Enjoy It While It Lasts

Big-cap stocks are rising again… and you should enjoy the trend while it continues, since I don’t expect the trend in big- cap stock prices to result in a new bull market. Strong markets often represent good times to sell, and my dear friend, that’s something you should consider.

We’re obviously dealing with two types of market interpretations. I unfortunately fall in the smaller of the two groups. What am I talking about?

The majority of investors believe the bear market in stocks, which began in 1999, ended in 2002. The smaller camp, the much smaller camp, of which I am a part, believes the 1999-to- 2000 bear market was simply the first leg in a long-term bear market. And it’s still not over.

Here are some points I’d like you to keep in mind:


— Bear markets are usually at least half as long in duration as the bull markets that precede them. It’s now generally believed that a bull market started in stocks in 1974 and ended in 1999. I wouldn’t be surprised to see that 25-year bull market followed by at least a 12-year bear market, at the minimum. Remember, the bear market that started in the mid-1960s ended in 1974, about 10 years later.

— Long-term bull markets usually start when stocks are a bargain (fear) and end when stocks are severely overpriced (greed). The bull market started in 1974, when stocks were trading at well below 10 times earnings and at about a 5% dividend yield, and ended in 1999, when stocks were trading at over 25 times earnings and at a dividend yield below 2%. Today, stocks are still trading at over 20 times earnings. Stocks never became a bargain!

— The Fed’s low-interest rate policy has kept everyone artificially happy. In my personal life, I’ve never before seen such manipulation as I see today by the Fed in the market. I believe the Fed is obsessed with the stock market. Why? Because the stock market sets the moods for consumers. If the stock market continues to rise, consumers feel good about their retirement savings and they continue to spend into the economy. Naturally, if consumers become concerned about their retirement, they contract their general spending patterns. It’s human nature.

— The remainder of the world is catching on to the devaluation plan of the U.S. for its currency, as well as the general worthlessness of the U.S. dollar. (This explains the run-up in gold prices.) Regrettably, we need foreigners, namely Asian countries, to buy our bonds to keep us afloat. I believe there will be a point when our currency is no longer attractive to foreigners. Does that mean the Fed will have to spike interest rates at some point to stop a collapse in our currency? Maybe.

Simply, I believe you should enjoy the run-up in big-cap stocks now while it lasts. Consider selling into the strong market too, because, over the long term, I don’t see this situation ending prettily.