You know with me there always has to be a but...
So where would you rather be buying stocks? Here at the top end of our 17 year chart? Some of the
smartest people I know are having this debate daily. Some are on the side of the fence that says - you can't fight the Fed and maybe we're on the verge of a new bull market. This would suggest that we're finally about to break out to the upside another 20-40% over the next 5 years and you don't want to miss that ride. I think that this is a fairly well understood message so I won't spend much time on that side of the argument.
However, the get out of dodge crowd has some pretty compelling evidence of their own.
* Profit margins are at record levels and they tend to mean revert (however, one could argue that this is a new era for corporations as global sourcing allows margins to grow much higher).
* By traditional measures US stocks appear expensive. Only the 1929 and 2000 markets saw higher PE's and what happened to those markets? I'll have to back and look :)
* Trading volumes are near historic lows - it's been a low volume melt-up
* Volatility spiked last week but prior to that run-up it was at historic lows. A lack of volatility indicates complacency which is typically a worrisome sign for market watchers.
There are a pile of other factors but I won't bore you with the details suffice to say it's worth watching because investors have been burned badly twice in the past 12 years when we've hit these levels.
What happens from here?
A chicken in every pot has become a casino on every corner...
First of all I'm no moralist when it comes to gambling. I remember a certain run of 9's on a roulette wheel that took an epic trip to Vegas and made it LEGENDARY. However, it's clear that in the Northeast we are living through a serious gambling arms race.
Governor Cuomo wants to place 4 casinos in Upstate NY - which is the fastest way to chase economic development from this area, but I digress. Mayor Bloomberg wants to put a casino in every burrough. Finally, Chris Christie signed the internet gambling law into effect yesterday in NJ. Atlantic City has to try something. For the cost of tolls and gas you can almost fly round trip from Newark to Vegas so Atlantic City has been in decline for some time. Couple that with Sandy damage and casinos scattered all throughout NY and CT and you can see the appeal to try something new.
The first step will be small - just games that exist in the casinos today - video poker, slots, etc., and only open to NJ residents. The ultimate goal, I believe will be to bring the Vegas sports books online. If you think the Superbowl is crazy now, wait until you can bet $20 via paypal on the toin coss from the comfort of your living room.
The increased access to gaming will continue act as a tax on the poor and those that failed Algebra 1. It's also very short sighted because most politicians believe that the tax revenues will be incremental. What they don't realize is the guy that used to play $80/mth in scratch off tickets might now play $100 via the internet. The state thinks they gained 15% of $100, but in reality they may end up in the red because they lost all of the lottery money.
The horse has left the barn on this issue so I'm tilting at windmills, but it saddens me to see our states put our most vulnerable citizens at risk for the sake a few extra dollars.
Stepping down from my soapbox :)