FYI | Jan 15 2014
By Peter Switzer, Switzer Super Report
The year ahead
By now you’d know that I am bullish again on stocks, and have nominated the 6000-mark as the level that the S&P/ASX 200 index should get to over the course of 2014. I’m not saying it ends there – it could be higher or lower – but I think at some time we will see the numeral six on the index.
My argument is primarily economics based, with global economies heading in the right direction, and with a lower dollar, as well as interest rates, likely to help local stocks keep on tracking up. Sure, there are some curve balls out there, with the big one likely to be China, but stock markets always have highs and lows to deal with.
When you think about it, the stock market is like one never-ending pre-occupation with football, which a lot of males are afflicted by. You have a good run with your team winning, you might even win the premiership or the flag, but then you are back in the pack. However, because you’re addicted you keep turning up hoping for a big win.
But unlike footie, if you play your investing game right, you can win seven out of 10 years, and if your portfolio is well-balanced, you can average around 10% per annum, including dividends, over a decade.
Market conditions
Now all these numbers are “averages”, which can hide the fact that sometimes a bull market can last a really long time, or a surprisingly short time. I don’t usually preoccupy myself with bull or bear markets, and whether they are cyclical or secular – I usually make an annual assessment of whether or not I want to be in or out of the market. But that doesn’t mean I ignore analysis of whether we are in or out of a secular bull market, which, of course, is the best market of all for long-only players.
Last week on my Switzer program, which my son Marty hosted, Gary Stone of Share Wealth Systems told him that he thinks we are in a secular bull market. When Marty asked him to explain “secular” to the viewers he simply said: “long-term.”
So Stone, who only a year ago was trying to work out whether the secular bear market was over, is now in the secular bull market camp. This gives me confidence that my one-year call to be in stocks is not a big call and that makes sleep easier.
But what are others saying?
Nouriel Roubini or Dr Doom, who called the GFC crash accurately, now thinks the USA will have a good 2014 with equities, and that also helps my sleeping pattern.
"The advanced economies, benefiting from a half-decade of painful private-sector deleveraging, a smaller fiscal drag, and maintenance of accommodative monetary policies, will grow at an annual pace closer to 1.9%," he said in an opinion piece on the Project Syndicate website on Tuesday.
He like the US positives of the shale-energy finds, better labour and housing markets and manufacturing coming back to America. These are good foundations for the burgeoning economic recovery and stocks. He is also bullish on emerging economies, which is good for commodities, if he is right.
The secular story
All of this is good for my one-year view but what about the secular story.
Between 1982 and 1999 it was largely seen as a secular bull market, despite the 1987 Crash, which was a part of a cyclical bear market. In 1999, just before the Dotcom Crash, Warren Buffett warned that the next 17 years would be more like 1966-82, which was a secular bear market. So, if he is right and secular markets stick to a 17-year time slot, then we could be in a cyclical bull market within a secular bear market that goes to 2017!
The chart below makes interesting reading, and shows how steep rides up in a secular bull market are followed by a sideways period called a secular bear market.
Source: Forbes.com
Writing for the Financial Sense website, John Maudline also tackled the question about whether we are in a secular bull market yet.
He thinks we are still in a secular bear market and so the rally since 2009 is a cyclical bull market.
If it is a secular bull market, we need to see profit margins hit all-time highs, and so the US reporting season will be important to watch over the next three weeks.
Next, the global economy will have to show better than expected growth, and it will have to look sustainable. In reality, the global economy is looking stronger, but the sustainability question will be a big watch for me this year, along with China.
Finally, secular bull markets start at low P/Es and we are now at high P/Es. However, you could argue that the secular bull market started a few years ago and Maudlin and his ilk just missed it!
I can’t see any reason why secular bear and bull markets must adhere to rigid timeframes, and when central banks go for something outside the square, such as QE3-like policies in the USA, Japan and Europe, you could end up with longer or shorter secular markets.
I don’t know if we are in a secular bull market but I will keep testing it and sharing my views with you. That said, I feel 2014 will be a good year for sleeping, whether we are in a secular bull or bear market.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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