It's The 1950's Again!

“The price is what you pay, Value is what you get”

― Warren Buffett

The Portfolio

Our blog portfolio continues to perform well and volatility remains low. Year-To-Date the portfolio is up +15.21% (as I write, markets are still open). While I think the stock market is fairly valued (not cheap or expensive), I'm not adding anything today, I prefer to wait for pull backs.

The Fed

Fed Chairman Jerome Powell delivered a highly anticipated speech yesterday...where he gave the markets everything they wanted,no change to current short-term rates. My position remains the same, I think the Fed will lower rates 1-2 times this year. The biggest concern over lower rates is heard in this often repeated quote;

"Why would we pump more stimulus in the economy this late in the cycle".

Let's parse that out. Yes lower rates are a form of stimulus in that the Fed is lowering rates to money center banks at the discount window. This enables banks to lend at lower rates to small business, to home buyers, to auto buyers, to individuals consolidating loans and more. The second half of the statement is saying that we are late in our economic cycle; I don't agree.

If we go back into recent history, the 1950's, we can find a decade that is very much like the one we're in. As they say, history doesn't repeat itself, but it often rhymes. In the 1950's the stock market quadrupled. During the 1950's inflation was similar to today with an average rate of 2.08% for the decade. During the 1950's the U.S experienced three recession scenarios with brief declines of 20%. In the 1950's interest rates were similar to today.

Looking at the current 10-year bull market we can see nearly identical scenarios. We've had three near recessionary scenarios, the market has had astonishing growth, interest rates remain low and inflation remains low. Over the last decade we've had the European Debt Crisis that caused a 19.6% decline, that's close enough to 20%. In 2015-16 we had the commodities and energy sector declines that wiped out roughly 20% of market value. In fourth Quarter 2018 we saw a 19.8% decline, again close enough to 20%.

I don't think we can look at the last 10-years as a continuous market cycle. We're not 10-years into a bull market, we're almost 6-months into a new market and business cycle.

My call for the S&P 500 to reach 3,000 looks bearish and my 2020 year-end target probably needs a revision too. Assuming no dire consequences as the result of the 2020 election, a global crisis when marine fuel restrictions for shipping take hold in January 2020, threat of war with Iran, ongoing issues with North Korea, a new oil crisis driven by issues in Iran, Russia/Germany, Saudi Arabia changing its economy away from oil and US shale over production. Oh yeah, and a technology and trade war with China, threats of trade wars with Mexico and Europe. And don't forget what's up in our attic, Canada is just barely in our good graces on trade. There's a lot to be concerned about, consider each of these bricks in a wall-of-worry. Assuming we navigate all of these issues and the new expansion continues, I can see the year-end 2020 S&P 500 in the neighborhood of 3300.

Repricing

With the Fed decision on rates out I've gone back through the entire portfolio and repriced my 12-month Target Prices. 55% of the companies have had their Target Prices Raised.

"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and use sun screen"

- Clay Baker

Stay Invested,

Clay

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Keep Me Honest

  1. S&P 500 declines to 2,350 or more (1-3-2019)

  2. Healthcare and Biotech sectors outperform (1-3-2019)

  3. S&P reaches 3,000 by year end (1-11-2019)

  4. CSCO reaches $60/share (1-18-2019)

  5. VEEV reaches $145/share (2-14-2019) (achieved $145.23 on 5-10-2019)

  6. CVS reaches $91.50 (2-27-2019)

  7. Bull market takes another leg up (4-7-2019)

  8. The Fed will lower rates 1-2 times (5-13-2019)

  9. Reiterated: The Fed will lower rates 1-2 times (6-20-2019)

Clay's Rules

Rule #1: Don't lose money

Rule #2: See Rule #1

Rule #3: Portfolios go to zero, markets don't

Rule #4: When a good stock you own drops 10% below your cost basis, add shares

Rule #5: Bull markets aren't sustained without the Transports

Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase

Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:

CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD, HD, AWR, XLNX, MRVL

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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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved