Asset Protection Strategies, STAFF NEWS & ANALYSIS
A Meme Grows on the Dow: Stock Profits for Another Half-Decade?
By Staff News & Analysis - November 26, 2014

The Market Is Your Friend. Really: One Millennial's Advice to Peers … Dear fellow millennials, We need to talk about our approach to investing. A recent study by Moody's Analytics shows that U.S. adults under age 35 spend, in aggregate, 2% more than what they earn. This finding has been the subject of much hand-wringing about our generation, which is sometimes defined as anyone born from 1980 to 2000. But people are concerned for the wrong reason. Our savings isn't the problem; it's our attitude toward stocks. – Wall Street Journal

Dominant Social Theme: The stock market "melt-up" is real and getting hotter.

Free-Market Analysis: The Wall Street Journal recently published a passionate plea to young investors regarding the stock market. It is truly a remarkable statement. And in fact, it is only one of several recent editorials that have appeared recently that push such exposure. We last wrote about it about this increasingly evident dominant social theme here:

Party On: Reuters Predicts a Stock Market 'Melt Up' That May Last

The editorial was really quite significant because it addressed a fundamental question about our endless upward stock surge. It did so by moving up the "date certain" of the current "bull" market.

Here's how it was done:

There are many fundamental reasons for believing that stock markets may have embarked on a long-term bull market comparable to those in the 1950s and 1960s, or the 1980s and 1990s, and that this process is nearer its beginning than its end.

Such arguments have been discussed repeatedly in this column over the past 18 months — ever since the Standard & Poor's 500, the world's most important stock-market index, broke out of a 13-year trading range and started scaling new highs in March 2013. Wall Street has been setting records ever since.

Clever, eh? This market has been moving up since late 2009 and by any measure is ancient. But not if you create a brand new starting point! The market has gone up hugely since 2009 but somehow that vast gain has been turned into a "trading range."

It is really is uncanny. We are being asked to believe that the Anglosphere stock markets and the Dow in particular has only been manifest as a bull market since March of this past year …

And now comes this Wall Street Journal editorial building on the previous Reuters analysis. If we can cast out the previous five years of enormous gains as a "trading range," then this article makes more sense. Stocks are evidently at the beginning of a great upward surge.

Starting at age 22, every dollar saved compounded at 6.8% annually will be worth $16.90 by age 65. Start at age 50, and each dollar is worth $2.70 by age 65.

This doesn't have to be hard. Discount brokers will let you open an account with less than $1,000. Invest what you can—$100 here, $200 there. An index fund like Vanguard Total Stock Market Index provides diverse exposure at minimal cost; the annual fee is 0.05%, or $5 for every $10,000 invested.

Keep a separate emergency fund so you won't need to sell stocks if the market is down. For investors in their 20s, putting 70% to 80% of your investible assets in stocks may be fine for money that isn't needed for decades. Putting the rest in bonds can provide a cushion. If you are at risk of panicking in a downturn—and many investors are—dial stocks down to a more comfortable level.

We're not the only generation to have our attitudes shaped by market woes. Baby boomers born in 1950 also came of age when the stock market was weak. What happened next? The market boomed in the 1980s and 1990s. As much as time is on our side, history is not.

The above sounds fairly well reasoned until you dig a little deeper. Depending on whose evaluation of price inflation you believe, stock -market gains adjusted for inflation may not give you a great deal of additional leverage. You may merely have kept, if that, with central bank monetary debasement.

At least the article has the honesty to point out that downturns can be significant. What the article doesn't tell you is that the average person, especially later in life, faced with a stock market crash that has halved the value of his investments, will have a great deal of psychological difficulty leaving those depreciated investments untouched.

So we have difficulty with this sudden spate of optimism regarding stocks. Our calculations place the beginnings of the current "bull" market in late 2009, no matter the "trading range."

Yet markets are so manipulated that anything is possible. And maybe we'll have to realign the end-date of our Wall Street Party, which we figured might arrive as soon as next year.

