Home Forums Hunting & Shooting Hunter's Campfire Don't look now but stock market is booming

LOL, the US economy is expected to grow as much as 10% over the next year, and you think the sky is falling.

We've got problems, but geez, man, look up, the sun is shining......

I am not a stock market guy, did it for years through a 401k in mutual funds and got nowhere.
I decided to take control of my future and started investing in futures contracts on commodities. Then real estate. I retired at 50 yrs old and am making more money than ever .... by like 5 times as much, and I don't lift a finger and I am not exposed to a crashing market and it will crash, it is past due for a crash.
I own zero stocks, when it does crash I may liquidate some real estate and get in...... but maybe not, I don't believe they are to be trusted at this stage

Except for the mini blizzard today, my sun is shining..... I have an army of dollars doing the work for me. And not a cent was made in the market.
Thanks for you concern though ....

I am truly happy for your financial success. Like I said, to each his own.

Thank you Okie and I am happy for yours also....
I just see dark clouds on the horizon and believe people should be wary.
Past performance does not indicate future returns or such thing was the disclaimer.... and I believe that

Congratulations on your success. But I have to say, I don't believe anyone "invests" in futures contracts. You are either hedging with them, or speculating in them. This is due to the fact that they all have an expiration date, so timing is everything; and to the fact that these contracts are highly leveraged. Putting money in the futures markets is not for everyone; you can make a lot of money and you can lose a lot, too. Both very quickly.

Absolutely.


The "market" guys would vote for Pol Pot if he had good markets.

AOC says that cows are bad and that farming is overrated... "I get my food from the grocery store and they always have plenty. All this fuss about farming is ridiculous."

Farming is the most manipulated Market on Wall Street. It always has been.

A recent post show there are only two battery manufacturers in America and that one is controlling about 80% of the market. Of course they are seeking a monopoly.

Amazon and Walmart are currently engaged in a war with one another for e-commerce of the future. It does not really matter who wins, what matters is all of the small businesses that will lose.

I needed a relay for my truck the other day. I went to Napa and bought one. It was just under $20. When I got home I decided I probably should keep some extras on hand and ordered them online. They were $1.50 each. Looking at them side by side I'm convinced they're the exact same relay made in the exact same Chinese Factory.

I used to listen to Lowell George who was the lead singer of a band called Little Feat. Lowell George loved to speedball. Speedballing is a drug, a combination of heroin and cocaine. This economy is like speedballing. And then suddenly Lowell George died.

There is not a single mechanism in place that can stop or curtail the current economic insanity and meltdown.

Even if inflation kicks in Way Beyond anyone's expectation the precedents have been set to pay lazy people not to work. There is no way to reverse Where We Are.

Enjoy the party, enjoy the speedball, someone is going to have to pay the piper in the end.

The Market has up cycles and down cycles.

Don't get too giddy about an endless up market because it will correct.

Likewise, don't be incessantly paranoid about a correction.

My Grandfather's generation worried endlessly that another Great Depression was going to hit at any time. It's been almost 100 years and no Great Depression II and that generation is all dead. They never saw another.

Same about the inflation mongers. "The 1970s and 80's are coming back". It's only been a half century since Nixon's Wage and Price controls. If you say it's gonna rain everyday, someday you'll be right. Then the people without umbrellas will be sorry. In the meantime, why waste your life avoiding sunny days? There is money to made in down markets too.

Your milage may vary.

When my father died 10 years ago, he had:
1) MSFT he purchased in the 1980s and is now worth 10X since we sold it for in 2011
2) PACAR he purchased in the 1950s and is now worth 10X since we sold it for in 2011

Most stock pickers are being beat by some old dead guy.

It's a scheme of some kind... the Fed is creating money for QE to push the market higher. You're benefitting greatly from the effect but future generations will have to sort that out. But I'm sure they'll marvel at your investing wisdom while doing so.

Precisely where I run since retiring at 53 six years ago. I chased it for years and did pretty well since 1985. Upon retirement I opted for a low cost Fidelity offer (that runs my company sponsored 401K and pension plan). We won't spend a bit off if at all.

Nice!

Biden's capital gains proposal would make 2021 a sell off year, but I am at an all time high today, making 40%/ year under Biden.

