Market thoughts
Posted by Charles II on March 2, 2012
It’s been a long time since I did a post on the stock market. This is not because I think that it’s ok or that it’s less important than other developments. In terms of understanding where the fall election is likely to go, it’s one of the ten leading economic indicators, and therefore a leading indicator of what the American people are likely to think about the future of the economy.
Bespoke had a couple of interesting charts.
and
The first shows that stocks are a bit expensive, but less so than in last summer’s crash. They can continue to run at this rate for another six months but, if they do, a correction becomes increasingly likely. However, markets often overcorrect. They wouldn’t enter real bubble territory until about S&P 1800– which is a very, very long way away.
The second chart shows that investors are pessimistic. Eighty percent of both individual and institutional investors believe that a crash is possible within six months. In normal times, only 50-60% believe that. In fact, by this measure, pessimism is as deep as it was during the worst of the 2008/9 crash. That was a great time to be buying.
On the macro side, Europe has not resolved its debt problem. But every day that goes by, banks get further and further out of the deepest part of the woods. There are big red flags: Greece/Portugal/Spain/Italy, UK and China financials, oil speculation and so on. But we are, slowly, getting out of harm’s way. If things go well, the market will go well. If things do not go well, the market could correct by as much as 50%–but it would be entirely ahistorical if it did more.
Best of times, worst of times.
