Monday, January 5, 2015
THE GOOD NEWS:
Real Estate Prices.
Since 2009, real estate prices, in many parts of the U.S., have risen significantly. In 2011, you could have purchased condo properties in CdM, CA (part of Newport Beach, CA) for around $600 per sq ft. By now, prices have increased to $900 - $1,000 per sq ft. Prices for condo properties in NYC have soared. Even Miami condo prices have increased dramatically. (At the low point, no one was buying anything in Miami, but now that situation has totally turned around. Condo construction activity is soaring the Miami area.)
In late 2009 (specifically, November 2009), the unemployment rate in the U.S. hovered around 10.8%. In November 2014, the unemployment rate was reported to be 5.8%.
Link to where I got this info:
GDP in the U.S.
Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 5.0 percent in the third quarter of 2014, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent.
The price of oil has fallen …. a lot.
On December 8th, an article on The Economist explained, “Why the oil price is falling”. Note that at the time that article was authored, the price of crude had fallen to around $70 per barrel. Since then, the price of crude has continued to fall; today, it was reported to be at $50 per barrel. In June 2014, the price per barrel had risen to $115.
Link to that article:
Stock Market activity (equities):
The stock market gained significantly in years 2012 and 2013 followed by another decent uptick in year 2014. The stock market indices at the end of 2014 were quite significantly higher than they were when the market hit its low point in the Spring of 2009.
Now for the question … does all this “good news” mean that the stock market will continue its rise?
I do not think that will be the case.
Credit spreads are, evidently, widening.
Per some charting I did today – on credit spreads, and based on articles I read today about credit spreads – credit spreads, evidently, are widening. The “credit spread” is the difference between interest (current yields) on Treasuries and Corporate Bonds of the same maturity (length). A widening of the spread generally means (this assumes I actually understood what I read about this) that investors are feeling more inclined, rather than less inclined, to invest in Treasuries than they are in Corporate Bonds. Many say that widening credit spreads portend problems in the stock market.
Dr. John Hussman’s (the gent that many refer to as “the permabear”) says that the stock market is grossly overvalued – he’s been saying this for at least a couple of years by now, if not longer – and that the stock market is due for what could well be a very, very major correction – to the downside.
To quote Dr. Hussman, these two sentences appear at the end of his most recent “market comment” article, “I’ll repeat emphatically what I noted a few weeks ago. The set of market conditions that we observe at present are supportive for steep losses to emerge because present conditions join compressed risk premiums with a measurable shift toward risk-aversion by investors.”
You can read his Weekly Market Comments at:
BLOG PUBLISHER'S COMMENTS:
I know, I know, I know! For every person who says the stock market will fall, there’s another person who says that the stock market will rise. I’m not an economist, so WTF do I know. However, before you make your 2015 investment decisions, consider these:
Murphy's law is an adage or epigram that is typically stated as: Anything that can go wrong, will go wrong.
Finagle's Law of Dynamic Negatives (also known as Finagle's corollary to Murphy's law) is usually rendered: Anything that can go wrong, will—at the worst possible moment.
Hanlon's razor is a saying that recommends a way of eliminating unlikely explanations for a phenomenon (a philosophical razor). Never attribute to malice that which is adequately explained by stupidity.
Segal's law is an adage that states: A man with a watch knows what time it is. A man with two watches is never sure. It refers to the potential pitfalls of having too much potentially conflicting information when making a decision.
Sod's law is a name for the axiom that "if something can go wrong, it will", with the further addendum, in British culture, that it will happen at "the worst possible time". This may simply be construed, again in British culture, as "hope for the best, expect the worst"
"Shit happens" is a common slang phrase, used as a simple existential observation that life is full of unpredictable events, either "Así es la vida" or "C'est la vie". The phrase is an acknowledgment that bad things happen to people for no particular reason.
And, consider this - - - in my convoluted way of thinking, too much good news ends up being bad news.
Personally, my advice for those who are heavily invested in the stock market: It’s time to take your gains and pull out. I believe 2015 will be a tumultuous year for the stock market and that the market will fall this year. And, it will fall by more than 25%. If you get out now, you can get back in at a lower cost. What’s wrong with that?
Posted by Joel Salus at 12:03 PM