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Situation Report and Market Update 9.22.2014
Time-length-icon 8m 8s
Plays-icon 2
Publish-date-icon September 23, 2014
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This is a weekly market situation report and summary for markets around the world.

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In the "decades" timeframe, we have been in a Secular Bear Market which began in 2000 when the P/E ratio peaked at about 44. The job of Secular Bear markets is to burn off outrageously high P/E ratios over one or two decades, until finally the P/E ratio arrives back at a single-digit level, from which another Secular Bull Market can emerge.

If history is a guide, we may not yet be done with this Secular Bear Market. The Shiller P/E is at 26.4, barely changed from the prior week’s 26.3, and approximately at the level reached at the pre-crash high in October, 2007. Even though P/E's are substantially lower than their crazy peak in 2000, they are nonetheless at the high end of the normal historical range and leave little if any room for expansion.

This means that the stock market is unlikely to make gains greater than corporate profit growth percentage, if that. In fact, since 1881, the average annual returns for all ten year periods that began with a CAPE at this level have been just 3%/yr This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause P/E’s to shoot upward from current levels , in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns typical of a Secular Bull Market.

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The US Bull-Bear Indicator (see Fig. 3) is at 64.7, little changed from the prior week’s 64.6, and continues in cyclical Bull territory. The current Cyclical Bull has taken the US and some of Europe to new all-time highs, but many of the world’s major indices have yet to top 2007’s levels. The most widely followed international indexes, the Morgan Stanley EAFE Developed International index and the Morgan Stanley Emerging Markets Index, are both still below their 2007 peaks.

The intermediate indicator ended the week at 25, unchanged from the prior week. Separately, the quarter-by-quarter indicator - based on domestic and international stock trend status at the start of each quarter - gave a positive indication on the first day of July for the prospects for the third quarter of 2014. LargeCap US equities gained for the week, and pretty much everything else around the world dropped. On the plus side, the S&P 500 gained +1.3%, and the Dow Industrials rose +1.7%. But US MidCap and SmallCap indices lost -0.2% and -1.2% respectively for the week. Likewise, Canada’s TSX gave up -1.7%, Developed International pulled back a slight -0.1%, and Emerging International lost -0.8%. It is a saying among Wall Streeters that when the market is running out of steam, “large caps are the last to go.” If the market is indeed running out of steam, the market is following this script.

In US economic news, initial jobless claims fell to 280,000, the lowest number in 7 years. The National Association of Home Builders (“NAHB&rdquowinking reported its housing market index rose to 59 from 55 a month ago, and matched its highest reading since 2005. Canada's annual inflation rate was reported at 2.1%, the fourth month in a row that it was above the Bank of Canada’s 2.0% target. The Bank of Canada is now in a quandary: it is on record as intending to maintain low interest rates to boost a soft economy, yet also on record as being more than willing to raise rates to keep a lid on inflation. The central bank said earlier in September that higher inflation recently seen has been attributable to “temporary effects.”

The Organization for Economic Development issued revised (and mostly lower) estimates of Eurozone GDP for 2014. The Eurozone as a whole estimate was revised down to +0.8%. Some individual country examples are: U.K. (+3.1%); Germany (+1.5%); France (+0.4%); Italy (-0.4%).

More information in the podcast.... For more information please visit:


Sign up for our FREE weekly newsletter, and also receive our Free eBook "The Top 5 Greatest Fears All Retirees Have, Explained!"

Disclaimer: Nothing in this video or free report can be or should be construed as investment, tax or legal advice. This is purely educational and there is not enough information in here or the report to make educated investment decisions. Always consult with a financial advisor before making any investment decisions.

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