Where do you guys stand?

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Oct 26, 2009 2:25 pm

Just out of curiousity, where do you guys see the market going a year from now, 3 years, 5 years and longer?

 
Higher, lower?  Substantially higher or lower?
 
Don't say, short term is hard to predict, but long term is higher.  If you really had to take a stance, where would you stand?
Oct 26, 2009 2:53 pm

I have taken the stance with clients that it's time to take some of their money made in this recovery run-up off the table. There seem to be too many warning signs in the US market to feel comfortable with any substantial position in US equity.

So, short term - I am looking for another pullback with very muted recovery.

After a year or two, as people begin to deleverage and spend money more freely again there will be some opportunity for growth in the domestic economy, though we will be fighting serious inflation headwinds.

5-10 years - US will find some mojo and begin to lead economically, though not as unchallenged as in the past.

10 years + - Don't know, but I think it's better than now.

I am no economist, but this is the amalgamation of opinions of people I read and respect.

Oct 26, 2009 2:55 pm

Year from today down.

 
3 years up maybe cumulatively 18% from today.
 
5 years.... sorry too far...  too many unknowns.. I feel uneasy about my 3 year prediction also...
 
Note: These are my predictions but I don't invest my client's money based on my predictions.
Oct 26, 2009 4:46 pm

snags - not to be a d!ck. But which market? My personal belief is the broad U.S. indices will gain around 15-20% next year, stay flat for about two more years (answering your 3 year question) and then explode upward at an average annual return of 10% 5-10 years out.



Am a I betting on that? Nope.



Macroeconomic issues are hard to predict (like the weather) and I would venture to say that it's all going to depend on that.



This of course is IF, I really had to take a stand. And you know us broker/advisor types. Hells no.

Oct 26, 2009 5:03 pm

Next year will be slightly higher in the U.S. (broad index-type markets), with the following few years showing modest gains (single digits at best).  Lot of "sloshing" around while earnings catch up to new valuations and employment gets back on track.  The tax, inflation, interest rate and healthcare debates will have an impact on the market in the short/intermediate term.

 
Past 5 years, we will be on track for modest growth in the U.S.  So I think LC U.S. Value (high dividend) should be the core.
 
Growth will be overseas in emerging markets.  I would not utilize U.S. for much of my growth/aggressive component.
 
Bonds will be a challenge as we see a vastly changing interest rate/tax environment.  You will either need to be a very savvy bond buyer, convince people to hold existing bonds strictly for income and be able to ignore price fluctuations, or utilize good bond fund managers.
 
Gold and commodities will fluctuate wildly.
 
Big wildcard will be inflation.  Both deflation and runaway inflation are recipes for a poor stock market.  Keeping inflation in check will be paramount to a sustained recovery.  Given our national debt structure, this will be a significant achievement if navigated successfully.
Oct 26, 2009 5:06 pm

Also, just want to point out I think that the rest of this year is gonna suck.

Oct 26, 2009 5:20 pm

I have no idea on where the market will be 1/3/5 years from now, but my clients accounts will be up 3/5 years from now.  That is all I really care about.

Oct 26, 2009 6:27 pm

Short ... down.
Medium ... way down.
Out of  the wreckage 10 years from now ... Up.

Just seems like the market hasn't absorbed how awful the economy is -- joblessness, the coming foreclosure crisis, out of control deficits. We haven't hit bottom yet. We went broke last year and decided to get out of it by taking more debt.

Just a gut feeling.




Oct 26, 2009 6:31 pm

"I have no idea on where the market will be 1/3/5 years from now, but my clients accounts will be up 3/5 years from now.  That is all I really care about."


 
I'll second that. Fact is I don't care where the market goes as I make $$ when it's flat, up or down.
 
Market neutrality is the way of the future.
 
If you don't get on the bandwagon when we go into a protracted meandering low vix chop the market will squeeze the money out of you like a Boa constrictor until you book is nothing but snake crap.
Oct 26, 2009 7:19 pm

Gaddock, if the vix stays low, will that hurt your strategy or make it more difficult to execute?  Just wondering if option prices are lower due to a lower vix will it lower or eliminate your returns?.  Not trying to be a smart a$$; just a serious question from an interested bystander. 

Oct 27, 2009 6:51 pm
eggward:

Gaddock, if the vix stays low, will that hurt your strategy or make it more difficult to execute?  Just wondering if option prices are lower due to a lower vix will it lower or eliminate your returns?.  Not trying to be a smart a$$; just a serious question from an interested bystander. 

 
Hey Egg,
I appreciate a serious question. Actually statistical differential risk arbitrage is a strategy that thrives in a low VIX sideways market. As the VIX drops I'll gravitate to a more pure form of it. Also with lower volatility larger trades will become more appropriate, currently no more than 2% on any one trade to 5% for example. The option strategy simply adds another revenue stream / hedge vs. revenues from the usual portfolio of dividends, coupons and capital gains. I highly recommend you look into learning the basics of pairs trading just for the same reason. At the very least you can use it to crutch trade, a hedging maneuver, when one goes against you.
 
Something else to think about, if you use a 1 minute chart of the VIX, PREM, TRIN & TICK/TICKI/TICKQ and watch when they all spike at the same time (I have an alarm on the TICK when it hits + or - 1100) you can learn to see when the institutional program trades go off that arb the cash vs. the futures S&P 500. Once you get the hang of it you can get GREAT! fills. In some cases you can simply take the $$ and call it a good one. I've been unable to use this technique to good effect in a high VIX environment. You can also trade imbalances at the end of the day, 3:40 EST, far more effectively with a low VIX, speaking only for myself that is.
 
