MUCH ADO ABOUT NOTHING

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Posted on 23rd January 2013 by Administrator in Economy |Politics |Social Issues

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As you listen to the bubble heads on CNBC gush about the new all-time highs and wonderful bull market in stocks, consider the chart below. This stock market rally is nothing but a liquidity induced dead cat bounce that barely makes a blip on the radar of bull markets. We are in the midst of a secular bear market. This cyclical bull market within the big bear is getting long in the tooth. As Hussman and others have pointed out, it is on its last legs. Secular bear markets don’t end with PE ratios of 22 and overwhelming bullishness. They end with PEs below 10 and articles in Time Magazine about the End of Equities. Don’t get sucked in by the Wall Street hucksters just before they pull the plug.

The Dow just made another post-financial crisis rally high. To provide some further perspective to the current Dow rally, all major market rallies of the last 112 years are plotted on today’s chart. Each dot represents a major stock market rally as measured by the Dow with the majority of rallies referred to by a label which states the year in which the rally began. For today’s chart, a rally is being defined as an advance that follows a 30% decline (i.e. a major bear market). As today’s chart illustrates, the Dow has begun a major rally 13 times over the past 112 years which equates to an average of one rally every 8.6 years. It is also interesting to note that the duration and magnitude of each rally correlated fairly well with the linear regression line (gray upward sloping line). As it stands right now, the current Dow rally that began in March 2009 (blue dot labeled you are here) would be classified as well below average in both duration and magnitude. However, when compared to the most recent post-major bear market rally (i.e. the rally that began in 2002), the current rally has already surpassed it in magnitude and required less time to do so.

Chart of the Day

Horizontal Line

WE’VE BEEN IN A 20 YEAR BEAR MARKET

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Posted on 24th October 2011 by Administrator in Economy |Politics |Social Issues

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Read it and weep folks. When you take into account real inflation and real transaction costs, you have not gotten a positive return on stocks in the last 20 years. Keep listening to Cramer and the rest of the shills on CNBC and you’ll lose even more money over the next ten years. Stocks are not cheap. They haven’t been really cheap since 1981. If you invest in stocks today, you are a fool.

The real bear market

Commentary: When you count inflation, investors are still in the red

By Brett Arends, MarketWatch

BOSTON (MarketWatch) — Your cost of living went up about 0.2% in September, says the government. Meanwhile your U.S. stocks went down about 8%. Ouch.

Your cost of living went up 0.3% in August. The stock market lost you about 6%. Ouch, again.

Your cost of living went up 0.1% in July. U.S. stocks? They lost another 2%.

Okay, three months isn’t much to go on. But let’s look at the slightly longer term.

So far this year the stock market has lost about 3.5%, even when you include dividends. That’s not too bad, right?

At the same time the consumer price index has risen 3.5%. So in real terms the stock market has cost you about 7%. A diversified basket of U.S. stocks — I’ve used the ultra-low cost Vanguard Total Stock Market Index /quotes/zigman/191296 VTSMX +1.95%  fund as a proxy — will buy you 7% fewer goods and services than it would have done at Christmas.

Economists may talk about the threat of “deflation,” or falling prices, but steady, persistent inflation remains the reality for most people. Yet too many investors overlook it when looking at their returns.

It’s not what you make that counts. It’s what you make — if anything — in “real,” inflation-adjusted dollars.

On the surface, it looks like investors in the stock market have been making some gains, albeit slowly, over the past 10 to 15 years. Investors are up 120% since the fall of 1996, they’re up 50% over the past decade, and even over the past five they’re level. But when you factor in the rising cost of living, the true picture is far worse.

In real, inflation-adjusted terms, investors in the U.S. stock market have made effectively no money, even when you include dividends, since the spring of 1998. Even if you invested 10 years ago, in the panic following 9/11, you’ve made less than 20%. Over the past five years you’re down 12%.

And I’m flattering the performance figures. In reality few people have done as well as a low-cost index fund. Most people have had to pay 1% a year or more to a money manager. They’ve had to pay taxes on dividends. They’ve blundered in and out of the market. According to the definitive study by Dalbar Inc., largely thanks to poor timing the average investor has underperformed the Standard & Poor’s 500 index by more than 5 percentage points a year over the past two decades. By that standard, most investors have actually lost ground on Wall Street, in real terms, since about 1992.

That would mean most investors are in the red at least since the 1994 publication of Jeremy Siegel’s Stocks for The Long Run.

Since the 1999 publication of James Glassman and Kevin Hassett’s prophetic masterpiece, “Dow 36,000”? Don’t ask.

I’m assuming here that the official CPI figure is an accurate measure of the cost of living, which it almost certainly is not. There’s a good chance real inflation is at least one percentage point a year higher. If that is correct, the entire last 20 years have been a sham.

Even more depressing: “Dollar-cost averaging” hasn’t helped much. Someone who has been dollar-cost averaging into an index fund every month for 15 years has made a grand total return, gross, of less than 5%. Most of your investments over the past five and 10 years are still in the red.

In inflation-adjusted terms, we’re in a bear market that’s lasted for 15 or 20 years.

Rob Arnott, the contrarian investor who runs Research Affiliates in California, notes the sloppy thinking that got so many investors — and money managers — into this mess. “Stocks are wonderful assets if you buy them when they are cheap,” he says. “But stocks are just like any other asset class. Buy them when they’re expensive and you’re going to regret it.”

Meanwhile, everywhere on Wall Street you still hear the repetition of the same old mantras and the same old canards. Most of them can be spotted by their astonishing use of the present tense, as in “stocks outperform.”

Arnott adds that stocks are usually only cheap when everyone else is too terrified to invest. The only people who’ve made money in the past 15 years are those who invested in 2001 to 2004 and during the crash of 2008-9.

Today Arnott likes emerging-market stocks, which have just tanked.

Me? I notice everyone is too terrified to buy European stocks, and the banks.