Saturday, April 5, 2014

Bull Market - steady as she goes (well into 2015)

People fear the approaching end of our 5 year bull market. With 2008-2009 still fresh in everybody’s mind many fear a major set-back in the market. But only 48% of Americans own stocks compared to 68% or so at the peak of the 2007 -2008 market. In the early summer of 2010, we experienced a major setback from the European debt crisis and then the second installment in the summer of 2012. Each set back was a large correction or better each was a mini bear in an already traumatized stock market. So if 2011 was the last bear market then our current bull is only 3 years old! The market has not looked back since and except for the summer of 2012 we have not seen a correction of significance.

All the while media and pundits moaned and groaned about the bad and sluggish economy and feared major inflation and the collapse of the U.S. dollar as the inevitable consequence of the Fed’s stimulating policies. QE3 was driving up gold prices and consequently the End of America was unavoidable. Those guys at the central banks were dodos and they were incompetently driving the U.S. and the world into oblivion. Guys such as Harry Dent predicted a nearly unending depression by looking with blinders at the demographics of North America while forgetting the classic legal cop-out on any mutual fund prospectus: “Past performance does not guarantee future results’! The Baby Boomers behave not like previous generations and… later generations don’t necessarily act like previous generations either!

But guess what, the economy kept incrementally improving and the European Union survived, as predicted on this blog. This was because many ‘experts’ failed to look beyond the U.S. and did not take into account the rest of the world. Yes, the U.S. currency had troubles, but the rest of this planet’s currencies were often not a lot better off; in fact many were in worse shape than the dollar. So the U.S. dollar is still the reserve currency of the world and Gold? How do you spell that? Oh, not to mention inflation-protector and new currency boy-wonder BitCoin…

Now that the economy is strong enough to take away the monetary punch bowl, all the pundits are worrying again: “Oh the economy is not strong enough…. Oh earnings are going to be flat and oh… the next stock market crash is near!” Well, that remains to be seen. U.S. and Canadian employment numbers, after a very nasty winter, have picked up greatly. Unemployment is falling and with more and more people working and with the profits of a recovering U.S. housing market, profits from U.S., European and Japanese stock markets, the world consumer is finally gaining both in net worth and in confidence. My guess: later this year we’ll hear that the North American consumer has come back with a vengeance and 2nd and 3rd quarter GDP numbers are just dandy with as result: yet higher corporate profits and… an even higher stock market!

With the commodity sensitive TSX outperforming the U.S. markets, we have entered the last stage of the bull market (see earlier posts) but I have good hope that the wall of worry is still intact and that this last leg has still a lot farther to run. Don’t throw your caution in the wind. The next black swan may be just around the next corner, but overall the bull market is still intact. ENJOY THE RIDE; BUT ALSO BE READY TO BAIL, USE TRAILINGS STOPS; SELL PUTS FOR NOW and USE COLLARED OPTIONS WHEN THINGS GET EVEN HOTTER. I suggest building a 20 to 25% cash position and if there is a truly hot market this year then get ready for trouble in the summer of 2015. But that is still another 20% or so away (if not more).

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