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13,000 - now what?

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Apr 26, 2007 2:41 am

No prediction here. I don’t anticipate…I participate.

Apr 26, 2007 3:21 am


Well, here's my nickel...

I see NOTHING like I saw in the fall 1999/spring 2000.  I vividly recall feeling uneasy about the market, but also afraid not to participate at all in it.  While I had several years experience in investing for trust portfolios (which by their nature are pretty conservative), I was pretty new to the retail game and very concerned about blowing up a bunch of clients and losing my reputation before it was built.  Because of my background, and my fear, I almost completely avoided internet stocks.  I recall selling Munder Net-Net to exactly one client on an unsolicited basis.  I remember telling a client who was gung-ho to buy Cisco at $78/share, that I had some near-term concerns due to valuation, although I felt like the company was a fine one long-term (I still feel like that client blamed me for his poor decision...he sure didn't follow me when I left the bank!)

My clients and I participated in the market, although we lagged behind since I was using a lot of value stocks, American & Franklin funds.  I don't consider myself a value-hound, although I probably lean that way.  I was simply afraid of the stratospheric P/E ratios on all the growth/internet/tech stocks.  I remember having a difficult time convincing a prospect to roll his IRA into American Balanced Fund, which had just turned in a stellar 3-4% return in 1999.  His friend was telling him to call Janus and avoid paying "all those broker charges".  The prospect, only because he knew me and my family, reluctantly decided to roll his IRA to me.  You all know the history for the three years after that.  My client made money, while his Janus-loving buddy lost 70% of his rollover and ultimately bailed at the bottom.

The bottom line is, sure, all sorts of folks are finally waking up and loving stocks after missing the first four years of this run, but I don't think we're done just yet.  P/E ratios are about half what they were in spring 2000.  Earnings are slowing a bit, but the tank doesn't look out of gas just yet and I think 14,000 before the end of 2007 is very reachable.  Is it possible that we'll get a shake-out correction before then?  You bet it is.  At the same time, if you're going purely off valuation, it looks MUCH less threatening than it did in early 2000.  Despite what historians would have you to believe, there were PLENTY of people concerned about high valuations seven years ago.  Unfortunately, they were being mostly drowned out by people like a Putnam manager I remember listening to (who sounded like he was about 23) who said...and this is pretty close to verbatim..."I think that a 20,000 Dow in 2005 is pretty much a slam dunk.  Think about it...all we have to do is average a 12% return between now and then and we're there."  I can't speak for everyone who heard that commentary, but sirens were going off in my head!  I just wish I'd kept that CD...

Seven years later, the value/growth roles are reversed.  Large-cap growth looks relatively cheap when compared to traditional value stocks.  While I haven't abandoned value stocks, I've certainly been overweighting large cap growth for about the last six months.  If we are paid to manage money for clients, we will earn our keep when, for example, the Dow drops almost 500 points in one session and/or drops 10% or more between statements and the clients begin to call looking for advice and reassurance.  It's not fun work...I did a lot of it in 2000-2002...but if you survive a prolonged bear like that, you have a new perspective (no pun intended) on the market and you pretty much know that you can survive anything (short of a depression)thrown at you.

I'm no Abby Joseph Cohen and I can't tell you which number we'll see first, but I'm a long-term bull.  I personally don't know any long-term bears who have survived in this business.  Certainly, they won't make more money for their clients than a good bullish advisor.  I don't expect a big pullback until we are considerably closer to the 2008 election, but I'll be at least somewhat positioned if we do...Lord help us if we elect Hillary...


Why did I post this topic?  It's posts like this.  I do NOT try and predict the market for my clients. However, I do like to hear what other reps are thinking.  I even like to listen to Dr. Bob (DWS). But, I don't actually put my clients in a 90% Int'l, 10% REIT & Commodities allocation like he suggested.  But, I still find him interesting.

There are some wise reps on this board, and the more they talk, the more I learn.

Apr 26, 2007 3:55 pm

I think there is an issue that everyone is ignoring right now that relates to the long term health and stability of the market, and the subprime mortgage crisis is a result of this problem, not the cause of it.  2005 and 2006 mark the only the third and fourth time in history that consumer debt was higher than consumer savings.  The first and second time that that has happened was in 1932 and 1933, for entirely different reasons than todays problem. 

We now enter a time where company profits are continuing to grow, spending has increased steadily for a long time, but most of it (as the subprime market has shown) is being done on credit.  How long will it be before there is a backlash against those people (a growing majority) that have far overextended their debt to point that they can't spend anymore.  I'm guessing that the housing market is the first backlash of this sort (which makes sense because it is one of the highest personal expenses).  How long before this same thing happens across every other part of the market? 

