You heard it here first.  Well, maybe 2nd as GS's Chief US Equity Strategist, David Kostin, says the U.S. economy will achieve above-trend real GDP growth in 2014, ending a six-year period of economic “stagnation.” And in developed economies, the final year of economic stagnation before GDP growth has been linked to price/earnings multiple expansions averaging 15%.  They expect the S&P 500 p/e multiple will continue to rise, reaching 15 times at year-end 2013 and 16 times by the end of 2014. 

“We are raising our S&P 500 dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 index will rise by 5% from the current level to 1,750 by year-end 2013, advance by 9% to 1,900 in 2,014, and climb by 10% to 2100 in 2015.”

Goldman's timing is, of course, BRILLIANT, as it is Tuesday and the market has been up 18 Tuesdays in a row, so why stop now?  2,100 at 16x earnings is $131.25 per share so, in general, to be on that trend – we need to see 10% annual earnings increases from here ($110) but, of course, we were at $111.30 in January and earnings estimates have DROPPED to $110.10 as 2 rounds of earnings reports have come in weaker than expected so far – so you need a good supply of fairy dust to get as high as David Kostin.  

To be fair to GS, they did call S&P 1,675 and yesterday the S&P was at 1,666 (the mark of the Blankfein!) but, unfortunately, they made that call in Jan of 2008 and were, in fact, off by about 744 points on December 31st of that year – and not in a good way!  To be fair, in May of that year, they adjusted to 1,380, so only off 439 but the S&P was at 1,380 in May and, as you can see from the May 2008 Bespoke chart on the left, NOBODY SAW IT COMING – even when "it" was already there.  

Oddly enough, on Tuesday, May 20th of 2008, I had a moment that now gives me severe deja vu, saying:

I’ve been growling for quite some time now that I want to see a real breakout before we turn bullish and, unfortunately, we could be in for a textbook reversal as we do

…

I wrote a very long Macro outlook this weekend so I don't have a lot to add this morning.  We've been expecting a pullback and, so far, a pullback has not come.  As you can see from Doug Short's chart on the right, the S&P has pulled off a spectacular recovery – getting to 109.2% of it's pre-crash levels in just 5 years, which is better than the Dow did 20 years after the 1929 collapse (despite FDR Stimulus and the Great War) and almost 70% better than the Nikkei has done in the past 23 years.  

Adjusted for inflation, the S&P is still DOWN 19.6% from it's 2000 highs so the goal is 2,160 – for those of you who like an even playing field.  That would be a very happy 35% over our "Must Hold" line of 1,600 on our Big Chart and that's just a tad shy of that big 38.2% that constitutes a Fibonacci Sequence but (and this is interesting) 23.6% below 2,160 is, TA DA, 1,650.  

So here we are at 1,667 and we have our 5% rule telling us that the next significant resistance is 1,680 and Fibonacci has been telling us since 1250 (AD) that we should be looking for 1,650 – not bad for a dead mathematician!  If we hold 1,650 and we get over 1,680, then we HAVE to be bullish.  IFF the Russell hits 1,000 – we HAVE to be more bullish.  

I put up some bullish plays in our weekend post – one is even being added to our new Short-Term Portfolio (CLF) but our first two plays (from Friday's post) were bearish (USO and GME) – as we're still expecting that pullback and those levels have NOT been crossed yet. 

I already sent out an Alert to our Members this morning to look at short s on Oil (/CL) at $96 and the Nikkei (/NKD) at 15,400 as we're expecting a poor Chicago Fed report at 8:30 and, of course, the oil contracts are winding down in two days and they still have 50K contracts to get rid of with 331,000 already stuffed into July (331M barrels of fake orders).  That puts the odds nicely in favor of shorting oil as nothing blew up over the weekend to support $96 a barrel.…

Just look at our Big Chart – we flipped it bullish and put up new level targets just two weeks ago and already the Russell is up 5% to test 1,000.  All 3 lines over 1,000 and we're back to being bullish until 3 of 5 fail to hold our "Must Hold" lines.  

We should be celebrating this but we played too cautiously as what we thought was a top and I never officially put "5 Inflation Fighters Set to Fly" or our "5 Trade Ideas that Make (made) 500% in an up Market" into our portfolios and I only said:

So lots of fun ways to participate in the next mega-rally.  We don't need S&P 1,900 – just holding 1,600 would do us quite well and I cannot emphasize enough that these are HEDGES to our current BEARISH stance – just in case we're wrong and a correction never comes and the markets go up and up forever and all of our bearish positions expire worthless. 