Nonetheless, no matter the end-date, the real money is made by identifying elite investment trends, especially in the IPO area. Obviously, here at The Daily Bell we've suggested that the emergent cannabis marketplace provides the possibility of a tremendous upside.

We certainly follow this expanding dominant social theme with some fascination. A stock market some six years old is being re-dated and mainstream editorialists are urging younger generations to become involved. The next great equity surge is on the horizon.

Please, no … Let's retain a clear-eyed view. One can take advantage of the evident manipulation without becoming a victim of the larger dominant social theme. We've suggested that people retain certain kinds of stock market exposure – especially hedged ones – but we've also made it clear that we don't believe the larger meme.

"Investing" in stock is only worthwhile so long as the "manipulators" are willing to proceed. There will come a time when they do not. And then there will be all sorts of other explanations floated. You, dear reader, will not of course believe the hype. And hopefully you will be long gone with your profits before the inevitable crash.

After Thoughts

It is coming, sooner or later it is coming. In the meantime, indeed, there are profits to be made. And perhaps for a longer period than we have estimated, if we are to believe this latest blossoming meme.

Posted in Asset Protection Strategies, STAFF NEWS & ANALYSIS
  • To all who read this balanced and cautionary article you do a great service – especially if they are being swayed by the current memes. For a very well thought out look at the other side of the current market the articles authored by John Hussman (link attached) are a great resource. John has been “wrong” for the last few years – he is ultra conservative with his clients money and in my opinion that is nothing to be ashamed of. Past performance, as they say, is no guarantee of future results – good or bad. Hussman’s results (clearly listed on his website) have not been bad in spite of being “wrong”. Everyone tends to think of the stock market as a one way street – it only goes up! Certainly this is 100% the case for the commentators on CNN. But the fact is, stocks go in both directions. Some of the great fortunes in history – Joe Kennedy comes to mind – have been made by being short at the right time and staying the course (remaining short for several years). Bear markets can last for decades.

    http://www.hussmanfunds.com/weeklyMarketComment.html

    • Thanks.

      • You are quite welcome. Your coverage of this market has been prescient, even handed and a pleasure to follow. You have never been swept up with excessive bullishness, and still you have clearly identified with the trend, which is UP until, as you have said more than once – it isn’t. Truer words have never been spoken.

        • Very kind. But, yes … we’ve done a good job with this meme … at a time when the much of the rest of the alternative media has not …

          • If you keep doing outstanding work you may become mainstream……. the mind boggles : )

  • Erik

    I suspect they are merely maximizing the surge. At this point, it doesn’t seem to me they are changing the timeline, but they have no doubt incorporated flexibility of it in their plan.

  • Are we at the beginning of a great bull run in equities, or close to the end of a very overextended run? You pays your money, and you takes your choice. The more that PTB mouthpieces trumpet an endless party-to-the-sky, the more I suspect that they are in the process of unloading their long stock. And the longer a healthy clearing of unpayable debt is delayed, the more impossible a healthy clearing of unpayable debt becomes. IMHO we are far beyond the point where a major contraction could be contained into anything resembling a healthy clearing of debt. At some point we will suffer a deflationary collapse. It seems wise to listen to Art Cashin, who is keeping a very close eye on the crude market. If Art is watching crude, so should we, and a black swan may already be in play in the crude market with the bankruptcy of Denmark’s OW Bunker marine crude. If the ramifications of this BK (still being played out) cannot be contained in the crude oil complex, it may well start the other dominoes to falling, perhaps as soon as 1-1-2015. There is always something to worry over, isn’t there? It is said the stock market “climbs a wall of worry”, but it is well to remember that this climb since 2009 has been fueled by funny money (more debt), unsustainable profit margins, phony statistics (see shadowstats.com), hopes whispers (a recovery that simply has not materialized in Japan, Europe, or even in the US), and a complacent denial of risk, as the dollar carry trade has been chasing yield in the only place it could: equities. The trend is still up…….. until it isn’t. Crude may provide a clue.

  • Bruce C

    Whenever an article like this appears I wonder what the true motivation is. Could it be a genuine effort to get young people to invest in their future, or to invest so that they can fund the welfare state, or to invest so that current stock holders can unload their shares onto others?

