Is this rally for real?

NW-Bound said:

Well, I have around 100 stock positions, and they are all up at this moment except 3.

Soooo, which ones do I sell? The ones that W2R holds?

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For your convenience, the funds I hold that include equities would be
VTSAX (Vanguard Total Stock Market Index)
VWIAX (Vanguard Wellesley Income Fund)
VFWIX (Vanguard FTSE All-World Ex-US Index Fund)

and a tiny bit of
VWNDX (Vanguard Windsor Fund)
VEIEX (Vanguard Emerging Markets)

I have no individual stock holdings at present.

Helpfully yours,

.......W2R (Wheee!!! We're all gonna make out like bandits this year!)

Darn! I do not want to short entire markets, seeing that you only hold broad-based MFs.

Sooo, I will continue to hold the stocks I have which are, in my naive opinion, better than the broad markets.

There! I will measure myself against your MFs later. The race is on!

haha said:

I understand the press of your question. However, today's economic, business and geopolitical situation is probably overall quite a bit worse. I at least am not expecting another run to 1500 any time soon.
Ha

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As described in my earlier post, it took the S&P 5 years to climb from 2003 low back to where it was in 2000. This time may be even longer. Who knows? And then, even if the S&P comes back to that level, it might be with other sectors leading, not the financials that will not reclaim their 30% presence. In fact, many financials have disappeared by bankruptcy or M&A, and they were the high-flyers in the S&P in 2007, similar to the dot-coms and tech stocks that propelled the NASDAQ to nose-bleed altitude in 2000.

But even so, there are several non-glamorous companies that are profitable, paying dividends that exceed the paltry interest rate now, and faced with better times ahead (meaning next quarter to next year). Until their conditions change, I will continue to hold them. That's all I can do, using the info I have at the present time.

NW-Bound said:

But even so, there are several non-glamorous companies that are profitable, paying dividends that exceed the paltry interest rate now, and faced with better times ahead (meaning next quarter to next year). Until their conditions change, I will continue to hold them. That's all I can do, using the info I have at the present time.

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True. Some of them are in relatively stable and recession-resistant sectors, are rock-solid businesses that aren't going anywhere soon and pay 3-5% in dividends.

For truly long-term money, I don't see how this can be a worse deal than CDs earning 1-2% or money market funds paying 0.5% if that.

This latest two week runup has made no sense. Before that, we had a 10% correction which I had been waiting awhile for and that made sense to me as I do believe the market got way ahead of itself. I wanted to see things get a bit cheaper and then start buying. Lo and behold the market took off. Oil had gone from 74 down to 58 and now it's back to 68ish. Can anyone explain this? The longer I'm invested the more I truly believe that this is like a casino in the short term. My only hope is that in the long term this is not a huge fool's game. Having said all that, I do believe we will be lower than current levels at the end of the year by about 15%.

To some degree I think what you are seeing is the hyperactive movement chasing recent performance, which may be partially attributable to lower than pathetic yields on cash. I suspect at least some of the money back in the markets is there only because they are tired of earning 1% on safer instruments and they've decided that once again it's worth assuming some risk to try to do so.

ziggy29 said:

To some degree I think what you are seeing is the hyperactive movement chasing recent performance, which may be partially attributable to lower than pathetic yields on cash. I suspect at least some of the money back in the markets is there only because they are tired of earning 1% on safer instruments and they've decided that once again it's worth assuming some risk to try to do so.

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Yes, I've considered that as well. If that is true, why has the Japanese market done nothing for 20 years? They are also earning negligible interest on cash and have a higher savings rate. By this same logic, their index should have risen too at some point.

accountingsucks said:

If that is true, why has the Japanese market done nothing for 20 years? They are also earning negligible interest on cash and have a higher savings rate. By this same logic, their index should have risen too at some point.

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I think in part it is because the Japanese are much more risk averse than investors in the US.

REWahoo said:

I think in part it is because the Japanese are much more risk averse than investors in the US.

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Another question: How dependent are the Japanese on stocks for retirement? I think the U.S. and its increasing push toward defined contribution plans tends to mean more individuals feel a need to buy stocks whether they'd like to live with the risk or not.

accountingsucks said:

This latest two week runup has made no sense. .... Can anyone explain this? ...

