I will repeatedly warn people to sell stock in the next rally. The reason is that the market bubble is now more clear than ever. Hold for the long term? How about 24 years, is that OK? Or if you are lucky maybe just 16 years. This whole notion of buy and never sell as the most endearing strategy is simply- Peter Lynch bite your tongue and shame on you.
We have entered a secular bear market. A secular bear market lasts a long time due to the enormous amount of grief needed to flush out the bubbles that ultimately define great bull markets. Evidence of a bubble in the American markets:
1. PE ratios for blue chip stocks, like GE and Cisco are now reaching FOUR times the company growth rate. (bubble)
2. There is intense NEED for stocks. Everyone is dependent on them for their retirement, often 100% invested. (bubble)
3. Their is no fear that we could be in the 1920's -30's. We have learned too much, banks are regulated, margin requirements are strictly watched.
The FDIC will protect all banks, therefore nothing will fail. The SEC was created to regulate and enforce all sorts of disclosure and fair trading practices. (those are lessons learned from the LAST bubble)
4. We all are so dependent on the market that there is no way anyone will sell until the last dollar appears on the table. If the Jones next door retire before me I will feel totally inadequate. There will not be a last dollar because there is a new economy, Greenspan is the best Fed Chief of all time, and the stock market has always come back from downturns. (Cab drivers are ready to buy the dips.)
5. Today's Robber Barons (Bill Gates, Jack Welch, Steve Case, etc.) are paper wealthy. How many of the richest 5% in America have 90-100% of their wealth in stocks, and 80-90% of that wealth in a single stock?(bubble)
The bubble of the 1990's was created by heavy stock compensation to all levels of management plus the average persons money in 401k's. It has been a feeding frenzy for stock in a time of world peace, globalization, and the blossoming of microprocessor and software technology. The undoing of stock compensation by the richest 5% has indeed started and will likely bring down all world markets to depressing levels (50-67% from the high's). People have substituted greed (stocks) for the anger felt by the dismantling of the single job for life culture. It is only right that we all get rich and retire young, because we paid the price throughout the 1990's. Jack Welch, Bill Gates and Warren Buffet are really angels on earth. Those three alone could topple world markets by flooding the market with stock in their respected portfolios. But they won't because they are good Robber Barons. There are tens of thousands of other angels in corporate America as well. We are talking vice presidents of all levels and mid-level managers that would never sell the millions upon millions that they have earned from stock options compensation that is still in the market.
"The problem with bubbles," quotes Alan Greenspan, "Is that they are very hard to define until they have passed." I have a feeling history books across the land will coin that phrase in our time in the same vain that Hoovers quote "prosperity is just around the corner" was for that generations bubble nightmare.
Plus the NASD chart for 2000 is almost identical to the 1929 Dow Chart. Look for yourself or read my other posts describing this phenomenom.
jmootx |
