2014

[vivacious]

Well, here it comes. I have felt this building up lately. Is 2014 going to be a big growth year like 2013 was?

I'm sure there will be a bunch of different replies. Some will say yes. Some will say no. Etc.

The fact is, quantitative easing has helped a lot. Also it's starting to have been a few years since the recession which started around 2007/2008. There is some real growth too. There is real, organic growth in some sectors of the market. Things are somewhat getting back to normal.

I would basically argue that Main Street isn't doing quite as well as it should. And Wall Street is doing a little too well basically, not that I don't want to see my holdings continue to grow.

The problem is overvaluation. People are getting a little too excited. To justify the prices of some of the equities right now we would need 2013 style growth for the next 10 years, which probably won't happen.

What will happen is there will probably be a slowdown and smaller recession any time between now and a few years from now. It won't be 2007/2008 but it will be like 2003 or something like that. Maybe even late 90s/2001 dot com in scale.

So basically I guess there's no way to know what will happen, though I foresee a slowdown relatively soon.

I hope this doesn't degenerate into trolling, politics, a 4 page debate that does nowhere, etc. Just trying to get a feel for the next year or 2. Thanks.

[tylerrr]

i read recently where inflows into U.S. equities has hit an all time high in history in the last few months. This is just as the market is hitting ALL TIME HIGHS. It's amazing to me how history repeats itself again and again with hardly anyone learning a lesson.

Most of this inflow will get taken viciously by Wall Street just like the lemmings always get taken throughout history.

Personally, I don't know how anyone can justify buying blue chip stocks and putting money into the S&P500 right now. It is chasing the market and it never works.

The more I hear pundits on CNBC raving about the stock market right now and the near future, the more gold miners i'm buying and shorting SPY.

I bet I could base most of my market decisions on the EXACT OPPOSITE of what most pundits in the media say and probably beat most hedge fund managers.

[steveo73]

Just trying to get a feel for the next year or 2. Thanks.

I think picking what will happen over this timeframe is really hard however I don't pick stocks. I trade foreign currency with a very small account and I do find that there is a decent chance of picking when the market is overbought or oversold however even then the market could take a long time to actually have its correction.

[jennypenny]

I think the most likely scenario is mixed results. The BRIC countries are going to get a lot public attention with the World Cup and Olympics, and China always gets a lot of attention. How well they do will influence investments based in those regions. Personally, I've pulled out of my emerging market fund since I have no guess one way or the other. Certain energy-related stocks should do well with continued success in the Bakken and high demand with the extremely cold winter. Gold and silver might continue to drop (I'm buying anyway). The taper do-si-do will probably make for a successful trading year.

Basically, I think there is money to be made in individual stock picking, but I don't have much invested in the broad indexes. I admit it's hard to watch the market march upward and onward with most of my money on the sidelines. I keep reminding myself that I also watched it plummet a few years ago with most of my money on the sidelines.

edited to add: btw, I'm probably wrong. I was wrong last year. I still made money, but I made it the hard way. I could have just tossed all of my money into a broad index fund for the same % result and taken the year off.

[Chad]

Always pay attention to the old maxim, "Markets can remain irrational longer than you can remain solvent."

This goes both ways. The market can go up or down much longer and further than it really should.

It has been over 400 days since we had a 10% correction. However, that does not mean we will have one any time soon. Here is a nice analysis of that.

http://www.ritholtz.com/blog/2014/01/ov ... orrection/

The chart below uses price/book, price/operating cash flow, and forward looking P/E to value different sectors of the market. Using these measures some sectors are rather overvalued (consumer discretionary the most) and others are undervalued (Healthcare, telecommunications, and info tech). Based on this we have some room to run in some sectors and some that need a breather. This is why I don't like traditional broad indexes, as they are too broad and make it difficult to take advantage of these situations.

http://www.thereformedbroker.com/2014/0 ... by-sector/

We are probably seeing certain things suggesting a bubble. We are also seeing things that don't suggest a bubble.

Such as, "Equity funds had been recording weekly increases for most of last year before starting off the new year with a modest outflow as investors pulled more money from U.S. equities than they put into foreign funds. However, in the latest period, equity fund inflows were back, with both domestic and foreign funds seeing net inflows." - http://online.wsj.com/article/BT-CO-201 ... 08100.html

Also, "TrimTabs went on to explain that U.S. equity mutual funds and exchange-traded funds received $156 billion in 2013. This was called the first inflow since 2007 and the biggest inflow since the record inflow of $274 billion back in 2000. ." - http://247wallst.com/investing/2014/01/ ... for-bonds/

We are still off the record US inflows by over $100 billion. This is the total for the year. We have hit monthly all-time highs, but we have yet to hit a yearly all-time high for inflows.