Then of course there are revcons and their many derivations that I feel will do just fine with a low VIX. Fading the morning gap using open only orders will be back on the table as it in a high VIX is on the edge of insane.
 
All in all it's a teeter todder much like the market neutrality I attempt to achieve.
 
This is all only my VERY VERY humble opinion. Don't try this at home kids.
Oct 27, 2009 6:54 pm

And someone thought I was a nerd for talking about my calculator!

Oct 27, 2009 9:18 pm

Gaddock, I agree with you that market neutral or very tactical stratgies are the way to go, likely until late 2011 or 2012 - that's my market expectation.  I already have a tactical strategy that rotates through asset classes in a very systematic manner.  I'm also interested in your market neutral strategy and wonder where you learned it.  Its obviously not for those who are weak at math!  Did you learn it from experience, books, or some other way?

Oct 28, 2009 5:18 pm
eggward:

Gaddock, I agree with you that market neutral or very tactical stratgies are the way to go, likely until late 2011 or 2012 - that's my market expectation.  I already have a tactical strategy that rotates through asset classes in a very systematic manner.  I'm also interested in your market neutral strategy and wonder where you learned it.  Its obviously not for those who are weak at math!  Did you learn it from experience, books, or some other way?

 
Sounds like you're doing something we used to call piston trading. I would love to hear more about it.
 
" Did you learn it from experience, books, or some other way" All of the above and I was prop trading before I went retail.
Oct 28, 2009 9:49 pm

Piston trading might be an appropriate term.  Its a math-based strategy that dictates the rotation among various asset class subsectors - no forecasting by me or anyone else needed.  Deceptively simple, it gets good results.  I plan to keep using it, but a market neutral strategy could compliment it very well.  Would you mind sending me a PM with a book or two where I could learn more?

Nov 2, 2009 1:18 am

Billl Gross at Pimco is saying the market should be valued around 7000, using traditional asset pricing models. Not to say it will go there, personally I'd say if inflation is coming, might want to own some "real" assets ( not gold, I mean stocks and bonds).

 
I suppose it comes down to picking a strategy and believing in it - I generally like a portfolio slightly overweighted in shorter term and higher quality bonds (with stocks), there is plenty of growth outside the USA and you still have to respect what Nick Murray always used to say, there are owners (stocks) and lenders (bonds), and owners are going to be better paid over some time period.
 
Of course, the time period for "owners" being better compensated could be over thirty years now, based on how you look at trailing returns, but let's face it, multinational blue chips are pretty well positioned to make money.
 
All of this junk, like Bobbies annuities and such, still does not hold a candle to some reasonable mix of cash, stocks and bonds, in terms of real and potential reward, simplicity, liquidity, real time yield, and so on.  That's the market report, try to time it, blink, and you missed the change or you're in a new cycle, so just find a reasonable allocation with good yield and talk about something else or take your clients golfing or out to a nice meal.
 
http://www.milyunair.com/
Nov 2, 2009 10:02 am

Some things never change. What an 'intriguing' business.

Nov 2, 2009 10:35 am
Milyunair:

Billl Gross at Pimco is saying the market should be valued around 7000, using traditional asset pricing models. Not to say it will go there, personally I'd say if inflation is coming, might want to own some "real" assets ( not gold, I mean stocks and bonds).

 
I suppose it comes down to picking a strategy and believing in it - I generally like a portfolio slightly overweighted in shorter term and higher quality bonds (with stocks), there is plenty of growth outside the USA and you still have to respect what Nick Murray always used to say, there are owners (stocks) and lenders (bonds), and owners are going to be better paid over some time period.
 
Of course, the time period for "owners" being better compensated could be over thirty years now, based on how you look at trailing returns, but let's face it, multinational blue chips are pretty well positioned to make money.
 
All of this junk, like Bobbies annuities and such, still does not hold a candle to some reasonable mix of cash, stocks and bonds, in terms of real and potential reward, simplicity, liquidity, real time yield, and so on.  That's the market report, try to time it, blink, and you missed the change or you're in a new cycle, so just find a reasonable allocation with good yield and talk about something else or take your clients golfing or out to a nice meal.
 
http://www.milyunair.com/
 
However, I sort of liken this philosophy to owning a small business.  If you can't get out of the gates with positive returns in the early years, your plan is shot (i.e. if you can't float your small business long enough to become profitable, the busines will fail and you will fold).  The biggest determinant in investing success (with equities) is the starting valuations.  Get in when the market is way overvalued, you have no shot.
Nov 2, 2009 11:09 am

Good point, reminds me of Buffet.


On the other hand, they taught us to sell the concept of dollar cost averaging, but the journal studies show you're generally off lump summing in when you get the cash. DCA is good for getting folks to save money, though.
 
It's funny how folks end up trading against themselves. Even the options trading ad on this site is pretty much feel good tactics. That's why, even though I like wrap accounts and ETFs, I always respected the "unsophisticatd" Ed Jones guys with their mix of A shares and a handful of commissioned stocks and bonds.
 
The value we add is turning those beginning valuations into something - mainly through holding the right mix through thick and thin, and spending or reinvesting the dividends.
 
Anyway, I guess we're not going closer to 7000 today. Any conspiracy theories on Ford reporting good news and jawboning the market "up" in light of other recent dubious economic news?