Monday, June 09, 2014

Why The Bulls Got Legs (Still)

A revealing chart below mapping the recovery in employment from a crisis/recession till pre-recession levels. Its revealing in the sense that once they got back to pre recession levels, there is usually a good time to be had by bulls for at least 5-7 years before they next correct.

Hence while I believe the current global markets are a little frothy, we will have to learn to live with that kind of froth for some time still. Jeremy Grantham, whom I respect a lot as a value investor, said it best:

"We are not even that close to a bubble. With the S&P 500 at around 1860 (now 1949) recently, we are at about a 1.4- to 1.5-sigma event. Another way to say that is that we are between one and two standard deviations outside the normal distribution of stock-valuation levels. A two-sigma event would put the S&P 500 at 2350. So using the standard definition, it has to go up another 30% from here to get to a bubble. But you don't know when an ordinary market move is a bubble; you only know that in hindsight. "

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5 comments:

bruno said...

S&P at 1998 and I will be contributing 75%-80% of my 2014 profits to the sharks.2350 .....?

Kevin Wong said...

I am one of those who believes that the 2,000 mark on the S&P 500 is now almost inevitable. But, if that that 2k isn't tested & then breached within a year - than, most likely - its game over for this current 5 years old uptrend. There will most probably be a huge ammount of selling orders from traders, speculators & short-term investors alike as the S&P reach the 1995 to 2010 level.
But whether this bull run could still continue for a more years or not, doesn't really matters to the long term investors & those who had already made their money.

lai said...

most of the "expert" suffered psychological syndrome call illusion of validity and control.

lai said...

most of the "expert" suffered psychological syndrome call illusion of validity and control.

Kevin Wong said...

Dear lai,
Many of those 'experts', may also be suffering from delusion of grandeur. How else can one explain, how a ordinary human could consistently outsmart, time & forecast short-term marts direction?