Along with the numbers, I haven't seen the hysteria that usually accompanies a top or bottom. Non-business publications haven't focused on the stock market and I haven't heard anyone unrelated or normally uninterested in finance talking about the market.

I won't be putting anymore money in US funds this year (though, I might buy a few individual stocks) and at some point I might start slowly moving it to emerging market funds that are down or have good growth prospects, but I don't anticipate a big drop any time soon.

If I'm right, it's all good. If I'm wrong, I just hold my positions and they will recover. No bid deal. I don't have many doubts that we have turned the corner in our recovery. We will still have corrections over the next few years, but they won't be the massive depression like correction we just had.

[GandK]

I was wrong last year. I still made money, but I made it the hard way. I could have just tossed all of my money into a broad index fund for the same % result and taken the year off.

Us too. Word for word.

[Chad]

Nice write up on this:

http://www.bloomberg.com/news/2014-01-2 ... tion-.html

[JohnnyH]

If QE helping is defined as getting prices above pre-crash levels, then I would have to agree, it did help.

Stocks are stupid high, but they've been so for years, so picking a top might result in another year of missing out on +30%... Other end of the spectrum, gold is also ridiculous but might go under $1000 this year... Picking tops and bottoms is hard, and usually a losing game.

Here's what I'm doing:
*Zillow says my zip is up 44% in 1 year... So, I am going to sell my last rental house and primary residence (capital gains free!) because that looks bubblicious to me. Moving to a fixer house I already own and will wait for return of sanity and cash auctions in real estate... Terrible time to buy a house, IMO.
*Continuing increasing my PM holdings, adding dividend paying PM stocks.
*Shorting leveraged PM ETFs when approaching key supports (saved me last year).
*Lowering my total invested PP
*Considering moving re-balance PP bands and allocation targets based on previous performance... IE: stocks target 17.5%, 12.5/22.5 re-balance & gold target 32.5%, 27.5%/37.5 re-balance. Will backtest first.
*Shorting leveraged long ETFs (margin cheap synthetic short, captures price decay) while buying high sector beta dividend payers in same sector.
*Sitting in an uncomfortable amount of USD... Investigating foreign currencies (especially yen and its relationship with PM in particular)... Considering some kind of synthetic short or put purchase program to protect from dollar downside.
*Selling covered calls

In summation: ??!? no idea!... Feels like I'm playing a lot of jazz, which makes me uncomfortable.

[Chad]

In summation: ??!? no idea!... Feels like I'm playing a lot of jazz, which makes me uncomfortable.

Definitely a "Jazz" market. Good analogy.

[leeholsen]

i'm expecting 2014 to limp along and be a postive year at 12-31-2014, but there may be a big down and up in it like 10-15%.

i say that because the fed is still pumping in money and while businesses, particularly retail has started slowing and consumers have upped their credit use; there's still some growth.

i expect the next recession doesnt hit until 2015 when obamacare goes all in. i know that may sound political, but its really practical. there are stories all over of premiums going up anywhere from 25 to 100% and more and more people converting employees to part time, but that'll be a slow drip until 2015 as most people and some businesses dont plan ahead well or at all. when obamacare hits paychecks and jobs in full force, wallets are going to slam shut all over and that'll trip the next recession as the consumer walks away from retail stores to pay their healthcare.

i'd think the 2015 obamacare recession should drop the mkt about 25-30% as we most likely wont have to extreme market drops back to back.

[vivacious]

Thanks for the replies guys.

I feel kind of nervous today. The Dow is 16,181 at the time of writing. Wasn't it just 16,500 a few days ago?

If you follow Zacks and things like that a lot of stocks have recently been downgraded from outperform to neutral. Kind of scary.

This reminds me of around November when the market went over 16,000 and everyone panicked and things dropped for a few weeks but then continued to climb.

I see these little drops as foreshadowing of what's to come. Instead of falling a few percent or being nervous for a few weeks and then coming back up, eventually I think the big one is going to come and there will be a real burst and it will be hard to recover.

Now I think it's a conundrum if you have a pullback or recession WHILE the QE is occurring. What then? That's the kind of thing you could expect in a year or 2 after QE is done and interest rates go up and the bull market plays out a little etc. But DURING the QE? So then how does it get bailed out?

Basically I'm a little nervous today. Almost everything opened much lower today than it ended yesterday.

[vivacious]

@leeholsen I don't know if that's appropriate. I'm not really looking for a political thread here as per my first post in the thread. Also I don't think the ACA aka Obamacare will really impact it one way or the other.

Do you know that people being sick takes a massive chunk out of the economy? More people being insured could actually help the economy since there won't be that loss of productivity as much.

I'm simply trying to brainstorm about the next year or 2 and attempt an objective analysis etc.

[Chad]

If you follow Zacks and things like that a lot of stocks have recently been downgraded from outperform to neutral. Kind of scary.

