Longest Bull Market in History

opexlong

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I've recently come across this interesting interview, which fits in nicely with the discussion.

Fred Hickey is a technologist who runs a tech investing newsletter which he started in 1987.
Q. Mr. Hickey, despite of raising interest rates, global trade tensions and turmoil in the emerging markets the stock market in the United States is chasing one record after record. How long will this go well?

A. Today’s situation reminds me of the fall 2000 which was a very difficult time for me as a contrarian investor. The internet bubble had broken in March when the Nasdaq peaked at 5132 and all those crazy valued dotcom stocks had crashed. In the three weeks after the Nasdaq had peaked it looked like the whole stock market had broken. But it hadn’t because investors rotated into what they perceived to be safer big cap tech names. So, they piled into stocks like Intel, Cisco, Microsoft, Nortel, EMC and Sun Microsystems. And that’s what we’re seeing today in a similar way with stocks like Amazon, Apple and, again, Microsoft.
Q. What happened next?

A. Once we got into September and October, the market started to roll over. Back then, I was short via puts a number of tech stocks. My biggest short position was Intel and the stock first went higher and higher. In August 2000, Intel rose 20% in just one month and pushed into a new high of almost 76 $ a share. For me, these were some of my toughest days trying to fight the mania. The maniacs were piling into the stock and had no clue. They were only chasing momentum – just as they’re doing it today. But as soon as Labor Day rolled around, Intel’s shares started to fall because fundamentally the business was deteriorating. Intel had to lower its outlook and the stock crashed 45% in one month. Think about it: At that time, Intel was the second largest company in the world. It’s the equivalent of Amazon today which means that Amazon’s market cap would go from around $1 trillion to $550 billion in just one month. That’s a shocking thing. But the difference is that Intel’s P/E ratio was 55 back then. Amazon’s is 155 today.
True, the P/E ratios don’t look as high as they were in 2000. But other indicators do. For instance, the median price to sales ratio for the S&P 5000 is two times higher than it was in 2000. What’s more, the median price to book value is just as high as it was back then. This shows that this bubble is much broader than it was in 2000. And think about all the methods that corporations have taken in order to pump up their earnings which includes the record number of corporate buybacks and non-GAAP- earnings numbers.
Worth reading the whole thing.
 
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joe sod

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It seems something happening in the markets now. It's amazing that a whole year of gains can be wiped out in a few days. The old adage that the stock markets climb the stairs but descend the escalator is very true. Maybe as another poster pointed out a similar scenario to 2001 after the dot com crash is playing out and there will be a rotation out of us and high tech stocks into other areas, maybe oil and commodities like in 2001, or emerging markets even the troubled European financial stocks. However I don't think something as severe as 2001 is happening, simply because we havnt had the rip roaring stock market decades like the 1980s and 90s. Lots of people talk about the unbroken us stock bull market, however that came after the most devastating stock market crashes in 2001 and 2008.
 

SBarrett

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It seems something happening in the markets now. It's amazing that a whole year of gains can be wiped out in a few days. The old adage that the stock markets climb the stairs but descend the escalator is very true. Maybe as another poster pointed out a similar scenario to 2001 after the dot com crash is playing out and there will be a rotation out of us and high tech stocks into other areas, maybe oil and commodities like in 2001, or emerging markets even the troubled European financial stocks. However I don't think something as severe as 2001 is happening, simply because we havnt had the rip roaring stock market decades like the 1980s and 90s. Lots of people talk about the unbroken us stock bull market, however that came after the most devastating stock market crashes in 2001 and 2008.
Don't forget there was a fall in market prices in February and April of this year as well, so it's not as if it's been on an upward trajectory all year.

Increased interest rates in the US is the main driver behind this fall. With unemployment at record lows, there can be a higher cost of hiring people, more money, increased inflation. Increasing interest rates is the age old method of keeping inflation low by reducing disposable income. It looks nothing like 2001 where online businesses valued in the millions (quite quaint when they are now valued in the billions!) were worth nothing more than the url. Or 2007/08 when banks had no cashflow. Although it will be interesting to see if US companies have overstretched themselves regarding borrowings and struggle with higher interest rates.



