How can you be bearish when cumulative breadth and indices are hitting fresh highs?
1961 saw an all-time high, then after a 27% drop, didn't see it again for a year and a half.
1972 saw an all-time high, then after a 47% drop, didn't see it again for almost eight years.
1929 saw an all-time high, then after an 85% drop, didn't see it again for almost twenty five years.
Better to be bearish at the top than the bottom.
How can you be bearish when inflation is declining, interest rates are declining, and commodity prices are declining?
In the early sixties, inflation was stable below 2% for about 4 years and didn't go over 3% until 1966; long-term treasuries paid around 4% from 1960 through 1965; real GNP growth was strong, with no downturns from 1959 to 1969; earnings on the S&P 500 grew about 16% in 1962. Bad time to be bearish, right? Wrong! The PE on the S&P 500 hit about 23 at the end of 1961 and the market dropped about 27% over the next six months with most of the drop coming from late March to early June. Market PEs didn't get that high again, even over 20 I think, until 1987.
Now the S&P's PE is 27; earnings are expected to grow at 3.7% according to First Call; and economies all over the world are slowing if not in crisis. Personally, I think the consensus earnings estimates are overly optimistic, but even if they aren't, valuations are ridiculous.
Bob
PS: As for falling commodity prices, how about falling everything prices? Ever consider the consequences of widely declining prices, i.e. deflation. What if oil does go to $10/barrel and stays there for a while as many analysts suggest? |