    Because the stock market has been rising on very low volume (i.e., buy-sell transactions per day) the only way “big money” can unload their shares without tanking prices is to sell them to either other “big money”investors or to a lot of “little” retail investors, like “Millenials.” But since most big money investors want out, they need the retail sector to buy in.

    But other than getting Millenials to hold the bag (for the nest “five years” or so) I don’t see how any net growth in wealth is going to occur if Millenial debt is growing about 2% per year. Even if a Millenial skips a meal or two every month to buy Apple stock instead, net-net the only real gain will be if in fact stocks continue to gain 6.8% compounded annually for years and years, which has rarely happened, especially over a 43 year period.

    But besides young people not realizing that 6.8% compounded is unlikely, the bigger picture is that just about everything else in the US is breaking down – the rule of law, immigration insanity, global economic slow down, and incipient wars all over the world, etc.

    But in any case, I don’t see a lot of young people investing in the stock market. They don’t have the money to do so, and even if they did or do they would rather invest in immediate gratifications like drugs or even travel. I know a few 20-somethings who think the experiences of travel are more valuable than anything else.

    We shall see.

  • Pater Tenebrarum

    The current bull market is already one of the longest in history – the 4th longest to be precise. In terms of valuations it is the most expensive market in history based on the median stock and in terms of price/revenue, and in the 93rd percentile since 1874 in terms of the cap-weighted CAPE (Shiller P/E). This is probably one of the historically worst times to buy stocks from a longer term perspective. What could change this assessment would be a bout of truly destructive monetary debasement on a scale such as that seen in Venezuela or Argentina. However, there are good reasons to suspect that there will be a market collapse BEFORE that becomes a realistic possibility.

    • We don’t believe in an elongated bull market, but it may get another year or two …

      • Rantly McTirade

        Another ‘year or two’ would be an EXCEPTIONALLY elongated bull market-read Mr. Tenebrarum’s comment.
        Quite frankly, since your ‘restart’ last summer, it seems clear that marketing your financial advisory services has wholly displaced dispassionate, objective analysis,qualifying phrases be damned. Advocating NEW investment in equities at this point, where ‘investment’ is defined as a purchase made that is retained for a period of years, is insanity; advocating speculation, which may entail a holding period of hours, is different, so long as one is clear what that entails: a very real possibility of losing a substantial, even entire, portion of the amount invested, in a very rapid manner. And witless articles such as that in the Neo-Con Street Journal, are exactly the kind of nonsense one sees published around market peaks.

        • 1. We follow elite themes and try to determine their accuracy. Our coverage of this meme has been accurate in our view – objective and dispassionate.

          2. No one knows how much longer this puffed-up market will last and neither do you or Mr. Tenebrarum, for whom we have a good deal of respect.

          3. It could end tomorrow or it could run another year, or maybe more if the forces propping up the current mania continue to push.

          4. We’ve advocated a hedged, allocated involvement in the market, for those who want to be involved, and pointed out that people can possibly make a good deal of money in IPO oriented offerings. None of this is radical or even unusual … except maybe for the rest of the alternative media that has been predicting market mayhem for the past two years anyway. We haven’t. And we’ve been correct, thus far. Others have not.

          4. You’re criticizing us for correctly identifying a meme – the Wall Street Party” – and for tracking it appropriately. That’s what we do. That’s one reason why we have attracted literally millions of viewers over time.

          5. If we’re lucky and smart, we get it right. In fact, we applied our VESTS analysis to these market issues, and we will continue to do so next year unless there is a signficant crash in December, which currently seems doubtful, though anything can happen in an extended market like this one.

          • Pater Tenebrarum

            I would agree that the fact that the market is extremely extended does not necessarily preclude it becoming even more extended. One needs to keep a close eye on US true money supply growth – at a recent 7.6% y/y it was still fairly brisk, but it is slowing down markedly and already down from a 16.5% y/y high recorded at the peak. Per experience I would guess that a slowdown below 5-6% would indicate serious trouble is imminent.

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