When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’ . . . Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”
“Any year in which the S&P 500 jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Mr Klarman wrote. The Boston-based investor was recently ranked as the fourth best performing hedge fund manager of all time for generating $21.5bn in returns over its history, coming behind George Soros, Ray Dalio and John Paulson.
http://www.ft.com/cms/s/0/6dd806e2-a627-11e3-9818-00144feab7de.html#ixzz2vZBDItDj
Frances Horodelski says...
For those who are worried about equity market valuations (just do an internet search for "stock market bubble" and you'll get the idea), a review from Factset puts valuation into perspective. Based on the history, the S&P 500 is modestly above the 5 year (13.2x) and 10 year (13.8x) P/E averages. However, currently at 15.4x, it remains below the 16x on a 15 year average basis and well below the 25x at the 2000 peak. Keep in mind however, notes Factset, that the earnings used in today's P/E is based on record levels of earnings for quarter of 2013 and the next few quarters expectations are higher than that record.
Another bubble worry is it seems that everyone seems to be short VIX (expecting VIX to fall and stock to rise) although some of that may be related to product (i.e. VIX notes and ETNs rather than the index itself). According to MKM Partners, volatility events have occurred almost exactly at two month intervals over the past 15 months.
We're five weeks away from the last event and early April could be the next target - so with the short VIX position building and the level falling and stocks rising, it might not be too early to pay attention to protection.
Having said that, MKM Partners derivatives strategist notes investors should take the opportunity presented in lagging sectors such as financials, autos and industrials. While we're talking about financials, in the U.S. bank stress tests are to be released on March 20 with the comprehensive capital analysis released on the 26. This last analysis will go to the heart of banks such as Citigroup and Bank of America being able to issue dividends.
www.bnn.caSHIRLEY LEUNG Boston
Not All Believe Markets Are About To Crash...
At Tuesday’s close, the Dow was just shy of 16,400, following a year in which it grew by nearly 30 percent. That means you didn’t have to be legendary investor Peter Lynch to figure how to make money in the market.
Put it another way, if you kept investing in the biggest US stocks near the October 2007 market peak through the end of February, $10,000 would have swelled to over $13,800, including dividends, according to a Morningstar analysis of the S&P 500. If you pulled out near the bottom, you would have lost close to $5,000.
Despite eye-popping returns, a lot of cash is still sitting on the sidelines in safe CDs, money markets, and probably under a lot of mattresses. The memories of two big crashes less 10 years apart are seared into our 401(k) portfolios.
That’s one of the reasons some Wall Street gurus don’t think we’re heading into a bubble — the point at which good times suddenly implode. Sure, corporate profits are expected to rise, interest rates remain low, and the nation’s economy is growing, but droves of mom and pop investors have yet to jump into stocks, prompting a new round of buying that would push healthy stock prices even higher.
“Because it is such an unloved bull market,” said Sam Stovall, chief equity strategist at S&P Capital IQ, “the market still has room to move.”