As a "Perma-bull" or at least someone who sees the glass as 1/2 full I feel the need to explain why I believe what I do. First let me say that this doesn't mean that yesterdays low is the lowest things get, or that the markets will never drop again. But here are a few things that give me confidence from a more statistical point of view:
- If we assume that the economic slow-down began last November/December (which is widely agreed upon), and project that the recession is largely over by the end of 2Q 2009 (again widely agreed upon) than we are about 60% of the way through. 60% is a bad score on a test in high-school, but critical in financial history!
- Historically the markets have bottomed at about the 60% mark of recessions going back to the early 30's. This means that while the recession is not over (and indeed most average people haven't felt the effects yet) that the recovery begins sooner in the markets than it does in the economy as a whole.
- Investor sentiment is very low right now (again widely agreed upon). When investor sentiment is as low as it is the returns over the next year are generally in the 24% bracket. This is the case 96% of the time.
- Companies are trading at P/E ratios that, when indexed for inflation, take you back to the 1970's. Clearly there are bargains out there right now, and through time you will see the value of these bargains. Holdings you buy today are going to be prized holdings in 4-5 years.
- Volatility is high right now (as measured by the VIX). This is an interesting point as it generally denotes that we are near the top or near the bottom. I would find few people willing to take the position that we are at the top of the market, or anywhere near it!!
Lastly, I have to make a general comment about the media. I saw a financial advisor on the news the other night make a comment that he "never saw a mutual fund that he liked". Meanwhile this individual is selling segregated funds (which save for some tax and estate differences are very similar!!). My point here is that you have to be very careful reading the cover of the paper or watching the usual news sources to get investment advice; their job is to sell papers/increase viewers and lets face it...bad news does this for them.
Some of you have seen me in the political threads, and if so you know that this is a stretch for me to say openly...but Stephen Harper is totally right here! The economy is fundamentally strong, and there are great buying opportunities to be had.
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