re market direction short, medium, and long-term:
Longterm, we are in a secular bear market, caused by slowing growth in population/incomes/jobs throughout the wealthy world. Our pensions, government finances, etc. are geared on the assumption of growth that isn't happening, and won't happen. This creates periodic crashes.
Medium-term, we have recovered from the last recession, and achieved a tenuous stability. A year ago, I thought we were going to slide back into recession. Now, however, I think earnings expectations and stocks will be in a modest irregular uptrend, like the 2004-2007 period. The main reason for my (relative) bullishness now, is the recovery in housing. Remember, for the middle class, their wealth (and hence general optimism) is dependent on housing (not stock) prices. The housing sector appears to have finally hit bottom, at least in the U.S. Jobs and incomes are also growing, although slowly.
Short-term (next few months), I doubt we get a Lehman-type event when Greece leaves the Euro. There are a few more magic tricks available to kick the can down the road. Spanish junk will be re-packaged as German gilt, and everyone will be happy again, till the next crash.
For the S&P500, I now expect we will get back to the 2000 and 2007 double top (just above 1500), before end-2013. At that level and above, I will be net short the market. In addition, a VIX below 16 is a sell signal.
Within that modest uptrend, we will see continued dips, which should be bought. So far in the cyclical bull that began March 2009, we've had 3 multi-month dips:
down 17%, 1220 to 1011, in mid-2010
down 22%, 1371 to 1075, in mid-2011
down 9% so far, 1422 to 1267, in mid-2012
S&P500 at 1138 would be down 20% on the current dip, about the same % as the previous 2 dips. This is very possible. In addition, any VIX above 30 is a buy signal. But the buying should be in widely spaced increments, as we could easily see VIX back to 48, which it reached in the 2010 and 2011 dips.
As far as trying to pick specific stocks, sectors, or countries, there isn't much point. All the risks were connected in the 2008 crash, and they will still be connected in the next crash. There is no way to avoid this, except cash and shorting. When we crash, AAPL will do better than MU, but cash will do better, and shorting (AAPL or MU or anything) will do best. So sweating about whether AAPL or MU is a better investment, is wasted effort. Spanish banks, U.S. banks, it's all junk.
re RtS's excellent post on sectors and cycles Message 28225461, I read all his posts, and this one twice. Several factors may skew the usual sector relationships:
1. banks were crippled in the last recession, and have never really recovered
2. lack of credit has replaced inflation, as the event that chokes off bull markets
3. therefore, the usual inflation red flags aren't useful
4. best guess, we are currently mid-to-late upcycle; the bull is getting old but isn't dead yet |
