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As the olde saying goes: "Fool me once shame on you ... Fool me twice shame on me!"
It is simple folks ... The higher the market valuation the greater the risk ... The higher the Price/Earnings Ratio the greater the risk ... I look for stocks to pull back to a forward P/E Ratio of about 12. With forward estimated earnings around $107.50 per share in the S&P 500 Index that puts an anticipated pullback some where around 1290 perhaps even back as to where we started the year just short of 1260. And, with electronic trading programs which are a driving force of the markets today, it should not take it too long to get there.
"Wonder what the major brokerage houses that were pumping stocks are going to say now? "Ooops"."
There's a real disconnect that seems as if it's growing larger between the Buffett "long-term" view, the screeching on CNBC every five seconds about the retail investor not being in and the reality of continued retail outflows. People (the average person) continue to be much more sensitive to movement in the market, and many of those who left the market aren't coming back, despite financial media talking about it. In terms of "Ooops", that's potentially more of a short-term thing, but it's something people can point to negatively about wall street. Much of the population is looking for a reason to not be in risk, and you see it every time the market has become more volatile this year and equity fund outflows just ramp. Bond fund inflows continue and continue and continue.
I'm sure the continued volatility that will likely be seen this week will almost certainly lead to yet larger outflows from stock funds.
Lastly, before everyone irritatingly jumps in about his recent record, I do agree with this from David Rosenberg about what people are doing. "The “baby boomers” are driving the demand for income which will keep pressure on finding yield which in turn reduces buying pressure on stocks. This is why even with the current stock market rally since the 2009 lows - equity funds have seen continual outflows. The “Capital Preservation” crowd will continue to grow relative to the “Capital Appreciation” crowd." Right or wrong, you have a lot of people (especially the older crowd) who are not going to be forced - en masse - into risk.
and (from Rosenberg)
Investment Stategy - Safety and Income at a Reasonable Price
Focus on Safe Yield - Corporate bonds Equities - Dividend growth and yield, preferred shares Focus on companies with low debt/equity ratios and high liquid asset ratios. The balance sheet is more important than usual. Hard assets that provide an income stream - oil and gas royalties, REITS. Focus on sectors or companies with low fixed costs, high variable cost, high barriers to entry, high level of demand inelasticity. Alternative assets - that are not reliant on rising equity markets and where volatility can be used to advantage. .Precious Metals - hedge against reflationary policies aimed at defusing deflationary risks."
Scott, your comments make a lot of sense. Thanks for posting the investment commentary.
I do believe there is increasing demand for dividend paying stocks, which could make them "growth" candidates. The number of firms coming out with dividend/income-oriented stocks funds is pretty surprising.
Tough market. I think markets will be treading water (except for alarming spikes in volatility) for some time to come. Have to keep the faith, keep one's wits about oneself, and (in the spirit of Churchill) keep buggering on (KBO).
Reply to @Shostakovich: I think dividends will do well, but I think what concerns me is that EEEEVVERRYONE wants yield (and I only see that continuing for probably years to come) and the dividend trade became crowded (especially - I think - MLPs) - I think not only do you have to "pick your spot" in terms of waiting for a reasonable price on some of these names (and you may be seeing that today and possibly may go further), but I also think in terms of individual names, people need to look both here and abroad.
I think people may find more growth prospects and/or values abroad (although the way this market is, who knows.) AT & T is a great, solid company, but Singapore Telecom and Starhub are two Asian telecom plays that pay nice dividends (although the latter also does cable) and there's Vodafone, whose European exposure and Indian situation are concerning, but it is also reasonably valued and has exposure in many parts of the world. There's a number of Brazilian telecoms that pay very nice dividends, as well. One has to do their own research and these are just examples from one sector, but the idea is really that there are some great dividends in Brazil, Asia, Europe and elsewhere. Europe could get much worse, certainly, but I think there are European multinationals that are going to be interesting if that happens.
In terms of funds, then it becomes putting faith in management, but I'd want to be in a global dividend fund where management had the ability to take advantage of dividend opportunities both here and abroad. In terms of EM, the DEM etf pays a nice dividend, as does balanced cef FEO.
