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.
Problem is, the "E" part is often pure accounting fiction these days, so the market's real P/E could be more like 100.
Indeed when the Federal Reserve stops printing $$$ it will look like 1929 two folld.
Steve Sjuggerud has not just swilled down gallons of the purple Kool-Aid. He’s swimming in a tank of it and absorbing it through his skin.
In the game of economic prognostication I am firmly entrenched in the glass half empty mindset. Good luck with the guess to whoever wrote this...
Of course the dow will rise just on inflation over time.
Current ~14,000 to 20,000 is 6,000 rise....6/14 +42% Definitely not inflation. If it is we gots bigger problems.
of course it could. Zimbabwe’s skyrocketed during hyperinflation, I guess it could happen here too
So true. I read statements that the dow should be over 20,000 plus except we are in bad times. It's rising with inflation but not where it should be. They're keeping interest rates low just so the service interest on the debt is same amount it was many years ago - which is less than what the service interest should be if inflation was taken into account. Interest rates can't go lower than zero, so this whole thing is going to blow up soon. Then the service interest on debt will crash it all, with hyperinflation. Fun times.
OR....... it could crash......
I not sure the stock market will be going up, but I’m pretty sure that the number of dollars needed to buy a particular stock, will be going up. Our whole economy is fake and a joke, and its all over but the revelation and the laughing.
Well you can’t tell people it’s going to tank...they’d freak out!
Someone mention not too long ago that we shouldn’t look to the stock market as a gauge of overall economic health.
That still hold true?
Not unless we know how much of that index has been bought with “created out of thin air quantitative easing” money.
It might be news if the market were the real economy at the level of the people. The number of people with disposable income to buy products and services is shrinking, the number of dollars left for them to buy these goods and services is shrinking and overall the number of dollars the average person who still has a job has available to invest in the market is shrinking.
We will before too long reach a point at which this facade can no longer be propped up.
I thought as much.
Now when do we SELL?
Oh, I don’t know...
How close to the ground do you want to be before you pull the cord?
Now I have read somewhere that since the Federal Reserve System was established, the dollar has lost 90% of its value. Accepting that as a working figure, today's Dow Jones Industrial Average in real dollars is 1,411.
If my memory, assumptions, and stubby pencil work are accurate; that means little real gains have been made since the Federal Reserve System was established. Again if I am correct, what we are seeing is the systematic plundering of the middle class's wealth by the purposeful debasing of our currency.
And remember, as specified by Article 1 Section 8 of the Constitution, Congress has the sole authority and responsibility; “To coin Money, regulate the Value thereof, and of foreign Coin...” Congress unconstitutionally ceded this authority to an illegitimate Federal Reserve System composed of private banks.
So, “We The People”; your Congress can't pass a budget let alone a balanced budget. And it has allowed a group of private banks to debase your currency for about the last 100 years to the point you have no real money. These conditions lead to not only a stock market crash but a currency crash.
And the crash is coming fast. When it arrives you will lose everything. Your fiat currency will be worthless. Taxes on real property will explode and you will have nothing to pay the taxes with. So your real property will be seized by banks and governments. And you will be beggars.
Remember the last time something like this happened? It was called the Great Depression. It took the Federal Government's illegal seizing of real money, gold, and a World War to come out of it.
Look to China and Russia. History is getting set to repeat itself. And we are in no position to prevail.
Interesting. Dow’s well over 14,000 now (over 14,100 even).
Way too close, I’m sure...LOL!
Beats taking a tens of thousands dollar beat down [or more] as before.