Words Of Warning!

Includes: DIA, QQQ, SPY
by: Bill Kort

Warning - Seldom in Stockmarket Land do you get a broadly predicted outcome. Regarding today's most broadly predicted outcome, my read is as follows:

Stocks are up a lot and valuations are stretched (some say record highs - I disagree).

The economy is weak, despite a 5.5% unemployment rate.

When the Fed does move to raise rates, 'game over.'

Of course, none of this thought process is new, as it has been a consistent part of the bear argument for the past six years. And, it may be about to join a legion of consensus opinions, broadly predicted outcomes, in the dust bin of history.

Although the market has been range-bound for several months, this opinion about the effect of a move to normalize interest rates by raising the Fed funds rate appears to be unwinding. Even though the Fed has yet to act, the bond market may be in 'preemptive strike' mode. Since the beginning of 2015, the 10-year US Treasury note yield is up from a low of 1.70% to 2.47% (as of 6/10/15 - a spike of 3/4 of 1%). The German 10-year Bund has jumped from a low .07% to .98% (it was as high as 1.05% on 6/10/15). These rates are reacting to a quarter point increase in the FF rate that has not taken place and may not take place until September. While the selling today reigned supreme in the bond market, stocks took off (Dow Jones Industrials +1.33%, S&P 500 +1.20% and NASDAQ +1.25%).

Let me see …

I can buy a stock like GE (shedding its financial assets, potentially redeploying capital in buybacks and dividend increases … ergo de-risking) today with a 3.33% yield on a forward PE (FYDec16) 17.71. Or, I can buy a 10-Year UST note and wait out the oft-predicted, rarely occurring crash? My perception is that in the next 10 years we will experience significant, scary downdrafts; but, in the end GE (not necessarily at the peak of its past glories) will still run rings around that ten-year. By the way, words of warning: no guarantees on GE; plus I am long the stock and have been for some time.

"Trader Talk"..." … , but buying enthusiasm is missing."

Meanwhile, back at Rancho CNBC, Bob Pisani, a guy who ought to know better, is bemoaning the fact that we had a great day with the headline, "A broad rally, but buying enthusiasm is missing." This is pretty much the way this entire bull run has been treated, not only by CNBC, but most media … a Rodney Dangerfield market, given no respect. Since Bob and the media he exemplifies are the purveyor of widely-held views, I say keep up the good work! When they begin to embrace the market, I will take a more conservative stance.

Final words of warning!

According to Jeff Saut, Chief Market Strategist, Raymond James Financial, Inc.-

"We are in a secular bull market-secular meaning multiyear, if not multidecade. There aren't that many of us left that actually experienced the overall 1982-to-2000 secular bull market. So I have seen this play before, and secular bull markets tend to last somewhere around 14 or 15 years. And they tend to compound at a double-digit rate. So, if we are six years into this bull market, it figures there is probably another eight or nine years left. If you compound forward at double digits, you come up with 4300 for a price objective on the S&P 500 sometime in 2023 or 2024." (Barron's 5/31/2015)

I, too, have seen this play before. Don't let this secular bull pass you by because you let the media craft your investment strategy!