I really hope the stock prices go to 80s … or even 70s 
I know it was not the question you asked. Just could not resist.
If seriously, until the last baby-boomer capitulates ( sells his or her 401K ), it’s not over.
Sam in Boston has it. We don’t have a strong economy ready to serge.
For a sustained rally the real value of the underlying companies has to increase. For them to do that, the economy has to actually, really truly (and it don’t matter what is said or believed), really has to be growing.
On what are we basing this new economy? Or are we going back to the “old” one, that is consumers borrow money and spend every dollar that passes through their hands to go buy “stuff” from China? Everyone buying bigger houses then they could afford and a new car long before they needed it or could afford it, new clothes when they got board and ate out more often then they cooked? Is this the economic growth that is going to sustain this rally?
Its the sad truth that we need to go back to building what we consume. This just aint gonna be quick or easy.
Following axiom holds true irrespective of whatever the Wall Street and Media and Academic and Business and Corporate and Regulatory gurus say or do – For the year 2009, DJIA, COMP & SP500 will end in red.
On a brighter note, if Alizée does happen to show up at White House, we will think what we can do for year 2010.
Comparing today with the 80’s!! What are these people smoking? In the 80’s we were lowering taxes and getting government the hell out of the way. Today we are going to raise individual taxes as well as corporate taxes during a recession while exponentially increasing the governments spending and picking the winners and losers in the economy. Will things get better? Sure they will. Something ultimately has to happen when you throw 1.5 trillion dollars at it. The difference is it will only last until you run out of other peoples money. At this rate it won’t be long. This is a parallel with the 70’s debacle under Carter. High tax rates and Government intervention were the rule of the land. We have to keep reminding ourselves of what a catastrophe it is to give one party absolute power. That goes for both. Unfortunately we will pay dearly for this with stagnate growth and high inflation. Stocks will not be the place to be.
No doubt, this is a “new” bull market.
It appears to be based on “shorts” covering their positions and stock owners not willing to sell while stock prices are finally moving up for more than a few weeks. This is why the volume of shares sold each day has usually been quite small – well below average.
I won’t be surprised to see this “new” bull end by this summer and a new cruel low put in.
We may see more of these “new” bull markets, at least until enough investors (not traders) get burned enough times to return to the really old fashioned way of making money in stocks. That is, from the long run earnings of companies not the short run, irrational, surges in stock prices.
This could be the beginning of the next running of the bulls. We may or may not retest the March 9th lows; my hunch is that we won’t. They were unrealistically low, due to Wall Street panic. Unlike 2002, this time, the millions of small investors were the fierce warriors who steadied the line and refused to panic. The MBAs and institutionals fled for the hills … and now they’re limping back into the fight, driving prices back up towards where they should be.
We still have problems: housing is too expensive (but it’s correcting), trade deficit is too big (but it’s coming down fast), unemployment is too high (but it will come down eventually), the federal budget deficit is enormous (but it will come down when the economy recovers and the Bush tax cuts expire), and there is still too much debt out there (but it is being rapidly renegotiated). Wall Street Fraud, Madoff, blah blah blah …
It could have been worse, much worse.
The most important thing of all seems to be forgotten in this article, i.e. the health of the broad economy.
In 1982 the economy was very healthy. Middle class incomes had been rising in real terms for several years. Households had little debt, descent income and we were set for a burst in consumer spending. The reason stocks started a huge bull market in 1982 was not just because they were cheap (much cheaper then today), but also because corporate earnings were about to start rising significantly for years to come.
We have none of both factors here today: stocks are not particularly cheap and there’s no prospect for better economic times and sustained earnings growth. Therefore there should be no doubt that this is just another rally in a bear market that has years left to go.
The damage is done to the economy when the bubble is happening. The bear market is the recovery phase.
See, in the bubble phase the gov’t and FED manipulates the money supply and fools people into thinking the growth is justified. In the end most are left holding the bag when reality hits (like where did my house and 401K value go) “Reality hitting” is the healing phase. The increase in value never was “real”.
Now, we have the gov’t and FED again manipulating the money supply, economy, constitution/legal system and obscurring the underlying fundamentals. The outcome is predictable — people are fooled into making bad investment choices.
This time around they are getting very little lift from their manipulations. After the buzz wears off the next leg down will be something to behold. It is also predictable that most people will be left holding the bag yet again; Greed and hope.
No this is not the ’70s or ’80s or ’30s. This is much worse but, seeing reality is many years away. Right? If everyone could see it then it wouldn’t be happening now.
All the best, caveat emptor.
I’ve said this more than once and I will say it again – the worst is not yet over. What we are seeing now is a lot of people that were sitting on a lot of cash buying back into the market on a somewhat speculative basis. A lot of “blue chip” stocks (Citi and GM, for example) are basically more like option plays than equity investments at this point, and the results of the bank stress tests seem to suggest that the financial system is still extremely weak.
When the “experts” see it as a good thing that the economy shed 500,000 jobs in April because it’s fewer jobs than were lost in March, I see that as a problem with the way the experts view the world. Until job gains start outnumbering job losses, the consumer base in the US economy will not stabilize, and until that happens there will not be a recovery.
It is a continuation of the bulls–t market. I suggest you read your own website’s article about the recurrence of irrational exuberance.
I, too, am one of those who thinks the general p/e ratio needs to drop some more. I have posted here before that a market old-timer taught me that single-digit p/e is almost always necessary to end a true bear.
But…there are two things further to consider. One, stocks are much more broadly held now than they were through virtually all of market history. Even as late as the 80s, the stock market was alien to most of middle, broad America. Nowadays, everybody and their pet chimp is invested and somewhat knowledgeable, either directly or through 401k’s, etc. In other words, there is more real demand for stocks (and, for that matter, bonds). More demand generally means higher prices.
Secondly, there are at least two ways for p/e’s to drop, and one of them is for the e to rise faster than the p. So if earnings begin to really take off, prices can hold or even increase somewhat and the p/e’s can go down.
Stocks were cheap in March. They aren’t now. If we do have a sustained bull market it will push stocks back to the unreasonable and unsustainable prices we saw in 2006-2007. That would be yet another bubble, it would burst and we would see yet another disastrous crash.