FYI | May 28 2014
By Peter Switzer, Switzer Super Report
As a long line of expert investors and fund managers are lining up to support a correction and/or a sell-off of stocks, I keep pondering: what if this time it is really different?
I have always laughed at experts in my 30 years of business, economics and finance writing, as well as my own investing, who have said: “This time it’s different.”
Of course, in reality, the causes and the courses of recoveries of economies and stock markets can be different, but in substance there is a pattern that pretty well sticks to a well-read script. And that script says all economies go into recession, eventually, and stock crashes do come along.
What if this time IS different?
But what can be substantially different is how long it takes for the hard thud of reality to come crashing in for investors and that is what has me thinking, believe it or not, that maybe this time it MIGHT be different.
When I presented to Macquarie Bank’s private investor clients last year, I shared with them what I have been sharing with you for the past couple of years. At the same time, Mac Bank’s research team was talking about “the slow grind higher”, which made me think that this time we could be in for a long slow rise in stocks.
I’d prefer this over the often-seen boom and bust.
History has seen stocks rise seven out of 10 years and if you had a portfolio as good as the index, you would have seen around a 10% return when you throw in dividends and this does not allow for the old franking grossing up.
However, this is only an average, so sometimes the bull market would be longer and other times shorter.
The longest ever US S&P 500 bull market was the 1987-2000 run and this even had a recession inside it. There could be parallels to this in a sense that this current bull market started after the Great Recession (that’s what the Yanks call the GFC), which we dodged, and also follows what might have been a Great Depression, if the central banks of the world and the major governments had not rediscovered the economics of John Maynard Keynes.
The slow grind higher
This whole worldwide recession, the monetary policy response and the slow economic recovery, where businesses are hesitant to over-employ and where the Internet is a big game changer for labour and product markets, means that this could be a “long, slow grind higher.”
I’m not saying a sell-off isn’t in the wings, with the likes of Yank Denis Gartman thinking one’s brewing, and so does Charlie Aitken, while the likes of Geoff Wilson and Roger Montgomery are holding a lot of cash because they say they can’t see much value right now. But none of this means that there won’t be a mob of buyers, when, and if stocks slide, and I’ll be leading the charge along with Charlie, Roger and Geoff.
The big economic picture still looks positive and I bet it gets better and the Fed boss, Janet Yellen, is still hosing down fiery talk about US rates moving up sooner rather than later. In June, Mario Draghi is expected to give Europe a big monetary shot in the arm.
I think this time it is different and this bull market will ride up slowly but up it will go for a longer time than most experts think.
I read in The Economist that a US recovery lasts five years on average but that is an average, which is made up of long and short recoveries. This one is bound to be a long one — Janet Yellen’s job and reputation rests on it.
And if you don't want to take my word on this as an economist or as a financial adviser, then take it as a journalist!
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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