There are several reasons to seriously doubt that we are at the beginning of a powerful bull market such as we were in 1982. For one, in 1982, the US stock market was no higher than it had been in 1964 and it was down in real terms by more than 75% from its 1966 high. In fact, in 1982, measured in gold terms (in “real” real terms – not in real terms using the doctored CPI) the Dow Jones was lower than it had been in 1932 following the 90% bear market 1929-1932.
So, whereas in 1966, one Dow Jones Industrial Average
bought 28 ounces of gold, in 1982 it bought less than two ounces of gold (in 1980, one Dow Jones only bought one ounce of gold). At present the Dow still buys 12 ounces of gold and although this is down from its purchasing power of 44 ounces in 2000 (yes, the Dow has lost in gold terms or in “real” real terms 72% since 2000!), it is far from where stocks usually bottom out after major secular up-trends end. Simply put, in 1982, stocks were dirt cheap (P/E 7, dividend yield 7%) whereas now stocks are still pricey. Moreover, aside from so many other conditions, which were far more favourable in 1982 (debt-to-GDP only 130% compared to current debt-to-GDP of 350% ex unfunded liabilities, saving rate of 12% versus current saving rate of zero, MF cash positions of almost 15% compared to 4% now, et al) commodity prices and interest rates - the latter were then at over 15% on long- term Treasuries compared to around 4% now - were about to enter long term down-trends that would lift the valuation of equities, boost corporate profit margins and lift corporate earnings. However, these conditions no longer exist today! Interest rates will only decline further if there is a deflationary bust – not exactly a positive for equities. Also, whereas commodities could decline quite sharply in the near term should global demand collapse (major economic slump) the long term trend would seem to be on the up, courtesy of money printer Ben & stock manipulator Hank. Lastly, whereas in 1982 corporate profit margins were at depressed levels, today they still seem to be – from a historical perspective – close to record levels. So, all in all, I very much doubt that the current stock market strength is the beginning of a long-term uptrend. I would, therefore, use market rebounds around the world as a selling opportunity.
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Source : IIPM Editorial, 2008
So, whereas in 1966, one Dow Jones Industrial Average
bought 28 ounces of gold, in 1982 it bought less than two ounces of gold (in 1980, one Dow Jones only bought one ounce of gold). At present the Dow still buys 12 ounces of gold and although this is down from its purchasing power of 44 ounces in 2000 (yes, the Dow has lost in gold terms or in “real” real terms 72% since 2000!), it is far from where stocks usually bottom out after major secular up-trends end. Simply put, in 1982, stocks were dirt cheap (P/E 7, dividend yield 7%) whereas now stocks are still pricey. Moreover, aside from so many other conditions, which were far more favourable in 1982 (debt-to-GDP only 130% compared to current debt-to-GDP of 350% ex unfunded liabilities, saving rate of 12% versus current saving rate of zero, MF cash positions of almost 15% compared to 4% now, et al) commodity prices and interest rates - the latter were then at over 15% on long- term Treasuries compared to around 4% now - were about to enter long term down-trends that would lift the valuation of equities, boost corporate profit margins and lift corporate earnings. However, these conditions no longer exist today! Interest rates will only decline further if there is a deflationary bust – not exactly a positive for equities. Also, whereas commodities could decline quite sharply in the near term should global demand collapse (major economic slump) the long term trend would seem to be on the up, courtesy of money printer Ben & stock manipulator Hank. Lastly, whereas in 1982 corporate profit margins were at depressed levels, today they still seem to be – from a historical perspective – close to record levels. So, all in all, I very much doubt that the current stock market strength is the beginning of a long-term uptrend. I would, therefore, use market rebounds around the world as a selling opportunity.For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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