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Kirk
Market Outlook
I do not recommend people attempt to time the markets with anything more than the "explore" part of their "Core and Explore" portfolio. With that said, I still like to take my best guess at what lies ahead for the stock markets.
I believe several ingredients are needed for the markets to go higher.
- First you want the markets to be climbing a wall of worry. If everyone is bullish and fully invested, then there is nobody left to share your shares to at a higher price. This applies to everything from "Beanie Babies" to "US Treasury Bonds" including stocks in publicly traded companies.
- Then you want equities to be fairly valued. Who wants to pay 100 times sales for a company that is losing money? On the flip side, I love to pay twice sales or less for a profitable company growing 20% a year with an earnings yield that is low with respect to the ten year treasury bond.
- Reasonable Economic Growth. It is hard to make money in an economy that is contracting compared to one that is growing. Also, you don't want to be putting money in during periods of high economic growth because these are almost always followed by huge slowdowns or even recessions.
- Reasonable cost of money. You want people and companies to have access to money at a reasonable price. High inflation makes money very expensive so a key figure of merit is outlook for future inflation.
Lets take a look at how these items to watch stack up.
I Measure Investor Fear with Bond Charts
I have many other indicators I follow that show fear, such as the 60 and 10 day moving average of the put/call ratio, but my "Bond Indicator" is one of the best. Check out the two charts below showing the year Treasury bond vs. the S&P500.
Note how there were MAJOR spikes down in the 30 yr in 1998, 2001, late 2002, 2003 and again in early 2005.
Note: I've posted the full article with my graphs in "Kirk's Market Thoughts."
After EVERY spike down the markets made a major bottom and rallied hard afterwards, weeks to months later. Will the recent spike in early 2005 continue this trend? I think so. Sentiment is full of fear as measured by where people invest their money.
