Thursday, November 27, 2014

Thanksgiving (excerpt)

This is the time of the year when we count our blessings. We certainly are thankful for your interest in our research service. We will be taking the rest of the week off to celebrate Thanksgiving with our families and friends, and enjoy a great meal on Thursday. It’s a bad day for turkeys. On the other hand, it’s been another great year for bulls, as it has been in the stock market since March 6, 2009. Thankfully, we’ve been bullish since the start of the bull market. Here are a few highlights of some of our best calls:

2008. On November 12, I met with my congressional representative, Gary Ackerman, in his district office in Queens, about 15 minutes from my home. He and his legislative assistant agreed to hear me out on why more needed to be done in Washington to bring mortgage rates down and why mark-to-market (MTM) accounting rules should be suspended. He was a senior member of the House Committee on Financial Services, which was chaired by Barney Frank.

In the 11/20 Morning Briefing, I predicted that the Fed would soon purchase 10-year Treasury bonds to lower their yield, thus bringing down mortgage rates and reviving housing activity and prices. On November 25, the Fed announced QE1, aiming to purchase $600 billion in mortgage-backed securities (MBS) and Agencies.

2009. On March 16, I wrote: “We’ve been to Hades and back. The S&P 500 bottomed last week on March 6 at an intraday low of 666. This is a number commonly associated with the Devil. … The latest relief rally was sparked by lots of good news for a refreshing change, which I believe may have some staying power … I’m rooting for more good news, and hoping that 666 was THE low.” The same day, QE1 was expanded to $1.25 trillion in mortgage-related securities and $300 billion in Treasury bonds. (See QE Chronology.)

On March 12, Frank’s committee held a hearing on MTM. Congressman Ackerman reminded the chairman of the Financial Accounting Standards Board (FASB) that Congress was considering a bill to broaden oversight of his organization. He told him to suspend MTM in three weeks. On April 2, FASB did just that. I predicted this “would certainly be another positive for Financials, in general, and Banks, in particular.” (See “Congress Helped Banks Defang Key Rule,” WSJ 6/3/2009.)

On July 27, I wrote, “I prefer melt-ups to meltdowns. The S&P 500 has been on a tear ever since it bottomed at the intraday low of 666 on Friday, March 6. We should have known immediately that this devilish number was the bear market low. It took me a few days to conclude that it probably was the low. … I felt like Tom Hanks in the ‘Da Vinci Code.’”

I also noted that the bears were attributing the rebound in earnings to cost cutting rather than improving revenues. I countered that “the stock market discounts the future, and it is predicting that better-than-expected earnings now will be followed by a recovery in revenues, and more positive earnings surprises.”

2010. On February 10, I wrote, “Is the EMU doomed? Euro skeptics have long predicted that monetary unification without fiscal unification won’t work. They’ve been wrong since the euro was first introduced on January 1, 1999. However, the current crisis is the first real stress test of the viability of the euro. Although the European charter includes a no-bailout clause, there is bound to be an attempt by the EMU to prop up Greece. … My prediction is that this latest challenge will pass.”

2011. On August 31, I observed, “Basically, all those fully invested bears I’ve been writing about over the past two years are thinking of bailing out because they believe that the ‘endgame’ is near. They may be right. However, I’m inclined to believe that this game may have no end. In other words, what we see is what we will get for some time to come, i.e., subpar growth in the US, Europe, and Japan with better growth everywhere else. Muddling along like this really is not a bad scenario given the two obvious alternatives. It’s certainly better than a global recession. It also beats a global boom.”

2012. At the start of the year, I predicted, “If we survive the dangers confronting us this year as well as we did those of last year, then 2013 may be much safer for investors. If so, then financial markets, especially global stock markets, may start to discount this bullish scenario in 2012.”

On October 12, I first discussed the impact of stock buybacks: “The Fed’s exceptionally easy monetary policy is boosting stock prices by enabling debt-financed stock buybacks. Individual investors have been hot on bonds and cold on stocks. But by snapping up investment-grade and high-yield corporate bonds at record rates, they’ve fueled the stock market rally through corporate buybacks. The Fed’s QE and NZIRP have compelled individual investors to buy bonds at record low rates, while compelling CFOs to issue lots of bonds and use lots of the proceeds to repurchase their shares.”

At the end of 2012, I wrote, “Global equity markets seem to agree with my assessment that having survived the third year of living dangerously [since 2010], we can do it again for a fourth year. Europe and China seem to pose less danger for investors in the coming year. The US economy is actually in remarkably good shape, as long as the fiscal cliff is averted, as I continue to expect.”

2013. At the beginning of the year on January 24, I first suggested that if we all just keep calm and carry on, "then maybe the cyclical bull market will morph into a secular bull market.” On May 16, I observed, “In other words, we have nothing to fear other than an absence of fear. … Perhaps now that investors are no longer fearful that the end is near, all the liquidity pumped into the financial markets by the major central banks over the past four years to avert the Endgame scenario is about to cause the Mother of All Melt-Ups (MAMU).”

I opined on March 6 that “Fed Vice Chair Janet Yellen has become the fairy godmother of the bull market. When she speaks, stock prices tend to rise, especially since late 2011. ... Odds are she will be the next Fed Chair …”

On September 9, the S&P 500 rose back above my yearend 2013 target of 1665, which had been my forecast since the start of that year. The next day, rather than tweak it, I moved ahead to predict that the S&P 500 would rise to 2014 by the end of 2014.

2014. On February 6, I wrote, “Early last year, in my conversations with several of our accounts, I detected that many of them had what I described as ‘anxiety fatigue.’ They were tired of being anxious about the bull market. … Well, many of them are anxious again. They are jittery that something bad is coming. More specifically, they are concerned that the tapering of QE by the Fed has triggered an emerging markets crisis. It could happen again, I suppose, though I doubt it.”

On August 20, I noted, “It can get boring staying home for a long stretch. It can also be profitable. Joe and I have favored a ‘Stay Home’ investment strategy over a ‘Go Global’ one during the current bull market. That’s worked out quite well. On one occasion, we did get bored with it. We recommended overweighting Eurozone stocks during the second half of last year.”

On October 13, I once again concluded that the latest selloff was yet another panic attack that would be followed by a relief rally: “The current dip could turn into a correction. If so, it could also be a great seasonal buying opportunity. The question is whether it is actually the beginning of a bear market. I don’t think so because I don’t expect a recession in the US anytime soon.”

The S&P 500 exceeded my yearend forecast on October 31. Actually, on August 27, it was close enough that I wrote, “Once again, the bull is running ahead of schedule. Once again, I’m moving on with a forecast for next year. How about 2015 by 2015? Just kidding. … Joe and I remain secular bulls and pick 2300, a 15% increase from yesterday’s close.”

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