I am in GOOG and AMZN.

If that happens, it’ll be a good opportunity for many to jump in. Congratulations on your good fortune.

"SELL in May and Go Away?"

Rida Morwa's High Dividend Opportunities

Market Outlook 2 May 2021

Summary

+ This strong Bull Market is set to continue.
+ Sell in May and go away? Not for Dividend Stocks.
+ Possible market volatility over the next few months.
+ The mountain of money that has been created is an unprecedented opportunity for equities.



= = = =

We remain in extraordinary blissful times to be invested in the stock markets. All the stars are aligned in our favor. This is the most positive economic environment that I’ve ever seen with more than 6% GDP growth forecasts for 2021, ultralow interest rates, record order backlogs, and robust consumer spending. We have a record earnings season for the markets in general, and in addition, raised guidance's and dividend hikes for our HDO holdings. We expect many more to come!

I cannot stress enough that the main driver for these extraordinary times is the excess liquidity in the markets. We have historically seen great economic data that has not always translated into higher stock markets. Liquidity is key and it is the ultimate driver for equities. Not only did we have a massive amount of cash sitting on the sidelines until both the elections and the COVID situation were resolved, but in the meantime, the government has been injecting Trillions into the Economy. If you think about it, just the last $1.9 trillion in stimulus plans is equivalent to 38% of one quarter's US GDP (roughly $5 trillion). This is huge! This is in effect free money (or free liquidity) that is benefiting directly or indirectly most Americans in the short and medium-term. So we should not wonder why house prices are at all-time highs, and the stock markets are breaking their records almost on a weekly basis. If we dig more into the details:

US Bank Deposits are up by 32% since pre-COVID. Stimulus checks and lack of spending opportunities were major contributors. We have about $4 trillion in additional bank deposits.


Source: fred.stlouisfed

Money market funds are also up significantly since pre-COVID levels. We have more than $1 trillion additional money market funds.


Source: financialresearch.gov

Households’ Net Worth at a Record $130.2 Trillion: The net worth of U.S. households finished 2020 at the highest level on record, as soaring prices for stocks and real estate are the major contributors.

While we have evidence that some of the "bubble of cash" sitting on the sidelines" is starting to find its way to the equity markets, as we can see from the charts above, there are still trillions in excess liquidity earning near-zero interest rates. Part of this will also find its way to the equity markets providing additional upside. Even better news, we have at least $1 trillion in infrastructure spending that will hit this year and will give the economy and stock market investors another gift. The future looks very bright as far as liquidity is concerned.

So far, the government spending to get us out of the COVID recession is nearly four times the amount spend in response to the 2008 financial crisis.

The bottom line is that we are in the midst of a raging bull market that is likely to last another two years. It is supported by strong fundamental backdrops including a booming economy, consumer confidence, cheap money, and an abundance of liquidity.

Federal Reserve Statement: Bullish for Dividend Stocks
Last Wednesday, the Federal Reserve upgraded its views of the U.S. economy while keeping interest rates near zero. It added that COVID remains a risk to the economic outlook. Chair Powell said that the recovery has been faster than expected but “it remains uneven and far from complete” and the economy “is a long way from our goals.” It was not yet time to discuss scaling back asset purchases and “it will take some time before we see substantial further progress.”

This provided investors a clear signal that it will be a very long time until short-term interest rates will be hiked, and as a result, dividend stocks rallied following this announcement. This is another confirmation that dividend stocks are one of the best places to be invested today.

Sell in May and go away? Not for Dividend Stocks.
On Friday we saw the markets dip. It seems that some of those investors who follow the pattern "Sell in May" (and re-invest in November) decided to get out of the markets on Friday. However, this did not seem to have much impacted dividend-paying stocks with many actually being in the green for the day. This was especially notable for fixed income CEFs such as PCI, PTY, XFLT, OXLC, ECC, and HFRO. This could indicate that investors that are selling in May are taking profits on their growth stocks but keeping their income stocks.

