Forget valuation.
Forget earnings, forget logic and LOOK AT THAT CHART! What a thing of beauty. We don't just hold the bottom of the rising channel but we LEAP away from it and make new highs, over and over again. This is, of course, what markets do all the time, which explains why everyone is a Trillionaire, right?
Oh, I'm sorry, I mean everyone's a Trillionaire AND there's no inflation. Because THAT is how things work in the economy, right? The market goes up 15% in a year but all other prices remain steady and, in fact, oil, gold, copper, iron ore – all drop precipitiously even though EVERYTHING IS AWESOME!
If anything in that chain of logic bothers you then you need to consider which one of these things does not belong. Since low inflation/deflation is very much in line with declining demand and prices for materials, the problem seems to be in the market somewhere. And what is distorting the market, you may wonder?
Well, the Central Banksters have poured aprroximately $15Tn of QE liquidity into the markets over the past 6 years. That's 20% of the Global GDP or about 3.5% of the Global GDP added each year.
Nonetheless, Global GDP still isn't even adding up to 3.5%, which means we're actually in a 6-year Depression with negative GDP that we've papered over with endless amounts of free money. Now, I'm not saying this is a bad thing – an actual Depression would really suck (just ask your grandparents) and it's worth running up $15Tn in debt to avoid one, BUT (and it's a big but) there still needs to be a plan for dealing with the debt and the bublles it's caused. Just yesterday, the Fed's own Jim Bullard said:
The US risks inflating asset price bubbles with “devastating consequences” if it leaves interest rates at zero. “When asset bubbles start, they keep going until they blow up out of control with devastating consequences. Low inflation doesn’t rationalize policy rates of zero; it rationalises a policy rate below normal, but not zero.”
The real question is, what exactly constitutes a bubble? For a value investor like me, when stock prices go up 25% (World average) while GDP expections drop 20% – it's probably already a bubble. This is as clear a disconnect from reality as you are ever likely to see – it's like the red line is how much gas is in your car and the green line is your future range expections only that would be, obviously, ridiculous and you would stop for gas. Yet still you are, for some reason, buying stocks.
Q1 Corporate Profits are now projected to come in DOWN 3.1% and that's down from up 5.3% expected on Jan 1st by Thomson Reuters. As you can see from the chart on the left, it's MOSTLY the energy sectors fault but all sectors have been downgraded – there are no real winners here – yet up and up the market goes?
The fallout from the dollar’s most powerful rally vs foreign currencies, including the euro, in decades, which has translated into smaller profits for U.S. multinationals that do a lot of business abroad. A stronger dollar means weaker foreign sales, where the prices of U.S. goods bought with other currencies have risen. Adding to the woes: Foreign sales add up to smaller profits when the money is converted back to more expensive dollars.
Slowing profit growth is expected for the remaining quarters of 2015 and puts the S&P 500 at risk of finishing 2015 with contracting earnings. Currently, the full-year forecast for profit growth is 1.3%, down sharply from the 8.1% projection at the start of the year.
As of yesterday's close, our Long-Term Portfolio was up 33.3% and, unfortunately, I have to pull the plug on it and go to cash. I cannot in good conscience endorse holding onto these huge gains in equities that we've been blessed to achieve. There will be exeptions and I will publish a list for our Members first thing this morning but, on the whole, I can't see a better way to lock in our $166,000 in gains ($666K for the portfolio, which is a warning in itself!) than to just go to cash and start fresh from there.
On the whole, we're up 3.3% from the last time I wanted to cash out and, since then, we were as low as +25% on the dip two weeks ago. That's up and down $30,000 in two weeks and that's too volatile for our Conservative Portfolio! We've had a great run, let's get to cash and relax for a few days – it's almost time for earnings and THEN we can see who's good to invest in!
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