Courtesy of Lance Roberts via STA Wealth Management
Speaking of seeming backward, the economic data has continued to disappoint on virtually all fronts, earnings are weak and markets are grossly extended. Yet, investors are more bullish than ever as noted yesterday:
"While investors may be looking for returns, they are 'extraordinarily optimistic about their investment prospects in both the short and long term,' says Natixis. Respondents say they need 10.1 percent return on their investments, and 81 percent of them feel their expectations are realistic.
Fifty-four percent expect their returns this year to be better than 2014.
Stocks will be the best-performing asset class this year, according to 45 percent of the respondents, followed by 17 percent who say cash will be the top performer."
While it has been repeatedly stated that individuals have "missed out" on surging asset prices, it has only been those with little or no money actually to invest with. However, for those that are invested, they are as optimistic as at every previous bull market peak in history. As shown in the chart below from the American Association of Individual Investors (AAII), individuals are at the highest levels of stock allocations, and lowest cash, since the financial crisis.
But then again, maybe it is just me.
But, for now, the markets clearly remain in their bullish trend as discussed in last weekend's newsletter. This suggests that portfolios remain tilted more heavily to equity based exposure at the current time, but attention should be paid to the rising levels of risk that exists.
With that said, I wanted to share with you my list of articles I have downloaded to read while winging my way to Arizona.
1) Stock Market Losses With Low Interest Rates by Ben Carlson via Wealth Of Common Sense
"One of the common misconceptions I’m starting to hear from investors is that because we’re in a low interest rate environment, stocks either can’t or won’t fall very far from these levels. This is the TINA (there is no alternative) argument that says because over the longer-term bonds returns will be much lower from today’s yield levels, stocks should be supported because people have to put their money to work somewhere to earn a respectable return.
This theory does make a lot of sense when coming up with an explanation as to why the market has always seemed to have a bid under it anytime stocks started to fall over the past few years. But it would be a mistake to assume that this can go on forever and that risk won’t rear it’s ugly head eventually with another bear market.."
Read Also: Three Misconceptions About Risk Management by Cullen Roche via Pragmatic Capitalist
Speaking Of Risk Management: Stocks, The Great Wealth Non-Equalizer
2) Charts You Should Probably Be Paying Attention To by ZeroHedge
"While broadly-speaking, both 'hard' and 'soft' macro data has disappointed, the scale of those 'missed expectations' is stunning – worst since Lehman. While this is blamed on weather, the fact is that America had 30% less snow this year than last and still, as the following four chartsmen of the recession-pocalypse show, the YoY drops are on a scale not seen outside of a recession…
US Macro Data has surprised to the downside on a scale not seen since Lehman…"
Read Also: Why David Rosenberg Is Telling Investors To Chill by Jonathan Ratner via Financial Post
3) What We Can Learn From The Past by Ryan Jones via Regions Investment Management
But Also Read: Stan Druckenmiller's Horrific Sense Of Deja Vu via ZeroHedge
4) The BuyBack Binge Rolls On by Dan Strumpf via WSJ
"The value of new share repurchase programs authorized by companies stood at $257 billion in the first quarter, the strongest start to the year for buyback programs on record, according to a report by Birinyi Associates Inc.
At the current pace, stock buyback authorizations are set to total $1 trillion this year, blowing past 2007’s record of $863 billion, according to Birinyi."
Read Also: Have Profit Margins Peaked? by Dr. Ed Yardeni
5) Is It Different This Time For Stocks by Jesse Livermore via Philosophical Economics
"Removing the effects of changes in valuation, the average historical real total return for U.S. equities has been roughly 6% per year. If U.S. equity P/E ratios and profitability levels were to fall back to their historical averages, this 6% return would get dragged down to roughly zero. Over a 10 year horizon, the P/E ratio compression would subtract roughly (13/18.8)^(1/10)-1 = 3.6%. The profitability compression, on the generous assumption that current profitability is only 30% above its natural level, would subtract another (1/1.3)^(1/10)-1 = 2.6%.
The problem, of course, is that it's possible that "this time is different"–with respect to both P/E ratios and profitability levels."
Read Also: Well, This Isn't Good By Jeffrey Snider via Alhambra Partners
I JUST PAID MY TAXES:
Do You Know Where Your Tax Dollar Went? via ZeroHedge
Perceptions Of Tax Fairness Diverging By Income by Jeffrey Jones via Gallup
"I love money. I love money more than the things it can buy. There's only one thing I love more than money. You know what that is? OTHER PEOPLE'S MONEY." – Danny DeVito, Other Peoples Money
Have a great weekend.