Interestingly, JP Morgan analysts yesterday were advocating to do the exact opposite than to take profits in May. The advice was: "Buy in May and Go Away" referring to value stocks and cyclical stocks (or economically sensitive stocks such as BDCs, CLOs, mREITs, and Property REITs that we are holding in our portfolio). They believe that the strong uptrend for value and cyclical stocks is likely to accelerate into late spring and summer, buoyed by a continued rally in commodities and a resurgence in Treasury yields. Here is their quote:

We believe this move is likely to accelerate as we move into late spring and the summer amid the reopening of the economy, with the primary beneficiary being value and cyclical stocks... Importantly, we do not believe these developments are priced in, and believe the reopening and reflation trade will resume with a move that will be bigger than we saw early this year.... A continued rally in commodities and a resurgence of Treasury yields higher stand to be near term catalysts for value and cyclical stocks.

Not only do I agree with the JP Morgan analysts, but I am against trying to time the markets. This is especially a bad strategy when we are in a very strong market such as the one we are seeing today. The odds are that you are likely to buy back at higher prices. Importantly, short-term market fluctuations do not matter for us. We are income investors and time is on our side.

Risks to the Bull Market
Last week, I tackled the issue that higher capital gains taxes and higher corporate taxes are not the main risks to equities today. if you did not have a chance to read last week's market outlook, here is the link:

Market Outlook: April 25, 2021

In short:
Higher capital gains taxes will have a short-term impact on the market, but will not derail it. Growth and momentum stocks will be the most impacted. Dividend-paying stocks will be the least impacted. In fact, many dividend stocks such as those that do not pay "Qualified Dividends" (for example REITs, BDCs, MLPs, and many of our CEFs) should actually be "net winners" because they will not be impacted by these taxes.

Higher corporate taxes have historically not had a significant impact on the bull market as long as they remain competitive globally. I explained why it is unlikely that corporate rates will be hiked to such a level.

However, the biggest risk to equities today is a Federal Reserve policy error by hiking interest rates too soon or too late.

Hiking short-term interest rates too soon, that could derail the economic recovery and could result in a severe market crash.
Hiking short-term interest rates too late would result in inflationary pressures that would be hard to control. First, this is not negative for the economy in general, and for the U.S. consumer in particular. It would prompt the Fed to start hiking too aggressively in a short period of time, creating imbalances in the markets. This would be bearish for most equities but would be bullish for inflation resilient stocks and sectors.

This is a risk that I will be continuously watching and will keep our members informed. We will make adjustments to our portfolio accordingly to hedge against any such upcoming risks.

Possible Volatility During the Summer
During the first 4 months of this year, money was pouring into equities. It was very difficult for traders and algorithms to have much of an impact on equities, and therefore volatility was very low. However, if we look at the chart below, we can already see that trading volumes have started to decline.

As we head into the summer, the markets could be more vulnerable to swings and choppiness. This doesn't mean that members should be looking to sell. I am just trying to manage expectations. In my opinion, if the markets pull back, it will be a shallow one, and followed by a swift recovery. Any pullback, if we see one, should be considered a buying opportunity.

Conclusion
It is one of the best days to be an investor in the markets. What is important is to stay on top of the big picture. Some investors may feel that this bull market is mature or are scared that they missed the big rally; yet, they are discounting the fact that we have monetary and fiscal policies of a young, emerging bull market, and an economy just coming out of a recession. This mountain of money that has been created is an unprecedented opportunity for financial assets and will keep this strong bull market running for the next two years at least. The key is to be invested in the right stocks and sectors. For us income investors, our goal is to maximize our income with a secondary objective of achieving capital gains. I am very excited about our portfolio, and I expect that over the next two years, our capital gains will greatly outstrip our annual recurrent income.

My portfolio return [mostly MSFT, GOOG, AMZN]:
1993 - 2001 Clinton...20% per year
2001 - 2009 Bush .....20% per year
2009 - 2017 obuma...20% per year
2017 - 2021 Trump....40% per year
2021 - 2021 Biden.....15% per year


Democrats:

-Closed schools
-Frozen wind turbines
-Illegal immigration

Republicans:

-Open schools
-Keystone Pipeline
-American jobs



Climate change is a scam. It’s just another liberal elite conspiracy to tax us and fill their fat pockets.

