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Day 184: S&P Going to 2,900

The Mother's Little Helper portfolio was UP today +$6,701.22 (0.91%). Overall GAIN YTD: +$161,017.83 (+27.58%).

According to CNN Money our benchmark index, the S&P 500 is up +9.02% Year To Date (

I took a day off yesterday and missed a little dip, but we're back up again today. My apologies to those who were looking for an update to the portfolio.

The stock market is still not over valued but is a little pricey. Most of us have three asset classes for investing, Real Estate, Bonds and Stocks; add vintage motorcycles to my list, I especially love the old Vespas and Lambrettas.

In San Jose, CA for instance a two bedroom house that sold in the low $300's in 2009 is now selling in the mid $700's. Plus, we are quickly approaching the all time high for membership in the national association of realtors, typically a key indicator for a correction in real estate prices. May membership was 1,255,619, the all time high was 1,357,732 in 2006. I think when the June numbers come in we'll see that we've reached that high which is only 8% above May's numbers and the association has been adding new members at about 5-6% a month. Apologies to my friends who recently entered the real estate profession, but I believe home prices will come down significantly once we cross that threshold. Interest rates are most likely going to stay down for a longer period of time than most investors are pricing into the market which will further increase real estate prices along with a diminishing inventory. Even with another rate hike this year rates are incredibly low. I'll go with one more rate hike in 2017.

Right now the average P/E in the S&P 500 is about 24. The chart below shows the S&P 500 multiple since 1926. The grey vertical bars are recessions. Note how heated the market got during the DOT COM bubble and the financial/housing crisis. Healthy markets tend to hover just below and peak just above a 20 multiple. So what's all this mean? You make a dollar in earnings for every $24 worth of investment. That's about 4%. I failed math all through high school, so please whip out your calculators and check me (1/24 = .041667, about 4%). By comparison 10-year US Treasuries are about 2.2%. Deduct inflation and bonds look expensive.

An S&P 2900 is just 18% higher than where it closed today and we still don't have a health care bill, tax reform, repatriation of overseas corporate cash, new IPO's at normal levels or a host of other factors that could easily drive this bull market higher before the Fed steps in and raises rates quickly to slow the economy to create the recession that will ultimately occur. An 18% increase would put the market multiple at about 28, pricey but not in bubble territory. This phase between 24 and 28 looks like a great time to be accumulating cash in our investment accounts so that we can be buyers of great companies at low prices when the correction or recession does occur.

Stay Invested,

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell share withing the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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