Steven
www.bluewaterfp.ie
 

galway_blow_in

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It seems something happening in the markets now. It's amazing that a whole year of gains can be wiped out in a few days. The old adage that the stock markets climb the stairs but descend the escalator is very true. Maybe as another poster pointed out a similar scenario to 2001 after the dot com crash is playing out and there will be a rotation out of us and high tech stocks into other areas, maybe oil and commodities like in 2001, or emerging markets even the troubled European financial stocks. However I don't think something as severe as 2001 is happening, simply because we havnt had the rip roaring stock market decades like the 1980s and 90s. Lots of people talk about the unbroken us stock bull market, however that came after the most devastating stock market crashes in 2001 and 2008.
It's only U. S markets which have been doing well, the stoxx 600 financial sector etf in Europe is trading at Post brexit levels and the overall European market has been in a bear market now since before brexit
 

galway_blow_in

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I haven't bought or sold anything in ages bar a particular cement company which is doing horribly.

Not bothered though as dividend is decent
 

joe sod

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It's only U. S markets which have been doing well, the stoxx 600 financial sector etf in Europe is trading at Post brexit levels and the overall European market has been in a bear market now since before brexit
and even the S & P 500 performance has not been that stellar when you compare it with the 1990s, it increased by 170% between 1990 to
year 2000 (in other words it almost tripled), it actually decreased by 33% between the years 2000 and 2010 , it has increased by 107% from 2010 to now, however only by 40% over the year 2000 level, almost 2 decades later.
Therefore when talking about the unbroken bull market in the US markets it must be emphasised the enormous effect of the 2008 crash which resulted in the us markets dropping 33% between 2000 and 2010, this is the backdrop to this bull market an awful lot of it was recovery from 2008 even in the US.
 

galway_blow_in

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and even the S & P 500 performance has not been that stellar when you compare it with the 1990s, it increased by 170% between 1990 to
year 2000 (in other words it almost tripled), it actually decreased by 33% between the years 2000 and 2010 , it has increased by 107% from 2010 to now, however only by 40% over the year 2000 level, almost 2 decades later.
Therefore when talking about the unbroken bull market in the US markets it must be emphasised the enormous effect of the 2008 crash which resulted in the us markets dropping 33% between 2000 and 2010, this is the backdrop to this bull market an awful lot of it was recovery from 2008 even in the US.
the spanish and italian stock markets are below where they were in 1998 , the french market around where it was in 2000 and the ftse marginally above 2007 levels , only germany has matched the u.s market this past decade .

i know you need a long term horizon but i make my points as a rebuke to the constant narrative of " runaway bubbles in assets "

doesnt stand up to scrutiny at all with regard equities , property yes !
 

joe sod

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the spanish and italian stock markets are below where they were in 1998 , the french market around where it was in 2000 and the ftse marginally above 2007 levels , only germany has matched the u.s market this past decade .
I dont understand why there is not much focus on these facts. Another much under reported fact is that the percentage of global wealth invested in the stock markets has reduced considerably since the 1990s , most of the money invested is now in the global debt and bond markets, followed by the global property markets
 

galway_blow_in

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I dont understand why there is not much focus on these facts. Another much under reported fact is that the percentage of global wealth invested in the stock markets has reduced considerably since the 1990s , most of the money invested is now in the global debt and bond markets, followed by the global property markets
just need to correct something i said , the italian market is below 2000 levels , not 1998

the french C+C was higher in 1999 than today .

all these chart details available from marketwatch .

your right about property , any major city in europe has seen its property market rise dwarf the returns of said nations equity market .
 

cremeegg

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The world is changing in many ways. In my opinion stock markets are a thing of the past and are set to dwindle.

The compliance costs of a listing and the associated public scrutiny become ever more onerous.

