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In spite of all the bearishness out there – the S&P 500 falling to 1,000 (David Tice
), the market is overbought (John Hussman), its looking like the bear market of 2011 all over again (David Rosenberg), for example – I tend to disagree for 4 fundamental reasons. Let me explain. Words: 595
So says Simit Patel (www.informedtrades.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com has further edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Patel goes on to say, in part:
I [have] already shared my technical view, in which I expect SPY to reach 182 by 2014, but here’s a recap of the four fundamental reasons I think the bull market in equities that has kicked off 2012 is far from over:
1. The Weakness of the Bond Market
I think the weakness of the bond market is a major driving factor. It is not so much that equities are such a great opportunity as it is that money has to go somewhere — and bonds do not look like the right answer. This may be a question bears should spend more time considering: if not stocks, then where?…Some will go to gold, some will go to fine art, some will be in cash…but, when all the options are considered, I believe more is due to be allocated to stocks simply because the size of the bond market and its current weakness are driving factors.
2. The Continued Growth in Money Supply
Money supply continues to reach all-time highs, with the most recent numbers (from March 5 at the time of this writing) putting MZM past 10.8 trillion… – and all this money has to go somewhere.
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3. Most Stocks Have Not Yet Posted New Highs
Although 2012 has gotten off to a strong start in Q1, let us not forget that last year was not a bull year. As a result, we’re not seeing many stocks post new highs; John Gray of Investors Intelligence notes that less than 200 stocks are at a 52 week highs, and that the number will more likely be at least 500 or more when a real market top has arrived. I tend to agree with this conclusion and think it is a very important point.
4. Chinese Credit Growth
Last, but certainly not least, is China: fears of a slowdown in China are rampant, but China did recently announce its intention to bolster credit growth — a move that sent Chinese stocks listed in the US higher. This reinforces the other points in this article, in that credit growth will result in an expansion of China’s money supply and will also make investments in risk easier to finance.
Why the Divergent Opinions?
I believe part of the confusion is that the U.S. economy is still sluggish and in the midst of a depression. From this perspective, equities should not be growing. The real issue, however, is that the credit and currency markets are dysfunctional, and so equities will receive capital simply because they are, in an odd sort of way, safer than most other options or, at the very least, their safety is underestimated.
Conclusion
For the reasons outlined in this post, I think equities are headed much higher…
*http://seekingalpha.com/article/450261-4-reasons-the-bears-are-wrong-and-more-bubbles-are-coming?source=email_macro_view&ifp=0 (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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