Time To Buy At Nasdaq 5000? - Mike Swanson (03/03/0215)

It took 15 years to do it, but finally the Nasdaq made it back above 5000.

People love to buy after a market goes up for a long time and since this is year six since the bottom of 2009 people are piling into US stocks.

According to last week's Investors Intelligence poll 59% of respondents are bulled up on this market.

The record reading is 62%.

A full 45% of AAII individual investor respondents are bullish too.

There are no bears left.

From a contrarian standpoint this is not good for the stock market. The best times to invest are when people are scared and everyone is bearish.

That is what the situation was in the first quarter of 2009 and what the situation is right now in gold and gold stocks.

So selling some US stock market positions and buying precious metals and mining stocks is a smart bet right now in my opinion.

And notice NO ONE on CNBC will tell you to do that.

On CNBC there was nothing but nonstop Nasdaq 5000 excitement and predictions for more to come yesterday and this morning. Look at this picture from yesterday:

All of the talk is that this is not year 2000 so do not worry that when the Nasdaq got to 5000 back then that it was a disaster for those that bought.

See this clip for example of what the Wall Street suits are saying today:

Notice that this man says nothing about current market valuations except to say they are not as high as they were in 2000.

That was the highest valuation ever, but from a historical standpoint the market is still in nosebleed territory.

Notice too that this man says that it is the Fed that will make the market go up more.

Here is a voice of caution from John Hussman of Hussman Funds:

Last week, the cyclically-adjusted P/E of the S&P 500 Index surpassed 27, versus a historical norm of just 15 prior to the late-1990’s market bubble. The S&P 500 price/revenue ratio surpassed 1.8, versus a pre-bubble norm of just 0.8. On a wide range of historically reliable measures (having a nearly 90% correlation with actual subsequent S&P 500 total returns), we estimate current valuations to be fully 118% above levels associated with historically normal subsequent returns in stocks.


Short term interest rates remain near zero, 10-year bond yields have declined below 2%, and our estimate of 10-year S&P 500 total returns has declined to just 1.4% (see Ockham’s Razor and the Market Cycle for the arithmetic behind these historically-reliable estimates). Recent weeks mark the first time in history that our estimates of prospective 10-year returns on all conventional asset classes have simultaneously declined below 2% annually. We don’t expect a portfolio mix of stocks, bonds and cash to achieve any meaningful return over the coming 8-year period. The fact that the financial markets feel wonderful right now is precisely because yield-seeking speculation and monetary distortions have raised security prices today to levels where they are likely to stand years from today – with steep roller-coaster rides in the interim.


The fact is that since 2000, the S&P 500 has achieved an annual total return of 4.1% annually, and doing so has required a speculative push to valuations exceeding those of every other market cycle in history, including 1929. In the interim, we’ve seen two separate market collapses of 50% and 55%, and I suspect that a third is in the offing. But again, the financial markets feel wonderful here precisely because security prices today already stand at the same levels that are likely to be seen 8-10 years from today, with one or two exciting roller-coaster rides in-between.

Full article here.

Now I do not think the market is going to top out and crash this week. It may go a little higher over the next few weeks. I am not saying sell everything you own and fear a crash.

I am saying though that from a portfolio allocation standpoint being 100% all-in US stocks and US bonds no longer makes any sense at all.

I think this is a time for people to lighten up on their US stock market positions and put that money to use elsewhere where valuations are cheap and opportunities are better.

There is no voice of caution on CNBC right now.

I must be that voice of caution for you!

And I fear no one will listen.

Most are afraid of missing out by being in cash.

All I can do is show people that there are better places to make money now that will generate better returns for them then keeping all their money in the US stock market and hoping that indeed things are different this time.

Not only will diversifying out of the US stock market lower one's risk exposure, but it is likely to lead to greater gains even if the US stock market goes up.

That is the magic of looking to buy early into bull markets when valuations are cheap. Stage analysis helps you identify where you are in a market cycle. Are you early or late?

People who do not lighten up though on their US stock market positions now probably never will.

But I am curious about what your thoughts are on the market and investing now... if you want post them below.

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