Skip to comments.Stock Market Could Be Starting the Best Three-Year Run We've Ever Seen
Posted on 03/04/2013 10:58:40 AM PST by blam
Stock Market Could Be Starting the Best Three-Year Run We've Ever Seen
Stock-Markets / Stocks Bull Market
March 04, 2013 - 02:28 PM GMT
Dr. Steve Sjuggerud
Dr. Steve Sjuggerud writes: I believe the stock market could rise 95% in the next three years. But if you position yourself correctly, you could make much more than that...
This isn't just hopeful thinking on my part. It's based on rational thought... backed up by a mountain of data and experience from my lifetime of investing.
I could be wrong, of course. Stocks might not go up as I expect. But even if I'm only half-right, you'll still make nearly 50% on your money. Isn't that worth it?
Right now, several incredible forces are working together to push stock prices higher. Over the next three days, I'm going to show you each one. Today, we'll start with something you might not believe...
U.S. stocks are the best value they've ever been during my investing lifetime.
The upside potential in U.S. stocks over the next three years could be the biggest in my near-20-year career. And all stocks have to do is return to their average.
In short, stocks are 49% below fair value, based on a simple historical measure. This means your upside potential is enormous.
Let me explain...
The most common measure of a stock's value whether the market is cheap or expensive is the price-to-earnings (P/E) ratio.
It is easy to understand. For example, say you're looking to buy a $150,000 investment property that pays you a net rent of $10,000 a year. You're buying that property at a P/E ratio of 15 the price (P) divided by the net rent or earnings (E).
Since 1950, the stock market's average P/E ratio has been 17.8. A couple points above that level is traditionally considered expensive. And a few points below that is traditionally considered cheap.
That's the simple, conventional wisdom. But it's a bit too simple...
Let's add one wrinkle to this math... because it helps show just how incredible the opportunity is today.
What most people don't know is there is a strong relationship between P/E ratios and interest rates... The numbers are downright crazy. And with interest rates at zero today, these numbers REALLY work in our favor...
This table shows what I mean:
You see, when short-term interest rates are punishingly high above 6% the average P/E ratio of stocks is low... It's only 12.
But when short-term interest rates are low below 2.5% the average P/E ratio of stocks is high. It's 21.8.
Judging by this table, what should the stock market's P/E ratio be? Today, we have the lowest rates in history well below 2.5%. Where is fair value for stocks here? What is the right price to pay for a business when interest rates are this low?
Recently, superinvestor Warren Buffett gave us a clue... His Berkshire Hathaway holding company bought food-processing giant H.J. Heinz. He paid 23 times earnings for it (in other words, a P/E of 23). The world's greatest investor wouldn't have bought it if he didn't think it was a good deal.
Based on evidence of the last 60 years, the stock market's P/E ratio should be at least 21.8.
The crazy part is, we are nowhere near that number now. And when you look ahead, we are far below that number...
Right now, the stock market is trading at a P/E ratio of 17.5. But the horizon we're looking at is three years from today... when 2015 will be "in the books." Looking out to year-end 2015, based on analyst estimates, we are currently trading at a P/E ratio of 11.2.
This is the best value I've ever seen.
Remember, we're looking at 95% gains just to get back to historical fair value. Stocks have room to double from here. Invest accordingly.
Do you actually believe this? DOW getting up to somewhere around 20,000? I mean this is patently foolish. We’ve just now come to gaining back losses in the DOW since 2008 when it was at its high then. Imagine...5 years to make back what you had...that’s some real value fella!
And, this is with the US Government printing up billions of dollars each month buying up STOCKS and BONDS to prop up the imaginary healthy picture. You go buy a buttload of stocks now...I’m SURE you’ll reap the rewards....
you really think they’re gonna let that happen? there was a story in the times this morning decrying high corporate profits and a rallying market while job creation is listless and household income is down.
I took that to be the first salvo in a broader attack on “the rich”, which will soon turn out to be most of us — not because we many of us are going to genuinely get rich, but because the obamites will define it down.
I could spend 30 minutes on google and post a story telling us be prepared for the greatest boom in history, be prepareed for the greatest crash in history, be prepared for 20 years of a flat market, and every shade of prediction in between.
What would the point of that be?
IMO, inflation is a big driver behind recent market gains as well.
I could be wrong, of course.
No shit Sherlock !
If this happens then it will not be in real terms. It will be based on a major decline in the value of the dollar because of all the “money printing” and the unsustainable debt. The real economy will be tanking while the market climbs. Inflation will be through the roof.
Of course this whole scenario is just one of several that could play out. But none of them are good.
I remember the last McGloughlin Group before the Millenium. Pat Buchanan predicted the DOW would hit 15,000 in 2000. Or not....
And just how are stocks going to the moon when the boy socialist is taking all that money that could be invested and flushing it for big government? Get real!
The more they prop this stock market up the harder it’s going to collapse. And it will collapse.
Obama Won’t Finish his Second Term Without the Bottom Dropping Out.
” Investors are oblivious ...USD collapse...spike in interest rates...economic foundation of cheap money collapses...obama won`t finish his second term without the bottom dropping out.”
Oh, sure, it could “run up” for the next few years in “dollars” until those running it up are ready for their big exit, or the dollar ceases to have any value whatsoever.
Bullshit! The stock market is being artifically proped up by the obama administration.
“I could be wrong, of course”. Nice of him to add that.
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