So Was Yesterday the Sign that the "Melt-Up" in Stocks is Kicking Into Gear?
Among the various views proffered by our "brain trust" of analysts with whom we consult on a regular basis, the "Melt-Up" theory remains alive and well. However, it's been under a lot pressure lately, with the pendulum swinging towards a much more bearish viewpoint. That being said, it's author has not wavered one bit. So after yesterday's giddy action - with virtually everything going up after Fed Chairman Powell pronounced his view that interest rates were closing on on "neutral" (whatever that means) - we must ask whether the market has given us a sign in favor to the "Melt-Up" thesis.
Frankly, I doubt whether yesterday's happy dance was much more than the sort of emotional surge the market spits out every once in a while. But one thing we might note, whether it supports a true "Melt-Up" or not, is the plain fact that the AAII (American Association of Individual Investors) sentiment survey turned decidedly bearish. This survey in individuals who invest their own money has been a pretty steady contrarian indicator in the past. What that means is that with a heavily bearish slant, we might expect the stock market to go the opposite way. If I were betting on stocks going up, I would take this indicator more seriously than yesterday's market action.
But whether or not we get a melt-up in stocks, it behooves all of us to look beyond the horizon, at least for the bulk of our investments. And that brings up the question of what we can expect in the long run. Before you sing out that old ditty "Stock for the Long Run!" consider this from someone who's spent his life urging us to invest in the stock market for the long run:
Vanguard founder John Bogle recently surprised an audience with a dour forecast. But what if he’s right?
Bogleheads attending his annual conference in October were taken aback when Bogle predicted that stock and bonds returns would be significantly lower than historic benchmarks returns. Over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually, he forecast. Both predictions are significantly lower than historic returns since 1974 of 11.7% for stocks and 8% for bonds.
The author who reported this goes on to post suggested actions one might take in the instance that Bogle is right here. Most of these make some sense, so I'm passing them along:
You might want to consider these and put some thought into whether any of these might make sense in your own situation. Again, I'm not endorsing this in full. For example, we have a process we follow for our international investing, and it this sort of longer-term strategic commitment doesn't really fit it. So we'd not consider shifting to international stocks on this basis. We also aren't keen on "fixed income of the highest credit quality" unless that means US government bonds, which have no credit risk. And with rising interest rates, these now provide some return on your investment. (We'll forego for now the possibility of the US government defaulting on its treasury bonds - but it is something to consder.)
The most disturbing of these items, though, is "Many state and muni (municipal) pension will default." That one's huge. Lots of Americans either are receiving or expect to receive pensions from their years working for state or municipal governments. One thing to keep in mind here is the stark reality that state and municipal governments - as opposed to the federal government - cannot create money out of thin air if their pensions go bust. Would the federal government bail out failing state and municipal pensions?
So there's a good dose of the complex world of investing and finance. It's never simple or easy. There's always something good and bad going on. The question to ask is which outweighs the other at the present time.
Frankly, I doubt whether yesterday's happy dance was much more than the sort of emotional surge the market spits out every once in a while. But one thing we might note, whether it supports a true "Melt-Up" or not, is the plain fact that the AAII (American Association of Individual Investors) sentiment survey turned decidedly bearish. This survey in individuals who invest their own money has been a pretty steady contrarian indicator in the past. What that means is that with a heavily bearish slant, we might expect the stock market to go the opposite way. If I were betting on stocks going up, I would take this indicator more seriously than yesterday's market action.
But whether or not we get a melt-up in stocks, it behooves all of us to look beyond the horizon, at least for the bulk of our investments. And that brings up the question of what we can expect in the long run. Before you sing out that old ditty "Stock for the Long Run!" consider this from someone who's spent his life urging us to invest in the stock market for the long run:
Vanguard founder John Bogle recently surprised an audience with a dour forecast. But what if he’s right?
Bogleheads attending his annual conference in October were taken aback when Bogle predicted that stock and bonds returns would be significantly lower than historic benchmarks returns. Over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually, he forecast. Both predictions are significantly lower than historic returns since 1974 of 11.7% for stocks and 8% for bonds.
The author who reported this goes on to post suggested actions one might take in the instance that Bogle is right here. Most of these make some sense, so I'm passing them along:
You might want to consider these and put some thought into whether any of these might make sense in your own situation. Again, I'm not endorsing this in full. For example, we have a process we follow for our international investing, and it this sort of longer-term strategic commitment doesn't really fit it. So we'd not consider shifting to international stocks on this basis. We also aren't keen on "fixed income of the highest credit quality" unless that means US government bonds, which have no credit risk. And with rising interest rates, these now provide some return on your investment. (We'll forego for now the possibility of the US government defaulting on its treasury bonds - but it is something to consder.)
The most disturbing of these items, though, is "Many state and muni (municipal) pension will default." That one's huge. Lots of Americans either are receiving or expect to receive pensions from their years working for state or municipal governments. One thing to keep in mind here is the stark reality that state and municipal governments - as opposed to the federal government - cannot create money out of thin air if their pensions go bust. Would the federal government bail out failing state and municipal pensions?
So there's a good dose of the complex world of investing and finance. It's never simple or easy. There's always something good and bad going on. The question to ask is which outweighs the other at the present time.
Comments