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Future Bull
Mauldin Economics, 'Outside the Box'
John Mauldin
9/24/2014
Excerpts:
In a conversation this morning, I remarked how rapidly things change. It was less than 20 years ago that cutting-edge tech for listening to music was the cassette tape. We blew right past CDs, and now we all consume music from the cloud on our phones. Boom. Almost overnight.
A lot has changed about the global economy and politics, too. Things that were unthinkable only 10 years ago now seem to be reality. What changes, I wonder, will we be writing about a few years from now that will seem obvious with the advantage of hindsight?
In today’s Outside the Box, my good friend David Hay of Evergreen Capital sends us a letter written from the perspective of a few years in the future. I find myself wishing that some of the more hopeful events he foresees will come true, and my optimistic self actually sees a way through to such an outcome. In that future, I will join David as a bull. But the path that he proposes to take to that more optimistic future is not one that most investors will enjoy, so on the whole it’s a very sobering letter and one that should make all of us think.
...........................................
Future Bull
By David Hay
Twitter: @EvergreenGK
Future bull. Let me admit up front that this EVA has been rolling around in my mind for quite awhile. Its genesis may be directly related to the fact that I’ve been desperately yearning to write a bullish EVA – besides on Canadian REITs or income securities that get trounced by the Fed’s utterances. In other words, I want to return to my normal posture of being bullish on the US stock market
.
It wasn’t long ago, like in 2011, that clients were chastising me for believing in what I formerly referred to as “the coiled spring effect.” By this I meant that corporate earnings had been rising for over a decade, and yet, stock prices were much lower than they there were in 1999. Consequently, price/earnings ratios were compressed down to low levels, though certainly not to true bear market troughs. My belief was that stocks were poised for an upside explosion once the inhibiting factors, primarily extreme pessimism on the direction of the country, were removed. I even remember one long-time client dismissing my “Buy America” argument on the grounds that in my profession I had to be bullish (regular EVA readers know that is definitely not the case!).
Well, a funny thing happened to my “coiled spring effect” – namely, it became a reality. Additionally, the upward reaction was much stronger than I envisioned. But what really caught me by surprise was that it played out with virtually no improvement on the “extreme pessimism on the direction of the country” front. Perhaps I’m wrong, but I don’t think there has ever been a rally that has taken stocks to such high valuations (time for my usual qualifier – based on mid-cycle profit margins, not the Fed-inflated ones we have today) concurrent with such pervasive fears America is on the wrong track.
Undoubtedly, the pros among you who just read that last sentence are thinking: “That’s great news! All that pessimism will keep this market running. We’re not even close to the peak.” Not so fast, mon amis (and amies)! We’re not talking market pessimism here. As numerous EVAs have documented, US investors are as heavily exposed to stocks as they have ever been, other than during the late 1990s, when stocks bubbled up to valuations that made 1929 look restrained.
............................................
View the complete post as a pdf at:
http://d21uq3hx4esec9.cloudfront.net..._24_2014_2.pdf
Mauldin Economics, 'Outside the Box'
John Mauldin
9/24/2014
Excerpts:
In a conversation this morning, I remarked how rapidly things change. It was less than 20 years ago that cutting-edge tech for listening to music was the cassette tape. We blew right past CDs, and now we all consume music from the cloud on our phones. Boom. Almost overnight.
A lot has changed about the global economy and politics, too. Things that were unthinkable only 10 years ago now seem to be reality. What changes, I wonder, will we be writing about a few years from now that will seem obvious with the advantage of hindsight?
In today’s Outside the Box, my good friend David Hay of Evergreen Capital sends us a letter written from the perspective of a few years in the future. I find myself wishing that some of the more hopeful events he foresees will come true, and my optimistic self actually sees a way through to such an outcome. In that future, I will join David as a bull. But the path that he proposes to take to that more optimistic future is not one that most investors will enjoy, so on the whole it’s a very sobering letter and one that should make all of us think.
...........................................
Future Bull
By David Hay
Twitter: @EvergreenGK
“Money amplifies our tendency to overreact, to swing from exuberance when things are going well
to deep depression when they go wrong.”
– Economist and historian Niall Ferguson
to deep depression when they go wrong.”
– Economist and historian Niall Ferguson
Future bull. Let me admit up front that this EVA has been rolling around in my mind for quite awhile. Its genesis may be directly related to the fact that I’ve been desperately yearning to write a bullish EVA – besides on Canadian REITs or income securities that get trounced by the Fed’s utterances. In other words, I want to return to my normal posture of being bullish on the US stock market
.
It wasn’t long ago, like in 2011, that clients were chastising me for believing in what I formerly referred to as “the coiled spring effect.” By this I meant that corporate earnings had been rising for over a decade, and yet, stock prices were much lower than they there were in 1999. Consequently, price/earnings ratios were compressed down to low levels, though certainly not to true bear market troughs. My belief was that stocks were poised for an upside explosion once the inhibiting factors, primarily extreme pessimism on the direction of the country, were removed. I even remember one long-time client dismissing my “Buy America” argument on the grounds that in my profession I had to be bullish (regular EVA readers know that is definitely not the case!).
Well, a funny thing happened to my “coiled spring effect” – namely, it became a reality. Additionally, the upward reaction was much stronger than I envisioned. But what really caught me by surprise was that it played out with virtually no improvement on the “extreme pessimism on the direction of the country” front. Perhaps I’m wrong, but I don’t think there has ever been a rally that has taken stocks to such high valuations (time for my usual qualifier – based on mid-cycle profit margins, not the Fed-inflated ones we have today) concurrent with such pervasive fears America is on the wrong track.
Undoubtedly, the pros among you who just read that last sentence are thinking: “That’s great news! All that pessimism will keep this market running. We’re not even close to the peak.” Not so fast, mon amis (and amies)! We’re not talking market pessimism here. As numerous EVAs have documented, US investors are as heavily exposed to stocks as they have ever been, other than during the late 1990s, when stocks bubbled up to valuations that made 1929 look restrained.
............................................
View the complete post as a pdf at:
http://d21uq3hx4esec9.cloudfront.net..._24_2014_2.pdf