In reviewing those posts, I realize I went heavily into detail about my thoughts of the current market environment and we decided we'd better go with the flow until the flow changes and, frankly, I don't have a lot to add to that.  A week ago we reviewed our "5 Trade Ideas" that made ridiculous amounts of money in a very short time but, as I have been reminded this weekend – unless I specifally state something should be included in one of our virtual portfolios – it doesn't occur to people that they should add it to theirs so we have been out of balance bearish in our portfolios and have gotten hit pretty hard in this relentlessly climbing market.  

That's my fault then and my solution is to make things less confusing and go back to my favorite system for managing trades and that's to have a portfolio for short-term trading and one for long-term trading (the Income Portfolio is a separate strategy and won't be affected) and we'll be instituting that beginning next week.  The idea is to practice the basics – position sizing, scaling in, scaling out, using stops, reacting to news, diversifying positions, etc.  The Long-Term Portfolio is generally for short-term positions that don't work but that we would like to stick…

I like to put up this chart of the Macro Indicators (this one from Zero Hedge) every once in awhile, just to keep us grounded as we play the market at these nose-bleed levels.  And yes, I know I sound like a grumpy old bear, the same way I was accused of being a perma-bull 8 months ago, when the S&P had crashed 10%, back to 1,343 and I wrote articles like:

• "Thankless Thursday – Still Waiting for that Stimulus to Kick In" (11/1/12) 
• "Two Term Tuesday – Obama Victory Allows 4-year Rally to Continue" (11/6) 
• "Fed Up Thursday – WMT and the Fed Fail to Boost the Market" (11/15) 
• "Testy Tuesday – Can We Hold Our Weak Bounce Levels?" (11/20) 
• "Dividend Investing – Giving Yourself an Automatic Edge" (11/25) 
• "Cyber Monday – Record Retail Sales Trump Cliff Concerns, for Now" (11/26) 
• "GDPhursday – Fiscal Cliff Progress Good for 200 Points Ahead of GDP" (11/29)

After that, we were off to the races and people finally stopped making fun of me for being so bullish in such an "obviously" declining market.  Yes, I was early – that's the problem with reading too much and looking at the Fundamentals – sometimes you see things that seem "obvious" to you but it does take the crowd a while to catch up and, for better or worse, it's the crowd that does the buying and selling.  

So now I'm worried and, although I was clear (I thought) at the beginning of the month that we may keep going up until Options Expiration Day (today), or even to the end of May, into the holiday weekend – I've still been branded a perma-bear by readers (not our Members, who know me better) who seem angry that I dare question the market.  

Well, I have to dare – it's my job.  And I'd love to be a sell-out as bullish market newsletters make more money so we attract less new people when we go bearish but I kind of think it's my job to tell you what I think is going to happen – not just what you want to hear.  

As noted yesterday, my plan for the weekend is to do some soul-searching and try to figure out if MORE FREE MONEY will continue to trump the underlying weakness in the Global Economy.…

All are scheduled to bat today in the Stock Market's Home Run Derby.  As I noted on Monday (we like to be prepared at PSW), it's hawk, dove, hawk, dove, dove and Plosser already had his swings this morning, calling for a "wind down" of the Fed's Balance Sheet (which is updated after the markets close today).  While inflation may be tame for the time being, Plosser says an acceleration in the velocity of money could change the calculus quickly and leave monetary policy struggling to keep pace.  That is, of course, exactly what I said on Sunday morning at our Atlantic City Investor Conference, just a few weeks ago. 

While I don't remember Plosser in the audience, I have to compliment the guy on his incisive views, if not his conclusions.  Unlike Plosser, I don't think the runaway inflation is undesirable – more like it's inevitable as we not only NEED to inflate our way out of debt but we need to inflate our homeowners into a reasonable retirement and, in order to do that, we need China-like housing inflation of over 100% in 5 years in order to give 110M US homeowners some spending money.  

The average American has $40,000 saved for retirement and that is NOT net of debts.  41% of our Labor Force (57M workers) are now 55 or older and, technically, 10 years or less from retirement.  If we assume an even spread, then close to 6M people a year are turning 65 and begin qualifying for Social Security and, CLEARLY, they are NOT being replaced at a rate of 500,000 a month by younger workers.  