The unrestrained money printing enabled and encouraged by both parties will have orders of magnitude more impact than all of those combined.

Today’s CPI drives that fact home and subsequent ones will get worse absent any (((manipulation))).

Rida Morwa

Market Outlook: The Markets Beyond 2021


30 May 2021 1:27 PM ET

Summary
+ The equity markets continue to show resiliency in the face of any negative news.
+ The outlook beyond the year 2021.
+ Comparing the Bull Market of the Year 2000 with Today's Bull Market.
+ Are equities overvalued today? Will interest rate hikes by the Fed derail the bull market?
+ Current Outlook: Where do the Markets go from here?



= = = =

Market Outlook, 30 May 2021

The stock markets remain very resilient despite all the negative news that is spreading fears among some investors, including inflation fears, and the impact of higher capital gains taxes and corporate taxes. The S&P 500 index has broken above the 4200 level again to show signs of continuation, and at this point, it looks that this market is ready to make a fresh, new high. This would be an all-time high, which of course would be very bullish.

The leaders again in this rally are "value stocks" as growth, technology, and momentum stocks continue to suffer as a result of higher inflation and the impact of higher taxes. The HDO portfolio had another great week.

As noted in previous market updates:

Technology, big growth, and momentum stocks are suffering a double hit on the taxation front. The first hit is corporate taxes: The latest research shows that large-cap stocks' earnings will fall as much as 9% in 2022 based on the current tax plans. The second hit is on the capital gains taxes: Many high net worth individuals are selling (or will sell if they are still able to) their growth stocks this year to lock in lower taxes, and buy them back next year. They might also instead buy "dividend stocks" which are taxed at lower rates because most of the returns come in the form of dividends and not capital gains.

Low interest rates are great for all equities in general, but particularly for "growth stocks". The valuation of any stock is calculated based on "the present value of its future cash flows". This formula takes into account "interest rates" and "earnings growth". A company with rapid growth will see its valuations substantially decline when a slight increase in interest rate is seen. This is the case for growth stocks that are already trading at lofty valuations. Once interest rates start to rise, all of a sudden, these lofty valuations will look even loftier. The prices will have to come down in order to reflect the new realities. In contrast, value stocks do not have much growth built-in. These tend to be established businesses with high recurrent cash flows. So their valuations are not as sensitive to interest rate hikes.

Growth stocks are unlikely to come back in favor this year. I expect "value stocks" and "value dividend stocks" to continue to lead this rally throughout 2021.

The Drivers Of the Current Bull Market
The economic and earnings fundamentals are strong. Economic data continues to show strength – U.S. Real GDP growth is expected to rise to 8.6% (annualized rate) in Q2, and 6.4% (year-over-year) in 2021. The economy now is running at maximum acceleration. On the earnings front, first-quarter results were sensational, with over 85% of companies beating estimates and increasing their forecasts for 2021. We have also many companies increasing dividends, and initiating stock buybacks. HDO's stocks got a big share of those dividend increases, and some were on the order of 40-50% over the last dividend, such as from NEWT (NEWT), ATAX (ATAX), and CLNC (CLNC).

The technical picture is perfect and indicates a continuation of a secular bull market.
I keep highlighting every week that the biggest driver in any bull market is liquidity and excess money held by investors. The system is swimming in trillions of excess liquidity from the stimulus plans and savings accumulated by consumers during the pandemic. Furthermore, there is a "bubble of cash" held by investors that is still sitting on the sidelines, held in savings accounts, money markets, and CDs, earning next to nothing. There is evidence that some of these funds are slowly flowing into the equity markets, and supporting higher prices. Additional liquidity is being injected into the system (whether it is needed or not). The current administration is on a spending spree. A negotiated "infrastructure plan" likely to be around $1.4 trillion in additional liquidity will hit the economy soon.

A Fading Dollar adds "More Liquidity" for U.S. Stocks
A weakening dollar is adding further support to U.S. stocks and attracting foreign investors as the market soars to record levels. The U.S. dollar has been falling against other international currencies mainly due to ambitious spending plans in addition to the large stimulus plans, borrowing, and dollar over-printing during the pandemic and following it. Below is the chart of the U.S. dollar index during the past 12 months.


