I started my blog to give clarity and perspective to the daily barrage of hype and misinformation from the mainstream and financial media. I hope my work has been helpful in that respect. As we approach the New Year, I thought a retrospective on kortsessions might be useful, a look-back on the issues that the media obsessed on and my responses….a trip through short-term memory lane.
What really got the media’s animal spirits roaring in 2013
SESSION 3, February 3, 2013–The media was obsessing on the “fiscal cliff” (the expiration of the Bush Tax cuts and end of the social security tax holiday. CNBC was running a Fiscal Cliff countdown clock in the corner of the screen and there were many dire pronouncements about what would happen if the Congress let us go over the edge. At the time, the S&P was up about 10% from its post-election lows (many after the election were forecasting that the market would tank on an Obama re-election). However, as soon as the election was over, with the market moving up, the media began a laser-focus on the Fiscal Cliff. To compound this, we had concern about “The Sequester”, a weak 4th quarter GNP report (down 1/10th of one percent) and the “debt ceiling debate” (i.e. potential government shutdown #1)..
We weren’t buying this negativity and session 3 (“Current events”) gave perspective on other factors that might be bolstering the market–Ultra low interest rates, 13 years of a zero return market and reasonable valuations.
By February 13th, we’d resolved the Fiscal Cliff and moved on to the Sequester as the prime Boogieman facing the market. In session 5, we took an in-depth look at the sequester and came away with the conclusion that although it was a dumb way to implement fiscal policy (in this case a budget), it probably would not be a disaster, throwing the economy back into recession.
The market just keeps chugging along, but there is no “joy in Mudville.” Very few believe or trust the market and many are waiting for the bottom to fall out (see session 12). The day of this new record high, CNBC ran a story after the close, “Threats to the market lurking in the shadows.” The piece questioned the quality of our economic recovery, cited potential geopolitical shocks, complacency about Europe ( a recurring trouble spot for U.S. Stocks), the (then) upcoming change in the Chinese government and continued worry about the impact of the Sequester. We were nonplused!
In session 15 (3/16/13), we talked about the potential tapering, a removal of Quantitative Easing (QE) as the next big media obsession. We felt this would be good news, not bad, but the market action of last week ( week ending 12/13//13) would indicate this still to be negative ‘Topic #1’. We still think it will not be end of the world, but maybe an excuse for that long-awaited 10% correction.
March 21st 2013, the pundits continue to look for a Eurozone born disaster and the Cypriot banking debacle does not disappoint. Rick Santelli in one of his quintessential reports thinks, maybe Cypress is an “Archduke Ferdinand financial moment” for the Euro and the world economy (note the outrage from Mr. Santelli). You know, just like the assassination of Austrian Archduke Franz-Ferdinand was the match that lit the conflagration known as World War I. We spoke of this in session 21 and here is the video. Talk about fear mongering…this is unbelievable!
In May, with the market continuing its march to new highs, “The Wall of Worry” continues to build with a front page headline citing a pundit calling for an eminent 8% to 10% correction. We are still waiting (and are probably way overdue for such action). Most people in the media, continuing to take the short-term view, cannot understand the market’s strength. Sentiment continues negative. Nobody wants to swim in the equity pool, though it is precisely the best time to swim.
Taper fear and taper talk continues to run high (a media favored topic) with the bond market reacting. Rates on the 10-year U.S. Treasury note had moved from about 1.5% after the November election to just over 2% May 20th. They were near 3% in June (2.87%-12/13/2013). In these posts we discussed the potential supply and demand ramifications of “the taper” and withdrawal of Quantitative Easing (QE) and concluded that QE represented a slight overbid in today’s market and that tapering would reduce that overbid and eventual removal would not be a big deal. No taper yet but, bond prices as we have seen, started to discount the process back in the spring. Ergo, when taper does come it may largely be in bond prices.
I said back in July that it was probably still OK with one proviso: If you have funds you want to invest, average in over time…NO Plunging! I am still looking for that big correction (as is most everybody). Since we’ve come so far without a pause, so it could be a humdinger. This not to say that buying stocks, even at these levels, will not be quite rewarding on a longer term basis. I just want you to be aware of the short-term risk.
Yet another cautionary note is cast about the dangers of QE, this one suggesting that it was Fed QE that was currently fueling a potential “bubble” in stocks. Bubble talk continues to run rampant. My experience is that the bubbles everyone sees are not the ones that kill you. Also, I still don’t see a lot of bond money (created by QE) moving into stocks. The rise in equity prices may be more a result of the low interest rates fostered by QE providing poor competition for equities. If I had a choice today between a hypothetical 10-year U.S. treasury yielding 4% (currently 2.7%) and General Electric yielding 3.3% (they just bumped there quarterly payout 16% to $.22) , I’d still go with the GE, because with GE you have the chance for an increasing dividend in the next 10 years. With the treasury you are stuck at 4%.
Your guess is as good as mine, but I will leave you with a few points worth considering:
- We are due for a really good correction in what I believe to be a secular Bull Market. Experience tells me it could be ugly, scary and out of the blue. No one will see it. Over time whatever does occur will be resolved.
- In the meantime no one expects a repeat of the great market we have had in 2013 which leads me to believe that the market may surprise us again. Remember since the S&P 500 peaked in 2000 at 1552.81, as of the close 12/13/2013 at 1775.32, it has only gained 15% total over the last 13 years…well below historical returns.
- What might be the catalyst for a good 2014? The U.S. economy has been in recovery (albeit slow) mode since 2009. Asia and Europe may kick in as the afterburners in 2014.
What do you think?
P.S. I own GE common and purchased additional shares on 12/16/2013.
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