Large corporations no longer need to raise finance through traditional stockmarket listings. Airbnb, Uber etc have access to all the money they want without a listing.

Raising finance through equity costs. Interest payments are tax deductible.

Large corporations with listings are buying back shares, to reduce their managements exposure to the criticisms of a whimsy market, (not to return cash to shareholders).

Investing in equities will become a niche activity. Innovative business will be well financed long before the public get an opportunity to invest.
 

joe sod

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@cremeeg interesting your observations however it would seem odd that when it is easier than ever to invest in the stock markets much easier than bonds or property and much easier than in the past that it is just going out of fashion. If it is the case that stock market investing will no longer be done by normal people then what are we returning to eighteenth century oligarchs on the one hand or communists on the other. If people are not investing in the stock markets but in assets like property or bonds that pay no interest now are they not setting themselves up for another big crash like 2008 which was disastrous for the wealth of the normal Irish person, or bonds where the possibility of over indebted governments burning their bond holders. Also if less money is being invested in the stock markets as a proportion of the total surely that means that stock markets (exception of the US for now) are better and better value. Also if companies are choosing not to go to the stock markets for finance and are buying back their own shares is that not all the better for existing shareholders as their shareholding is being increased without them having to buy more shares
 
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opexlong

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It looks nothing like 2001 where online businesses valued in the millions (quite quaint when they are now valued in the billions!) were worth nothing more than the url.
As I've pointed again and again on these threads and will continue to point out, the 1999-2001 crash was not a sell-off of worthless companies only.

I could've used the 1960s and 70s, when the software industry began, to make the same point.
"Until recently, two men in a garage with a couple of transistors could call themselves an electronics company and raise millions in public offerings. In the early sixties, any company which used the word "technology" liberally in its prospectus, and the suffix "onics" or "ex" in its name, could command a 100-to-1 price-earnings multiple, even if its earnings were only a trick of accounting." - Douglas Casey, writing in 1980
Okay so these companies crashed because they were worthless, as we'd expect, and the real tech companies like IBM didn't right? No, IBM had its price more than cut in half in 1973 from 21.58 to 9.94 and didn't recover until 1982.

The mistake is thinking that only things like cryptocurrencies will suffer large losses in this market.

Stock valuations always return to their long-term averages over time (or overshoot them on the underside for a while). That doesn't mean that great businesses can't survive horrific price declines and recover their price over a 10-year or 20-year period. I'm not trying to preach against a buy-and-hold strategy as such.

So if you're holding FAANGM+ just be realistic that these stocks aren't going to have trillion-dollar valuations in two years' time (or three years or whenever).
 
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cremeegg

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@cremeeg interesting your observations however it would seem odd that when it is easier than ever to invest in the stock markets much easier than bonds or property and much easier than in the past that it is just going out of fashion.
I am not suggesting that stock market is going out of fashion. Just that the valuable opportunities that have been available to retail investors through the stock market in the past may no longer be available in the future.


If it is the case that stock market investing will no longer be done by normal people then what are we returning to eighteenth century oligarchs on the one hand or communists on the other. If people are not investing in the stock markets but in assets like property or bonds that pay no interest now are they not setting themselves up for another big crash like 2008 which was disastrous for the wealth of the normal Irish person, or bonds where the possibility of over indebted governments burning their bond holders.
Yes.

Also if less money is being invested in the stock markets as a proportion of the total surely that means that stock markets (exception of the US for now) are better and better value. Also if companies are choosing not to go to the stock markets for finance and are buying back their own shares is that not all the better for existing shareholders as their shareholding is being increased without them having to buy more shares
Yes. There will be winners and losers if the stock market is no longer the main source of capital for companies. Existing shareholders of companies seeking to reduce their reliance on the markets are certainly likely to benefit.
 

opexlong

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Every FAANG stock is now in a bear market

David McWilliams in today's Irish Times: 'Stocks in the big five tech companies have slumped. It was only a matter of time' (behind a paywall)

Trillion-dollar valuations represented an overshoot of the price positive-feedback mechanism.
 