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Well, there is a lot of money flowing into the markets as about 75% of companies reporting quarterly statements beat the estimates.
Many are saying this is the strongest indication yet that we have reached the bottom.
I don't personally subscribe to this, I have little opinion on it. It does not affect my investments, nor my long term returns or income stream.

As to gambling, the shorter your horizon, the closer to gambling you get. Day trading, in my opinion, is no different than going to the casino and playing some blackjack.

I watch the whole thing with interest, but really I just DCA in every week and don't sweat the rollercoaster too much.

Zathras said:

Well, there is a lot of money flowing into the markets as about 75% of companies reporting quarterly statements beat the estimates.
Many are saying this is the strongest indication yet that we have reached the bottom.

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The "beating the estimate" is a study in turning financial estimates on their heads. If you look at the estimates for Coke, Pepsi, Proctor and Gamble, Microsoft, Cat, United Technologies, McDonalds and Johnson and Johnson as expected at the market low in early March '09 for the stocks, all underperformed. However, the increase in unemployment caused most of the estimates to be lowered in June and all but Microsoft then "beat the estimate". In all the other cases, the ability to increase dividends going forward for these companies is less sure in July than in March yet despite falling sales and profits their yield are plummeting with the rise in the market.

The market is really getting excited about the stocks, but companies ability to pay dividend is being strained every day. It has been a very nice rally but all good things, I forsee abject ugliness beginning at the end of this rally.

Running_Man said:

However, the increase in unemployment caused most of the estimates to be lowered in June and all but Microsoft then "beat the estimate". In all the other cases, the ability to increase dividends going forward for these companies is less sure in July than in March yet despite falling sales and profits their yield are plummeting with the rise in the market.

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All true. But in a sense, this rally reflects the fact that things were not as dire as predicted earlier, and stock prices rose from the extreme low of March. So, the rally is "real".

Does it "have legs", meaning being able to continue after this earning report season? Obviously, we need good news continuing to come in to feed the market. If things stop improving, or even turn worse, gosh, who knows what would happen.

But looking abroad, there have been some other good signs. South Korean consumer sentiment is the highest since 2002. Commodities such as oil, copper, aluminum have been climbing, etc... I think we need to be more aware of economic activities outside of the US, as the world economy is becoming less US-centric.

NW-Bound said:

But looking abroad, there have been some other good signs. South Korean consumer sentiment is the highest since 2002. Commodities such as oil, copper, aluminum have been climbing, etc... I think we need to be more aware of economic activities outside of the US, as the world economy is becoming less US-centric.

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You betcha.

Running_Man said:

The market is really getting excited about the stocks, but companies ability to pay dividend is being strained every day. It has been a very nice rally but all good things, I forsee abject ugliness beginning at the end of this rally.

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Could be. I'm just hopeful we get more upside and I get out before the ugliness begins.

My crystal ball says that the market will go down below Dow 9,000 within two weeks, then back up, and waver around 9,000 +/- 200 for several weeks.

My reasoning is that I think a lot of investors are wanting to get out right about now.

Running_Man said:

The "beating the estimate" is a study in turning financial estimates on their heads...

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All that may be true, but it doesn't change the answer to 'why is this rally happening'. That was the question which I answered. Markets, especially in short term, respond to this type of news.

Running_Man said:

The market is really getting excited about the stocks, but companies ability to pay dividend is being strained every day.

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While there may be more strain, many companies continue to increase their dividends. Sure, more slowly, but as an investment in the future, buying dividends at 3-4% is a pretty attractive deal right now.

Running_Man said:

It has been a very nice rally but all good things, I forsee abject ugliness beginning at the end of this rally.

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Now that is a prediction I can totally get on board with.
To paraphrase: I see the market going down when it finishes going up

For those so inclined to read a blogger/author who maintains some internet articles I find interesting. His investment style is very similar to mine and his basic ideas for investment are the same. As such many will take comfort in a recent 2-part writeup he did over the very topic of this thread which I think is well written. I find his ideas useful and his writing logical.

I do come to a different conclusion than him because I do not think he is looking deep enough into the financials of companies paying dividends (I have never believed in the crystal balls myself, working with financial statements increases investing luck immensely) and the health of future dividend increases as well as the sheer number of companies that are cutting and forgoing dividends that will be prevented in the near future from joining the crowd as potential great dividend investment companies. In other words I see too many grandparent dividend companies dying as well as the dividend children being aborted at the same time. What is left is a large group of well to do boomer companies.

