I had the pleasure of attending an investment seminar by Ken Fisher (www.fi.com) last night. Three hours of him explaining his rational and followed by one hour of Q and A, without the aid of any notes just slides on a projector – quite an accomplishment by Fisher.

Fisher is bullish for the markets this year expecting the SP500 to rise 20%, Russell 2000 25% and Nasdaq 30%.

The assumption his forecast are built on is that the US markets will repeat what it has done on average after previous periods when the SP500 has returned less than 10% in a 3 year time- frame. (Quite an assumption IMO.)

Anyway the question came up about P/E ratios and aren’t they currently to high to support current levels let alone additional advance. No says Fisher!

Fisher claim’s it is the SP500 earnings yield (currently 5.02%) verses the 10Y note yield (4.03%) that is the important factor. The fact that the SP500 earnings yield is greater than the 10Y note yield he sees as a positive factor for the market. (He quotes Bloomberg as his source for the SP500 earnings yield).

Whilst I like the theory that lower interest rates can support higher valuations and it does give me some comfort with my current longs I shall stick to my plan in the event of the COT switching again.

If you get the chance to see Fisher live I fully recommend it. Whilst I do not agree with everything he says it was a good educational experience.

Regards
Andy

If lower bond yields are a big factor in holding up the market, what will happen when the govt bond yield goes above the sp500 yield. I just don't see where the money is going to come from to pay for everything the government is spending unless they borrow more, leading to higher yields, or printing more which, I think, should be inflationary. Of course my grasp of economics is quite unsophisticated and I really didn't understand it at all until I read Trader Vic.
H

When I was doing a lot of financial seminars, I would also take questions from the audience. By 1999, one point I would emphasis was how stocks were extremely overvalued and that, in my opinion, we were in a bubble that couldn’t last. Inevitably, someone would want to argue with me about valuations – “Don’t you know, net income doesn’t matter any more. It’s all about proforma earnings” (earnings that are essentially pulled out of the air). And then when it got so bad that stock prices couldn’t even be justified on a proforma basis, it was – “Don’t you know, it’s not about earnings. It’s revenue.” And now Mr. Fisher says that p/e doesn’t matter, it’s earnings yield, don’t you know.

Here’s the point – the most dangerous words I know of are, “It’s different this time.” Don’t get me wrong, Andy. If I get the signal, I’ll be long right along with you. But it won’t be because I think stocks are anything other than very overvalued. I guess it’s fine with me if facing reality is put off for several more months. But it just means that the inevitable pain will be even worse when it happens.

Larry

Larry wrote: I guess it’s fine with me if facing reality is put off for several more months. But it just means that the inevitable pain will be even worse when it happens.

That's fine with me, too...as long as the commercials flip back to short before it happens.

Dave

Good point, Dave.

Larry

larry,

would it be fair to say that if/when the market takes a dive it will be BECAUSE of the commericals?

-ja

Joe,

Yes, I think that's very fair. The retail customer sure isn't going to bring the market down. The retail customer will be frozen and looking for reasons why the market is going to come back up. That's what always happens. You know how it goes - "I bought Intel at 35, now it's 25 so it's a real bargain. I better buy more. Now it's 15, so it's an even better bargain. Now it's 5, if I can only get even I'll bail out." And so on.

Larry

Yikes! The way the market went today maybe the commercials flipped back yesterday. Of course I will have to wait till Friday.

Dave
(Still waiting to make a profit on one of the COT segments.)

I suspect we'll see another flagpole rally soon. You don't think Bushspan is going to let this get away from them now do you

Still sticking to my conspircy theory.
Gary