The Dow Jones Industrial Average has added more than 2,000 points since its October 2011 lows, a 21% gain.
The S&P 500 index is up nearly 250 points from its lows at the same time, a 22.5% advance.
The Nasdaq Composite index has hit 11-year highs.
And Dennis Gartman is still “wild-eyed bullish” on stocks.
Those were his words, folks. I’m not clever enough to make stuff like that up.
The noted trader, who is editor and publisher of The Gartman Letter and a contributor to CNBC, was wary about the market until recently. Now he’s thrown caution to the winds, declaring that stocks can go much, much higher in what he described as a “multi-year secular bull market.”
He’s also bullish on gold again after selling last year, and likes “non-US-dollar English-speaking currencies” and markets, particularly Australia and Canada.
His “wild-eyed” optimism puts him in the company of other raging bulls this column has profiled, like James Paulsen of Wells Capital Management and Laszlo Birinyi.
If Gartman’s right, then the big sell-off last spring and summer that drove the S&P down to just below 1,100 on October 3 will have been a great buying opportunity that just about everybody missed—and which many investors even fled.
US investors pulled an astonishing $134.5 billion out of US-equity oriented mutual funds in 2011. Since 2007, they’ve taken a net $469 billion out of US stock funds, while pouring nearly $800 billion into taxable bond funds, according to the Investment Company Institute. Clearly something is out of whack.
“Investors are terrified of stocks,” Gartman told me. “You can’t get people to buy Procter & Gamble (PG) with a dividend of 3.3%.”
Besides bond funds, people have been sticking their cash into the proverbial mattress. “Baby boomers are laden with cash,” he said. “Checking account balances are outrageously high. They’re paying out nothing at all.”
What’s going to get these terrified people with bulging checkbooks back into stocks?
“Greed,” Gartman replied simply. “Greed and the need for yield will bring them in. That’s what the Fed wants them to do.”
Take note, conspiracy theorists and Ron Paul supporters (not necessarily the same people): Gartman largely agrees with you—the Fed is behind the whole thing.
By promising that short-term interest rates will stay near zero until 2014, Federal Reserve chairman Ben Bernanke is offering savers what is in effect a Hobson’s choice: earn nothing and watch your capital deteriorate, or jump in the pool and take some risk. And don’t worry, the water’s fine.
“Keeping rates low and long will force boomers to…move into the equity markets,” albeit kicking and screaming, Gartman told me.
But it’s not only boomers. The large contingent of Generation Y—the ones who aren’t living in their parents’ basements or sleeping in tents with Occupy Wall Street—have been quietly accumulating wealth, but they’re the most conservative investors of all.
A recent Harris Poll found 41% of people between 18 and 33 say their savings are primarily in bank savings accounts and CDs—nearly twice as high a percentage as boomers, and significantly more even than retirees.
And less than 20% have invested in money market funds, stocks, bonds, or a mixture of stocks and bonds—again, the lowest percentage of any demographic group surveyed.
So, at an age when they can afford to take the most risk, Gen Y-ers are hiding under a rock. But not forever, said Gartman. From risk avoiders, “they will become risk accepters,” he said.
When? Who knows? Probably as the market moves higher and people become more confident. Crazy, right? But that’s how it works.
In fact, Gartman thinks there’s time for that to play out, because he believes stocks have been in “a multi-year secular bull market” since March 2009. That would make the secular bear market of the 2000s one of the shortest on record, at nine years.
If the economic recovery gains traction—and especially if employment growth picks up—that would also entice investors to return to the market.
He also thinks “we’re still in a long-term bull market in gold,” which he started buying again three weeks ago after stepping to the sidelines when “too many people” were bullish.
Now he expects gold—especially priced in euro or yen—to move higher. How much higher? All he’ll say is “it will go higher until it stops.” That doesn’t help much if you’re looking for a round number, but there you have it.
Gartman favors US multinational dividend-paying stocks. He says he’s “too old” to invest in emerging markets, and is avoiding Europe because he thinks a Greek default is inevitable. The terms being offered to Greece are too onerous for the Greek people—and their political leaders—to accept, he believes.
“If you were Greek, you wouldn’t do it, you wouldn’t think about it,” he told me. “I think they’re better off…out of the euro.”
He expects other countries to leave the euro, too, and the Eurozone to shrink to a more modest size, with lots of pain along the way.
But he doesn’t expect much pain from the currencies of countries like Australia, Canada, and New Zealand. He thinks the recent strong performance of the Aussie dollar is a good bellwether for the markets, and he thinks “people should be investing in the Australian stock market” because of its strong natural-resource sector, rule of law, and stable government. “What’s not to like?” he asked.
Gartman didn’t recommend specific stocks or funds, but there’s an ETF that tracks the Australian stock market, iShares MSCI Australia Index (EWA).
Here’s my view: The market’s move since October has been impressive—the fact that it held the 1,100 level then was a good sign we weren’t entering a prolonged global bear market. In November, after being bearish for months, I wrote that 2012 was likely to be a good year for stocks.
And in late December, the venerable Dow Theory Forecasts said a bullish trend in the markets had been confirmed by the Dow Industrials and Transports.
Right now, I’m nervous. The market’s had a huge run and looks overbought, as technician Larry McMillan wrote for MarketWatch recently.
Technically, we’re running into strong resistance near the 1,364 level where the S&P topped out last April 29.
Also, the VIX volatility index is just above 17, down from around 45 at the market lows of last October 3. The mid-teens level for the VIX, which signals complacency among traders, is around where we saw the corrections of 2010 and 2011 begin. We’re almost there.
So, I wouldn’t pile into stocks now. But if you’re bullishly inclined, I’d wait for a correction into the mid-1,200s to add a little to my stock portfolio. I’d stick to a conservative allocation—50% or less in equities—and focus on dividend-paying stocks.
If Gartman’s right—and who knows whether he is?—this market has a long way to go.
Disclosure: I have owned a small stake in the Currency Shares Australian Dollar ETF (FXA) for some time.