Source: tradingview.com

The falling dollar is set to attract foreign investors, who spend on average an estimated $300 billion on U.S. stocks each year. They were the largest buyers of U.S. equities during the Covid crash of 2020.

A weakening dollar has historically been a big catalyst for foreign investor demand for U.S. stocks. This adds even more liquidity for U.S. stocks and helps drive equity prices higher.

Outlook Beyond the Year 2021
While the bull market of the year 2021 is being supported by strong economic growth, this will not be the case in the year 2022. The impact of the stimulus plans and the pent-up demand will wear off by next year, so economic growth should significantly slow down. This means that the current valuations of the S&P 500 index may not be supported by the earnings growth next year. This is also another blow for growth stocks.

However, this bull market will not be over next year and will continue most likely until the year 2023.

+ Are the markets currently overvalued?
+ What will be the driving force for the bull market next year?
+ Which risks do we have to keep watching for?
+ What will end this secular bull market?
+ What are the signs that I will be looking for to guide our members to move our portfolio into a more "defensive position?"

In order to address these questions, let's start by comparing the current bull market with the bull market that started in the early 2000s and which led to the "great financial crisis" of 2007-2008.

Comparing the Bull Market of the Year 2000 with Today's Bull Market
Let us first have a look at the S&P 500 chart from the year 2002 where the last phase of the bull market began (prior to the current one which started in 2010) through the year 2007-2008, which we call the Great Financial Crisis.



The current bull market today is mostly a "liquidity-driven" one and is very similar to the bull market that we saw back in the early 2000s. Both have little do to with economic growth and this is why a slowing economic growth will not derail today's bull market.

While currently the liquidity is being pumped by the Federal Reserve and the Government, back in the years 2000, it was done by the banking system through irresponsible banking practices. The end impact? Wealth brings more wealth. More wealth brings more speculation. More speculation leads to higher asset prices. And eventually, an "asset bubble". And finally.... a bubble burst.

Frankly, this is where I think we will eventually be heading. It is not a matter of if, but a matter of when. In the meantime, there is a huge amount of money to be made, both in terms of dividends and capital gains. Also if we time it correctly, and this is our aim, we will take a defensive position in time, so that we can absorb any shock and still have a good defensive income-paying portfolio. The good news is that we still have years to enjoy this bull market. I will go step by step to explain the situation today and compare it to the years that led to the "asset bubble burst" in the year 2008.

Are Equities Overvalued Today?
First, let us assess if the markets are overvalued today. For those skeptics who still insist on using the Price/Earning ratio valuations, I will do so and compare today's valuations with those of the years prior to 2008. Note that the P/E ratios are the worst valuations to use because they do not factor in current yields (Treasury yields or Federal Fund Rate yields) which are key and should be used to get any accurate results.


Source: MacroTrends

As we can see above, the railing P/E ratios today are at around 40x versus 120x prior to the bubble burst. Note that the forward P/E ratios for the year 2021 are set to be much lower than 40 times due to acceleration in earnings. According to the WSJ, the forward P/E ratio of the S&P 500 index is at 22.5 times. Therefore today's stock valuations are clearly inexpensive using this method.

Valuations Based on 'Earnings Yields'
Perhaps, one of the best valuations around is the one based on comparing the "Earnings Yield" (or earning generation) of the S&P 500 companies versus the "10-Year Treasury Yield.

Note that at the time of the year 2000 bull market, the 10-year treasury yields were running between 4% to 5%. Today they are below 2%.


Source: MacroTrends

So let us look at the valuations based on the "earnings yield".

The S&P 500 index estimated "earnings yield" for the year 2021 is at 4.3% while the 10-year Treasury is only earning you 1.64%. Clearly, there is little advantage in holding the 10-year treasury. Your earnings spread (or gain) by investing in equities is at 2.66%.


Source: Yardeni.com

Back in the year 2006, one year before the "great financial crisis", the "earnings yield" of the S&P 500 index was at 5.76% with the 10-year rate yielding 5.0%. So your earnings spread was about 0.76%, much less than the 2.66% that you are earning today by investing in equities.

So clearly, we made the case that equities today are not overvalued based on both methods used above, but rather reasonable and possibly undervalued.