I think this market will definitely not get any easier. It's this sort of 'Groundhog Day' finance, where money is thrown at problems in the hope they'll go away rather than the difficult task of actually finding sustainable solutions. The problems return, again and again.
Eventually, the market (as well as many people around the world) are going to not find short-term fixes acceptable answers anymore.
Comments
There's a real disconnect that seems as if it's growing larger between the Buffett "long-term" view, the screeching on CNBC every five seconds about the retail investor not being in and the reality of continued retail outflows. People (the average person) continue to be much more sensitive to movement in the market, and many of those who left the market aren't coming back, despite financial media talking about it. In terms of "Ooops", that's potentially more of a short-term thing, but it's something people can point to negatively about wall street. Much of the population is looking for a reason to not be in risk, and you see it every time the market has become more volatile this year and equity fund outflows just ramp. Bond fund inflows continue and continue and continue.
I'm sure the continued volatility that will likely be seen this week will almost certainly lead to yet larger outflows from stock funds.
Lastly, before everyone irritatingly jumps in about his recent record, I do agree with this from David Rosenberg about what people are doing. "The “baby boomers” are driving the demand for income which will keep pressure on finding yield which in turn reduces buying pressure on stocks. This is why even with the current stock market rally since the 2009 lows - equity funds have seen continual outflows. The “Capital Preservation” crowd will continue to grow relative to the “Capital Appreciation” crowd." Right or wrong, you have a lot of people (especially the older crowd) who are not going to be forced - en masse - into risk.
and (from Rosenberg)
Investment Stategy - Safety and Income at a Reasonable Price
Focus on Safe Yield - Corporate bonds
Equities - Dividend growth and yield, preferred shares
Focus on companies with low debt/equity ratios and high liquid asset ratios. The balance sheet is more important than usual.
Hard assets that provide an income stream - oil and gas royalties, REITS.
Focus on sectors or companies with low fixed costs, high variable cost, high barriers to entry, high level of demand inelasticity.
Alternative assets - that are not reliant on rising equity markets and where volatility can be used to advantage.
.Precious Metals - hedge against reflationary policies aimed at defusing deflationary risks."
http://www.zerohedge.com/news/strategic-investment-conference-david-rosenberg
Thank you for your comment. I think your Investment Strategy speaks volumes and I printed it and tucked it under my desk mat for future reference.
Thanks again for you input.
Skeeter
I do believe there is increasing demand for dividend paying stocks, which could make them "growth" candidates. The number of firms coming out with dividend/income-oriented stocks funds is pretty surprising.
Tough market. I think markets will be treading water (except for alarming spikes in volatility) for some time to come. Have to keep the faith, keep one's wits about oneself, and (in the spirit of Churchill) keep buggering on (KBO).
I think people may find more growth prospects and/or values abroad (although the way this market is, who knows.) AT & T is a great, solid company, but Singapore Telecom and Starhub are two Asian telecom plays that pay nice dividends (although the latter also does cable) and there's Vodafone, whose European exposure and Indian situation are concerning, but it is also reasonably valued and has exposure in many parts of the world. There's a number of Brazilian telecoms that pay very nice dividends, as well. One has to do their own research and these are just examples from one sector, but the idea is really that there are some great dividends in Brazil, Asia, Europe and elsewhere. Europe could get much worse, certainly, but I think there are European multinationals that are going to be interesting if that happens.
In terms of funds, then it becomes putting faith in management, but I'd want to be in a global dividend fund where management had the ability to take advantage of dividend opportunities both here and abroad. In terms of EM, the DEM etf pays a nice dividend, as does balanced cef FEO.
I think this market will definitely not get any easier. It's this sort of 'Groundhog Day' finance, where money is thrown at problems in the hope they'll go away rather than the difficult task of actually finding sustainable solutions. The problems return, again and again.
Eventually, the market (as well as many people around the world) are going to not find short-term fixes acceptable answers anymore.
Interesting times.