It is possible to mistake a bear market rally for a new bull market. But as the uptrend plays out, one of them will be supported and sustained by an improving economy, and the other will not. I think it is clear which direction the economy is still headed, and it's not good. Seemingly cheap stock prices and an upsurge in price movement does not indicate a new bull market has begun and that the bear is dead.
According to the latest Wall Street estimates, stocks are priced at 15 times FORWARD earnings. Given that stocks are currently selling at 30 times TRAILING earnings implies that earnings will be doubling this year to reach those forward estimates. That would truly be a miracle. We've been told for the last three years that the recovery is coming in the second half. This time around, the economic conditions are accelerating all right, but for the worse - not better. Does anyone see anything coming out of company reports that would indicate this kind of explosive earnings growth? (oh ya, it was the war holding back cap ex. spending and expansion - right...)
Forget the consumer, he's tapped out. Currently we have $8 of debt for every $1 of production. Unfortunately, that ratio is still heading to further extremes.
If we get signs the economy has indeed bottomed and improvements are on the horizon, growth could again begin to be sustained. Does anyone really think a new bull market has already begun? The indicators are not there yet. Until they are, these uptrends can merely be bear market rallies - and they are classic. |