Market Risk: Will Interest Rates Hikes By The Fed Derail the Bull Market?
The main risk being discussed by many analysts today: Would a Federal Reserve policy mistake or "misstep" by hiking interest rates too early or too late derail this bull market?



The way things are looking today, there is going to be a rate hike next year, probably by 0.25% or possibly by 0.5%. This will probably happen mid or end of 2022. How will this bode with the current bull market? It will for sure have a knee-jerk impact at the beginning but will be short-lived and not derail a bull market. Remember, this is a bull market that is flush with liquidity. Again, let us look back at the bull market of the year 2000.


Source: St. Louis FED

From the year 2004 till the year 2007 the Fed Fund Rates were hiked from 1% to 5.2% (or +by 4%) in 3 years and the bull market did not budge!

So a 0.5% hike, or 1%, or even a 1.5% hike is not going to derail this bull market.

Here we need to note two items that are very important and that got the Fed's hands tied as such they may be unable or unwilling to hike rates by too much:

The Fed is not willing to risk derailing the economy and risk having another recession which will be extremely costly to "resolve", and probably more costly than the COVID crisis. I think this is out of the question for the Fed right now. This will tie the Fed's hands about how much they will be willing to increase the Fed Funds rate.

More important: Even if the Fed becomes very hawkish and willing to hike rates, it is going to face very tough opposition from politicians from both parties. Remember that the fiscal deficit has ballooned since COVID, and any small increase in Fed rates is going to cost the government a fortune in interest payments to repay. The government may settle for more inflation and less "Federal Deficit" in case they are faced with having to raise rates aggressively.

Because of both reasons above, I believe that the Fed has few tools to fight inflation or "runaway inflation". This is another reason yet that we at HDO have been preparing our portfolio for higher inflation since the beginning of 2021. We are fully ready and prepared if inflation accelerates.

Going back to valuations: A hike of 1.0% by the Fed will not result in stocks being overvalued compared to the year 2006 because you would still be earning today a higher spread of over the 10-year Treasuries.

Current Outlook: Where do The Markets Go From Here?
This bull market has at least two more years to run. The last phase of the bull market, as I will explain in my next market outlook, is when stocks see their biggest and fastest gains in the shortest period of time. This will be one of the most interesting and fascinating times to be invested in and experience the markets. But we are not in this last stage yet. We are on the one prior where we can seek undervalued opportunities because the markets are not overvalued and overstretched.

We have been seeing some volatility lately, and it is likely to continue through the summer. But as with any bull market, large unexpected market gains can surprise you more than the "unconventional" pullback.

The next target for the S&P 500 index is at the 4400 level, with massive support at the 4000 level to the downside. I believe that there is a good chance that the S&P 500 index will close the year at or above the 4600 level, or roughly 9.5% higher from here. The year 2021 is set to be a fantastic one for stocks in general, and especially for our "model portfolio'. Again, we are set to beat the S&P 500 index, and all major indexes and deliver stellar results to our members while collecting our recurrent income.

My Next Market Update
In today's outlook I have explained:

+ That this bull market is liquidity-driven and not only based on economic fundamentals. Even if economic growth slows down, it would not impact this secular bull market.
+ Equities are not expensive, using two valuation metrics (P/E ratios and Earnings yields). We can even argue that they are cheap.
+ I tackled one of the major risks that is worrying investors today, which is future rate hikes by the Fed. I explained that the next rate hike is likely to be next year, and it will only result in a knee-jerk reaction. It should not impact the bull market.
+ I also explained that the Fed's hands are tied and that the possibility of aggressive future rate hikes is unlikely. This is good news for equities.

In my next market update, I will expand further and explain:
+ The four phases of the Bull Market
+ Which phase of the Bull Market are we in today.
+ The last phase of the bull market is the one where we see the biggest and fastest gains in the shortest period of time. It is also the most fascinating one but can be dangerous if not watched carefully because this is where it all ends.
+ What are the signs that I will be looking for that would indicate that the bull market is over?
+ When will be the time to move into a more "defensive" dividend portfolio.

Have a great Sunday!

Our weekly Best Picks will be published tomorrow.