GM: AMAT bumping it's head on 26, again
I don't think the Siegal chart is very useful. He's right, there is a long-term trend for stocks to return about 9-10%/year, or 6-8%/Y after inflation. And his trendline is probably accurate. But stocks can stay significantly above (or below) the line for periods of 10-20 years at a time. It's sort of like the DW charts: over(-or-under)-valued stocks and industries can stay over-(or-under)-valued for prolonged periods. Not useful.
Bull markets are killed by two things:rising interest rates or falling profits.
re rates: With inflation dead, and long-term interest rates continuing their downward trend, and the fed switching to neutral bias, I'm not worried. I'm also not worried about deflation. The U.S. had mild deflation for 50 years after the Civil War. What hurts markets is uncertainty. Large price changes (either large inflation or large deflation, like we had in the 1970s and 1930s) is harmful. But small price changes, in either direction, are good for the economy. Small price deflation allows companies to plan accurately for the future, and make rational decisions. I see little chance for the huge, sudden 1930s-type deflation happening.
re profits: here, I'm worried. We've seen profit forecasts go down and down and down, and the market ignored it for a long time, before finally paying attention. But, unfortunately, I think we have further profit cuts in front of us, and this is still not priced into stocks, even with stocks 15% off their highs.
I think small stocks will continue to underperform. When the next recession bottoms, it'll be time to bottom-fish in these.
I think the place to be is in the highest-quality big growth companies with franchises and pristine balance sheets. That's been true for a while, and it will continue to be true.
For the risk-averse, cash will probably outperform 90% of mutual funds over the next 12 months. In my arrogance, I think I can do better than cash. |