This should not be news to anyone – we've been hearing about "boomers" since they were born in the 50s but now the bulk of the boom, people born between 1954 and 1964 are moving into retirement and the chart below, from the last census report, shows you how dramatic this wave is (and the circled group from this chart is already 49 to 69):

These trends aren't hard to play from a market standpoint.  Back in my 2010 Market Outlook (12/27/09) we discussed this exact trend as the easiest macro to bet on for the decade and we discussed IHI at $53 (now $80 – up 51%), ISRG at $300 (now $500, up 66%), MDT at $44…

Even though I was just on TV yesterday with bullish bets and saying that we may be in the early stages of a mega-rally, this morning I woke up and saw NEGATIVE GDP numbers in France and a 0.1% gain in Germany (vs 0.3% expected) with a revision to their Q4 to -0.7% (from -0.6%) on the heels of their ZEW Investor Confidence Index coming in at just 36.4 (with 40 expected) and JPM and BAC cut their forecast for China's GDP and HBC is cutting 14,000 jobs and IDC cut their IT spending forecast by 10% and Mortgage Applications fell 7.3% and lumber prices are falling along with rebar and rubber and oil.   

So, silly me, I concluded it would be a good idea to short the Dow Futures at 15,175 and I put out an early morning Alert to Members at 4:26am and I tweeted it out in case anyone missed it.  Well, the Dow did fall – all the way to 15,150 and, while we're not upset about a $125 gain per contract – that was it (but we do have a chance to short them again on the bounce at least).  25 points out of 15,175 is 0.16% – that's how much of a pullback all that bad news hit us for in the Futures after the Dow has popped 500 points in the first 14 days of May (see Dave Fry's NYSE summation chart for overbought status).    

This is ridiculous folks!  There's obviously no point in watching the news, other than to see which Central Banker is taking a bow.  Today it's outgoing BOE Governor Mervyn King, who declared that a U.K. recovery is now “in sight” as he presented his final forecasts with an improved outlook for U.K. economic growth.

“Of most significance today is that there is a welcome change in the economic outlook,” King said as he presented his 89th press conference at the central bank in London. “This hasn’t been a typical recession, and it won’t be a typical recovery.”

Not typical to say the least.  Europe is literally in flames, with riots in the streets and 50% youth unemployment likely to…

Well, not yet, but they are at $93 and up another 6.2% for the day in pre-market trading as Morgan Stanley puts out a note calling them "A Short Seller's Nightmare," which they are, up 177% for the year and up 57% in the last 3 sessions, during which 100% of the float turned over so, in other words, every single person who owned TSLA last Tuesday has had the opportunity to get out at record highs since then.  If this is giving you flashbacks to the dot com days – welcome to the club.   I picked TSLA as one of my 3 favorite stocks of 2013 but we certainly weren't prepared for this.  

In fact, just yesterday, we took a short play on TSLA's rally, buying 5 of the 2015 $85/115 bull call spreads for just $7 in our virtual $25,000 Portfolio and selling 5 of the June $85 calls for $8.60 for a net credit of $1.60.  Our logic was that $85 was ridiculous and unsustainable yet up another $10 this morning (yes, it gained $2 more while I'm writing this) means we may need to add more longs already.  And what fun it is when you can buy a $30 spread for $7 on a Monday afternoon and, by Tuesday morning, you're already $10 in the money!  These are the kind of market-distorting profits I was complaining that we shouldn't be able to make on Friday but, if they keep giving them to us, we'll keep taking them.  

We also shorted Elon Musk's other company, SCTY, in our $25,000 Portfolios, as they had also had a ridiculous run-up, probably assuming the TSLA magic would rub off.  It didn't, they missed.  On that one we took 10 of the tighter October $30/35 bull call spreads for $2.50 and sold 5 of the June $40 calls for $5 for a free play and, as expected, SCTY is down 6% pre-market, mirroring TSLA's up move as they missed, losing more money per share (.41) than expected.  

At least that one makes sense and our trade works because the short calls expire worthless and we keep the remaining value on the long spread (maybe $1) for a $1,000(ish) profit.  Not too bad.  The TSLA trade, on the other hand, becomes problematic if TSLA goes over $115 and, ridiculous…

Last Monday I said it was time to sell in May and we've had a fantastic week to sell into with new suckers pouring in at the top of the market every day.  Maybe we're the suckers for going back to "cashy and cautious" into the last two weeks of the month but it's what happens after Friday (options expiration day) that we're concerned about and there's no sense in waiting for the market to turn down if we're looking to take profits.  

As noted by Dave Fry, we're still looking very strong on the weekly charts – especially if you ignore that sharp dip in volume that you probably shouldn't ignore.  Clearly the market is overbought, but it can stay overbought for quite some time so we may be missing the next 2.5% gain by "chickening out" with "just" a 20% gain since November but, if the bulls are right and this is just the beginning of a Mega-Rally – we have a few more years of upside to partake in.  