Please don't follow the ratings agencies or analysts. They are always wrong and there are numerous studies showing it.

Now I think it's a conundrum if you have a pullback or recession WHILE the QE is occurring. What then? That's the kind of thing you could expect in a year or 2 after QE is done and interest rates go up and the bull market plays out a little etc. But DURING the QE? So then how does it get bailed out?

A bailout is not always necessary and hasn't always happened when the market goes down. A strong 10% pullback would not require one, as the market is not always representative of the economy.

We only had a bailout during the Great Recession because the entire financial system was going to freeze up. Not much danger of that in current environment. Obviously, that can change, but there is nothing suggesting this change at this time.

[Chad]

i expect the next recession doesnt hit until 2015 when obamacare goes all in. i know that may sound political, but its really practical. there are stories all over of premiums going up anywhere from 25 to 100% and more and more people converting employees to part time, but that'll be a slow drip until 2015 as most people and some businesses dont plan ahead well or at all. when obamacare hits paychecks and jobs in full force, wallets are going to slam shut all over and that'll trip the next recession as the consumer walks away from retail stores to pay their healthcare.

And there are stories all over about premiums going down. That's all anecdotal.

Even if the healthcare bill does end up being a drag, it won't be what causes a recession. It would take something much bigger than that.

I would also like to point out that we could actually have a rather large decline in the stock market without actually having a recession.

[vivacious]

Please don't follow the ratings agencies or analysts. They are always wrong and there are numerous studies showing it.

Yeah. I know not to take them too seriously. I thought Zacks was one of the better ones though.

A bailout is not always necessary and hasn't always happened when the market goes down. A strong 10% pullback would not require one, as the market is not always representative of the economy.

We only had a bailout during the Great Recession because the entire financial system was going to freeze up. Not much danger of that in current environment. Obviously, that can change, but there is nothing suggesting this change at this time.

Yeah. I just think a natural pull back after QE ends would make more sense. If one happens while the QE is still going on that seems kind of bad.

I'm not saying there will be a huge recession as per my first post. I do expect a smaller one fairly soon though.

[JohnnyH]

I feel kind of nervous today. The Dow is 16,181 at the time of writing. Wasn't it just 16,500 a few days ago?

♫ You Ain't Seen Nothin' Yet! ♫

[vivacious]

So what's the plan? Cash out now? Quit while you're ahead?

I think 2014 will be mixed. I don't see how it can be the juggernaut year that 2013 was.

[JohnnyH]

So what's the plan? Cash out now? Quit while you're ahead?

I think 2014 will be mixed. I don't see how it can be the juggernaut year that 2013 was.

I'm definitely reducing my exposure (taking gains, if you will) and attempting to diversify... I'm not confident enough to get out of stocks completely, even though I want to... Stocks might be even more ridiculous this year.

Wish I had more answers... If someone does, I will gladly subscribe to your newsletter.

[leeholsen]

i expect the next recession doesnt hit until 2015 when obamacare goes all in. i know that may sound political, but its really practical. there are stories all over of premiums going up anywhere from 25 to 100% and more and more people converting employees to part time, but that'll be a slow drip until 2015 as most people and some businesses dont plan ahead well or at all. when obamacare hits paychecks and jobs in full force, wallets are going to slam shut all over and that'll trip the next recession as the consumer walks away from retail stores to pay their healthcare.

And there are stories all over about premiums going down. That's all anecdotal.

Even if the healthcare bill does end up being a drag, it won't be what causes a recession. It would take something much bigger than that.

I would also like to point out that we could actually have a rather large decline in the stock market without actually having a recession.

ok, i'm not going to argue premiums up and down as that starts getting political and we're going to get in a he said/he said fight; by the end of 2015; we'll know if you or i was right on premiums.

i do agree with you that obamacare wont start the recession, it will be something else; but it will be a factor deeping the recession, the same as the country and people taking on more debt whitout rising incomes.

@vivacious, it seems to be thatyou dont have a good plan for managing your investments if you are panicked now.

you might remember that the stock mkt went thru similar selloffs over the debt cieling debate, govt shutdown, etc.

the analysts i follow and trends like the 50 day and 200 day moving avg still say we're on a bullish trend and after being up nearly 30% last yr, you have to expect the mkt would look for any chance to seelloff.

you might look for some anaylsts you trust and follow them. one example, in my town, houston; i follow streettalklive.com and read their newsletter.

[vivacious]

Yeah. I understand that.

We've never been in this situation before. There has never been massive QE coming out of the worst economy since the Great Depression, followed by a huge year of growth which was last year, followed by whatever is going on now.

The suddenness of it is what's jarring. This isn't a gradual decline. These are huge drops. The DOW was over 16,500 a few days ago. Now it's 15,879.

It's a brave new world. I don't know what you can really compare this to.