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joe sod

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McWilliams is more of a social commentator today than a hard headed financial analyst, a cursory reading of most of the respected financial analysis would have informed you that the US market was overvalued and that this was predominantly because of the fang tech stocks. I doubt McWilliams is giving any hard advice on what investors should do now with their money, that's not really sexy material and that's where you can be obviously wrong.
He was correct about the Irish housing bubble 10 years ago and wasn't afraid then to hang his hat on that peg but since then he hasn't said anything particularly noteworthy. As I said it's more social commentary, material.that gets you on tv talk shows and sells books at Christmas.
 

opexlong

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joe sod I agree. I just thought the headline was interesting .. "It was only a matter of time". Suddenly its conventional wisdom that FAANGs were always going to buckle. I don't recall McWilliams or any other mainstream financial journalist predicting it though. It would have been a useful perspective for Irish newspaper readers two months ago.
a cursory reading of most of the respected financial analysis would have informed you that the US market was overvalued and that this was predominantly because of the fang tech stocks
Yes. I've stated my bearish arguments on faang tech stocks in multiple threads across this forum. I even started a thread quoting Morgan Stanley analysts since I guessed people might be more willing to accept "respected financial analysis" from them rather than from a pseudonymous internet commenter - though in fact it is the analysis and reasoning itself which is either correct or incorrect.
 
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joe sod

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well there has been significant sell offs and volatility over the last week, i bet most investors are down substantially as a result. I heard a good interview with peter brown this morning on radio 1 discussing whats happening. He says that both the US stock market, and the US dollar are overvalued. He says he expects both to correct over the next few years which means that european investors in US stocks could be hit on the double. However he reckons that european and emerging markets are now very good value especially for US dollar investors. He says that for US investors the european market is the cheapest its been for 30 years. Just to reinforce the point that it is really only the US that has been in this decade long bull market.
 

noproblem

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No doubt at all that over the past couple of months and especially the past few weeks ordinary people who have money in different funds here in Ireland, eg, cautiously managed, active managed, absolute returns, (not naming companies)etc, etc, have seen a big drop in returns and for the not so experienced investor this can be really worrying. Can the more experienced people on here give advice or encouragement to people like that? As joe sod has said I too heard Peter Brown this morning and wonder am I correct in thinking there may be an improvement in European investment markets and consequently returns may improve somewhat? I know there's lots of different scenarios, etc, but it would be good to get general opinions from the more experienced investors
 
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galway_blow_in

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well there has been significant sell offs and volatility over the last week, i bet most investors are down substantially as a result. I heard a good interview with peter brown this morning on radio 1 discussing whats happening. He says that both the US stock market, and the US dollar are overvalued. He says he expects both to correct over the next few years which means that european investors in US stocks could be hit on the double. However he reckons that european and emerging markets are now very good value especially for US dollar investors. He says that for US investors the european market is the cheapest its been for 30 years. Just to reinforce the point that it is really only the US that has been in this decade long bull market.
European markets always follow u.s markets down, European equities have had poor earnings seasons this year where as American companies have beaten expectations, America is just a far better business environment.
 

joe sod

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European markets always follow u.s markets down, European equities have had poor earnings seasons this year where as American companies have beaten expectations, America is just a far better business environment.
yea but you keep making that point, but its still the case that european markets are better and better value, and emerging markets have done even worse than europe. I think we are entering a period like after 2001 and the dot com crash, although i dont think it will be as extreme as 2001, when the euro was actually worth less than the US dollar. I think Europe, emerging markets and commodities will out perform and the US market takes a back seat like what happened from 2001 to 2008, the canadian economy did much better than the US in that period, maybe also another global property bubble that seems to be well underway already.
Another striking point about the ftse index , its gone nowhere in 20 years and now has average yields of over 4%, yet people are bamboozled about all the negativity surrounding brexit, yet its hardly the case that the UK goes back to 1998
 
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