I would guess that no matter where the market goes in the next one or two years, we need to be prepared for consumer spending to go in the tank sometime in the next ten years, and that may become a long term problem until consumer education improves in this country and credit companies are held accountable for the way they take advantage of consumers.  Just my two sense, I'm not really sure that it will change my recommendations right now, but I try to make my clients prepared for both the increase and decline in the market.

Apr 26, 2007 5:11 pm

Bteam, totally agree, for me, this is the big lesson learned around the turn of the century runup and plunge. Except the socio political stakes are much higher now, everywhere you look.

And for my model, this has meant tucking in some gains as we go alone. If I could teach myself back then from now, I would be saying, don't sit here and tell your clients we are just going to ride this thing up and down. Better to be taking a little off the table, if partly just to let them know you are paying attention and anticipating volatility.

The best time to prospect for new clients is by referral from your happy campers, in a down market.

Apr 26, 2007 8:28 pm

That new tag line doesn’t cut it though.

Hope you find this one more appealing.
Apr 26, 2007 9:15 pm

[quote=skeedaddy2] [quote=Rugby]

That new tag line doesn’t cut it



Hope you find this one more appealing. [/quote]

Does that make you “wing” leader?
Apr 26, 2007 9:16 pm

[quote=skeedaddy2] [quote=Rugby]

That new tag line doesn’t cut it



Hope you find this one more appealing. [/quote]

That would make you “wing” leader!
Apr 26, 2007 9:18 pm

I don’t know why that posted twice, but that’s an observation that does bear


Apr 26, 2007 10:14 pm

There is a wild card tossed in here by name of Bernecki (or something like it).

Alan Greenspan didn't do George H Bush any great favors with interest rates going into his re-election. IIRC he was down right intrusive during the Clinton Re-El. paul Volker absolutely doomed Carter (the guy who appointed him).

We don't know where Bernecki will be for this cycle. I think there are going to be a lot of eyes on him too. Those eyes will vote with their bonds if they don't like what they see. This could well be the kind of shocks that takes the pins out from under this market.

This having been said (in true economist fashion, I happen to have one right here) On The Other Hand! It seems to me that we are not as far ahead in this market as we think we are. This market is seeing a lot of water go under it, but we're paddling upstream against a dollar that is going downstream. The market going up is us staying in the same place (relative to world wealth). Actually, I think we're net losing wealth when you figure it against earnings and assets as opposed to just asset value.

The good news of that is that the domestic companies are  becoming cheaper and cheaper relative to foreign corporations. Eventually this  will make for a climate ripe for International takeovers. Intl Tako's will be bullish for the dollar (which will fuel more takeovers and the dynamo of capital will take effect).

I do feel a little cheapened by this. Sort of South American, if you know what I mean. 

Apr 26, 2007 10:20 pm

Bernanke, I believe.

Apr 26, 2007 10:46 pm

I do feel a little cheapened by this. Sort of South American, if you know what I mean. 

Except, this is really the principle that is underpinning our sustained success. Is it the old world where the Carter economics (stagflation) you fear flourished, or a newly globalized economy, albeit a more fragile one, interdependent to the point where growth outside the U.S. itself is enough to keep the party going, and the U.S. manages to contribute enough to maintain a reasonable amount of consumption? Of course, economic cycles don't disappear, but the South America syndrome is avoided. Who knows? Look at the wealth that has been amassed here so far, and a revitalized energy industry, for example, perhaps through incentives, dare we say, could act as the next engine, combined with basic freedom and innovation in services development, rolled out to the world via the internet. We always seem to find a way.

Apr 27, 2007 1:04 am

“Tower to Philo. You’re clear to land on runway 1-9er!”

Apr 27, 2007 1:05 am

[quote=skeedaddy2] “Tower to Philo. You’re clear to land on runway

1-9er!” [/quote]

“Roger Wing Leader.”

Apr 27, 2007 1:49 am ;PN=1&TPN=4

Translation of JoeCamel's Post?

"This won't do! What's the matter with you?"

"All it takes is faith and trust.."

"Ah and something I forgot... Dust!"


"Just a little sprinkle of Angel Dust! On you cigarette!"

"The world'll go to heck, but you won't even notice!"

Apr 27, 2007 3:09 am

 Brevity, man, a link instead of a quote.

Is angel dust really still around? What about paraquat?

Judging by the last 24 hour history of American politics, you're going to get your shot at command and control economics, including the opportunity to undue the " baaad" effects of globalization. Never mind that the run in the Dow (42% of these companies profits are now coming from overseas) is powered by a rising tide for all. Humanity is heck, the human condition, that I agree  .