Well, I don't think the bulls have been able to do anything other than sit around for the past 7 years to let dividends, retained eps, eps growth and all the fundamentals price us back into reality. It's been very boring work, with almost half of my returns in stocks like C coming from dividends. Looking forward, if C has the same corporate fundamentals for the next 4 to 5 years, their stock price should start going above the $60 high from 2000.
I think we're heading back to the sort of market we saw in the early 90's with declining interest rates and multiple expansion. The last cycle of FED easing in the 2001 did nothing since stock valuations were the problem. In fact, the market didn't really go up until the FED started raising rates. I guess that's why so many people have been so complacent about the 17 consecutive rate cuts that followed stock valuations UP from the bottom in 2003.
Now that interest rates are going back down to help the economy and not the market, I think the market will be able to do much better. It looks like a textbook example of where a "recession" is good for the economy by bringing down interest rates as inflation takes a break. After all, housing appreciation in a complete joke in most markets with poor demographics. I don't care how many homes are foreclosed, who is going to absorb the inventory in markets with negative population growth.
This market is long overdue for some incentive to put money away. I thought it was ironic that Bernanke talked about increasing savings and investment in this country during his speech in Germany. How is that possible with restrictive monetary policy? Now, we are finally exiting the era of the negative yield curve, which should provide an incentive to people buying bonds and other investments in this country. If lower rates lowers the dollar and helps the trade deficit, that shouldn't hurt too much either.
At the end of the day, the only place in the world to worry about inflation right now is China. Maybe they can cut back on huge trade surpluses to keep more goods at home. I really have no idea what to think about growing demand in China. Only the simple observation that they need to increase domestic supply. |