Recent financial events are forcing too many dividend investors into these same stocks and these stocks are showing classic warning signs as higher payout ratios and lower sales and achieving increased earnings through cost-cutting and inventory management. His style of investing caused him I think a year ago to reccomend GE and BAC, 2 classic and well loved dividend stocks that caused so much pain when the warning signs seemed evident to me the dividends would be cut.

However his columns are very interesting and worth reading.

This Rally Is Sustainable: Halftime Report, Part 1 -- Seeking Alpha

Want2retire said:

My crystal ball says that the market will go down below Dow 9,000 within two weeks, then back up, and waver around 9,000 +/- 200 for several weeks.

My reasoning is that I think a lot of investors are wanting to get out right about now.

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Not only that, but I also think the market is reacting to surprisingly good earnings for Q2. But when you look deeper, the earnings are being driven by cost cutting, not increased sales or productivity. In short, you can only cut costs so much and still operate, so if top line revenues don't grow, earnings can't keep growing...

Do we consider details such as joblessness and the USD value dropping in the mix? I'm still learning technicals but those two fundamentals are kind of scary and tell me that we won't have a strong recovery until there are more jobs. Who knows what the USD will do.

Back to the thread topic, the OP's question on May 8 was, "Is this rally for real?"

At that time the S&P 500 was at 929, coming off a low of ~675 two months prior. The S&P 500 closed the month of August at 987, up more than 45% from the March low.

Although those numbers look very good to me, I suppose the answer to the OP's question depends on how you define "real".

While you guys debate that, I'm off to do a little rebalancing.

REWahoo said:

Back to the thread topic, the OP's question on May 8 was, "Is this rally for real?"

At that time the S&P 500 was at 929, coming off a low of ~675 two months prior. The S&P 500 closed the month of August at 987, up more than 45% from the March low.

Although those numbers look very good to me, I suppose the answer to the OP's question depends on how you define "real".

While you guys debate that, I'm off to do a little rebalancing.

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I am absolutely thrilled with the rally thus far. My portfolio is most of the way back to where it was. I am relieved beyond description that this is the case now that I am so close to ER. I am also proud of myself for surviving the biggest crash since the Great Depression (apparently?) without selling low. This was a real life test of imagined risk tolerance, for me.

We have all been "through the wringer" and I hope that we are done with it. Not sure.

On "Morning Joe" the statement was made that while most people and reporters are more positive on the economy and the markets, those with the "real money" are still very afraid of the markets and so their money continues to be in safe investments.

Greenspan seemed positive on TV interview but had many caveats about what could happen.

What are we, the average investor, to think about all this? While I have enjoyed the rise in the relatively small amount I left in my stock mutual fund, I still do not have the bullishness to bring more money into this market.

So what do you guys think about the richest people's fear of the market?

James, it doesn't matter what any of us or any of them think. "You pays your money and you takes your chances" - and don't forget to rebalance when appropriate.

(Unclemick will be along shortly with a "pssst" and a "heh, heh" or two... )

James5v said:

On "Morning Joe" the statement was made that while most people and reporters are more positive on the economy and the markets, those with the "real money" are still very afraid of the markets and so their money continues to be in safe investments.

Greenspan seemed positive on TV interview but had many caveats about what could happen.

What are we, the average investor, to think about all this? While I have enjoyed the rise in the relatively small amount I left in my stock mutual fund, I still do not have the bullishness to bring more money into this market.

So what do you guys think about the richest people's fear of the market?

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I think that as usual, those who have information that we don't have are not going to spread it around because they are too busy making money based on that information.

The rest of them probably don't have any more idea than we do about what is going to happen. I still find that listening to people talk about the market is interesting. Other than my regular TSP (=401K) DCA into a government bond fund I am neither buying nor selling at the moment but cheering from the sidelines. I have an investment plan and an asset allocation, and my portfolio falls within those guidelines and doesn't presently need any tweaking.

Aided by my TSP DCA, my portfolio is still reasonably balanced so I expect it will not need rebalancing until I do so as planned in January.

OH - - edited to add another thought. Those wealthy folks who can most easily afford to to take risks, don't really have to. If I was sitting on several hundred million dollars or more, I would use a very conservative investment plan.