reasons to Be Bullish Now.

I see only two possible perceptions that led to the writing of this article.

a) What if the contrarians aren’t thinking? It’s been a while since the last meaningful decline, maybe they forgot how it works.

b) They are trying to get out. They weren’t ready for so much so soon and, as a prominent media source they are advising retail investors to hold to the course while they cash out. The typical pump-and-dump we saw in the 90s.

1. Private equity. Lots of cash on the sidelines may end up in stocks and buyouts.

Last I recall buyouts aren’t profitable. They are bought with debt, fees are made, they finance the company, and resell it to the investing public. This does not work in a Bear Markets (a.k.a. “Credit Busts”).

2. Retail investing. The retail investor still has not gotten back into the game.

And they are not coming! Since when do we need a blow off in order for stocks to fall? Stocks have fallen many times in the past but we have only had 3 or so blow offs. Go figure.

3. Buybacks. This boosts share value.

And it doesn’t mean a thing. Stock buybacks are famous in bear markets. This also answers the liquidity problem mentioned in Number 1.

4. Low-P/E oils and financials.

Let me share with you some math. Dow (13,265) sells at 21 times earnings (645). Bear Markets have in the past brought valuations closer to a P/E of 8. 645 x 8 = 5,160. This means that earnings could easily triple without a single stocks on the Index having to move a dime. Thought: If the two most important items in this economy (Energy and Money) are selling at low valuation I think you should start thinking.

5. Global economy boom.

The stocks market is nonetheless, a) a short-term indicator and, b) a leading one. Many of these future gains have already been discounted in the past. Thought: This past the Emerging Markets fell right along the developed nations.

6. China.

Amazing no one ever seems to leave it out. But let us remember that China is the producer and we are the consumer. If either we stop spending or they stop lending China can easily be taken out of the equation. Thought: The U.S. was also amidst its Industrial Boom when it plunged into the Great Depression.

7. Tech upgrade cycle.

Again with technology. The stocks market didn’t rally because people were upgrading their TVs from black and white to color. Besides, this is why Microsoft is selling at 20 times earnings, isn’t it?

A few more sentimental thoughts…

The bulls always seem to bring examples of 1999 saying that if the standard retail investor isn’t in the game you can’t have a real Bear market. This is wrong from its premise. Consider a moment that those individuals who were running out to buy stocks in the late 60s didn’t see a similar excitement until 30 years later! History says it should be about the same amount of time until the next euphoric blow off.

Nevertheless, he comes to give us reasons why we’re not yet at a top. This is quite interesting because many wonder as to what was the catalyst for the market downturns in 1974 and 1978. After all these were by no means speculative tops and on the contrary, were amidst recessionary periods of falling valuations.

So there you have it. James has given you seven reasons why stocks should go higher and I have given 7 why they may head south.

But do recall that while no Bull market ever supported ratios of earnings below 10, few Bear markets have supported ratios above 20.


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