Seth Masters, of Bernstein Global, says we're right on track for Dow 20,000 and I guess we are, as it was 12,900 last July and now over 15,000 for a 16% gain in less than a year and that means we could hit 20,000 by the end of the decade.  In other news, my daughter is now 5 foot tall at 11 years old and that means I'll be shopping for a 10 foot tall wedding dress and probably size 14 shoes.  Thank goodness for charts or we'd never be able to plan properly…

I have no doubt the Dow will hit 20,000 once inflation kicks in but, so far, we're not seeing signs of it running away that fast.  As to reaching 20,000 on merit (profits adjusted for inflation) – probably not this decade.  Extrapolation is a dangerous thing.  We have 310M people in this country and, at the peak, about 160M of them were working and now 150M of them are working and, in 2009, about 135M of them were working.  Not to get into the quality of work/income disparity stuff again, look at this simple chart of Retail Sales:

Essentially, in 2009, Retail Sales were 10% lower than they were in 2008, when 160M people were working.  Let's call 2008 100 and 2009 90.…

The BOJ devalued the Yen by 1% overnight and robbed the Japanese people of $300Bn overnight.  Meanwhile, the bank robbers will go to jail while the lifetime savings robbers will probably get an award – or at least very cushy jobs in the private sector once they are done pillaging the people's money in the Government sector.

In our Member Chat yesterday, we were discussing the fact that we should take Japanese Corporate earnings with a huge grain of salt as they are priced in Yen and the Yen is down (up) to 101.62 to the Dollar today, from (and I am not kidding) 80 at Thanksgiving.  That's up (down) more than 25% in 6 months and 80 to the Dollar was about where the Yen was last year as well.   

So think about it – if you are a Japanese citizen and you had 80M Yen in your retirement account in November, you had $1M US Dollars.  As we know, Japanese banks pay 0.25% for deposits, so effectively zero so today, those 80M Yen would be worth just $787,246.60.  How's that for theft!  This is how our Governments ultimately balance their books – on the backs of savers.  The Investing Class is just fine, thank you very much, as the Nikkei has popped from 9,000 to 14,000 over the same period.  That's up 55%.  So the rich investors get much, much richer while those who try to save their hard-earned money get raped – and no arrests will be made!  

25% of the Japanese people's wealth confiscated to give the top 1% a 55% boost in their portfolios.  That's the way of the World folks.  And don't go clucking your tongues at the Japanese folks, they are only trying their best to keep up with the US. whose Dollar Index (against a Global basket) is down from 120 in 2002 to 83 today – that's a 30% devaluation of our own savings in 10 years!  Not just your savings, of course, anything you own that's priced in Dollars loses value unless it's inflation-proof and it's PRICE (not value) goes up faster than the Dollar falls.  

The US markets are just now getting back to the PRICE they were at in 1999, but the Dollar is 30% lower so, if the market had…

That's how much our "5 Trade Ideas that Can Make 500% in an Up Market" made since May 14th.  Those are, of course, gains on cash, not margin but, when you only have to tie up the margin for 21 days to make it – it's a nice return (worked out to an annualized 322% on our QQQ/AAPL trade).  We talk about inflation a lot and there is such a thing as Trade Inflation, the point at which margin and option traders are able to make so much money it distorts the markets.   Don't you think we're at that point?  

Let's say you turned $5,000 into $90,800 using those trade ideas – that's great but what if your cleaning woman bought $1,000 worth of TSLA May $55 calls last week for $1 and this morning they are about $12.  Do you still think she's going to clean your house for $100?  This is how inflation goes – when we used to see those expensive cars with "Yahoo!" license plates driving around in 1999 – it meant it was harder for us to negotiate a good price for our own 911 because our plumber had just put down a deposit on the last one in the showroom.  

Nothing against plumbers, of course, I guess I'm still thinking of Joe the Plumber – but you get the idea.  It's all fun and games while we have our secret little ways to make money but, once everyone starts doing it, the money begins to become worthless and then we need to risk more to make more just to keep up.  Pity the poor business owner who can only make money by selling stuff people want – they are totally screwed.  This is how asset bubbles chase themselves to death and this is why it's an old Wall Street adage that, when your taxi driver starts giving you stock tips, it's time to cash in your chips and get out of the casino.  

We're not there yet, not "irrationally exuberant" about the markets but there are certainly pockets that are overbought and TSLA is a good example of a company that has in irrational valuation now that it's popped to $66 on very good earnings (and we're not perma-bears on TSLA, it was one of my 3 stock of the year…