Happy Birthday to 5 Years Bull Market

Bull MarketStandardAndPoors500

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of March 10, 2014.

  • On March 9, 2014, we celebrated the anniversary of 5 years Bull Market.
  • The Gold prices closed on the highest level in six months on Friday, March 14, 2014.

MARCH 9 2014, HAPPY BIRTHDAY TO 5 YEARS BULL MARKET:
Sunday, March 9 was the fifth anniversary of the March 2009 low for the S&P 500 Index and the subsequent birth of a new bull market, which has racked up gains of 205.6 percent so far, including reinvested dividends.

Cheers S&P

A bull market, as it’s typically defined is an advance of 20 percent or more without a 20 percent correction along the way. By this methodology, according to data from Merrill Lynch and Bloomberg, there have been 25 bull markets since 1929, for which the average bull market lasted about 31 months and appreciated 105.5 percent.

In terms of price appreciation alone, the current bull market has advanced 177.6 percent since that fateful day on March 9, 2009 when it looked as if the financial world was falling apart with the S&P 500 closing at a low of 676.53. Since then, the blue-chip bench-mark index has appreciated more than 1,200 points, to close at an all-time high of 1,878 on Friday, March 8 2014.

This auspicious anniversary for the stock market has many investors questioning whether or not the bull has the legs to stampede even higher from here.

GOLD PRICES AT SIX MONTH HIGH:
As can been seen from below chart, Gold prices rose last Friday, March 14, with US$ 10.90 an oz or 0.79 percent to close at US$ 1,382.00 a troy ounce, the highest level in 6 months.

gold_6_month_o_usd

Intra day spot gold rose as much as 1.4 percent to its highest level since Sept. 9 at US$1,387.90 an ounce.

The metal has gained 3 percent this week, also helped by China’s first corporate bond default and fears of slowdown in the world’s second-largest economy.

Gold was also supported by Friday’s data showing U.S. consumer sentiment weakened in early March.

PGM CAPITAL COMMENTS:

5 Years Bull of Markets for USA Stocks:
Value-Investors are worried about market valuations and are concerned that this could cut short the longevity of this bull market.

The cyclically-adjusted Shiller P/E ratio, which takes a bigger-picture view by averaging the past 10 years of earnings to smooth out the often volatile swings in corporate profits from one year to the next, is currently at 25.56 as can be seen from below chart.

Screen Shot 2014-03-14 at 12.16.35 PM

By this measure stocks look overvalued compared with the average cyclical Shiller P/E of 16.4 over the past century.

Stocks don’t look particularly cheap by other valuation yardsticks either. For instance, the total market cap of all U.S. stocks at the end of 2013 stood at 125 percent of U.S. GDP, above the previous peak in 2007 just before the last bear market began.

And from a sentiment perspective, there is more to worry about; namely complacency is setting in among investors, which is to be expected after a five-year long bull market.

A recent sentiment survey by Investors Intelligence reported the lowest number of “bears” among investment newsletter advisors since 1987, and we all know what happened in October of that year.

In other words, investor confidence is running high, especially after last year’s 30 percent plus gains for the S&P. Of course this is one of the most reliable contrary indicators I follow, which means that when investor sentiment turns this bullish, perhaps there’s nobody left to buy.

But the best warning sign of a coming correction or bear market for USA Stocks is the fact that George Soros is currently holding a 1.3 Billion USD bet against the S&P-500. Read further on this in our article of February 23.

Last but not least, it is also worth mentioning, that despite the amazing run of the last 5 years “only” US$ 132 billion went into equity funds which is much less than the US$ 1.2 trillion that went into bonds and bond funds. This imbalance may cause problems in the coming years, if the FED isn’t able to foresee future economic soft-spots or recession.

Gold prices at a 6-month high:
With tension rising in the Crimea  between Russia and Ukraine and the first default by Chinese onshore corporate bond by Shanghai “Chaori Solar Energy” to meet interest payments on its debt , Gold has proven itself as the ultimate safe haven.

Holdings in SPDR Gold Trust – the world`s largest gold-backed exchange-traded fund – rose 2.10 tonnes to 813.30 tonnes on Thursday, March 13, 2014.

Below 10-year chart shows that Gold has outperformed the S&P-500 with more than 350 percent during the last 10 years, making it the best performing asset of the last 10 years.

It’s also worth mentioning that Gold has closed the week above its resistance level of
US$ 1,361.00 an ounce. The next target now for Gold is US$ 1,433.00 an increase of 20 percent from the lows of US$ 1,180.00 for this bear correction phase to be called over.

With ongoing global currency wars and central banks all over the world printing money out of thin air to stimulate their respective economies, we believe that the sky will be the limit for Gold.

As can be seen from below chart, withdrawals from the Shanghai Gold Exchange vaults YTD was 320 tons for which January 2014 accounted for 247 tons, which is an increase of 43 % compared to January 2013. It’s also greater than the monthly global mining production and an all-time record.

In Gold we Trust-2

In our year-end blog article and almost in all the articles we have published this year, we have been urging investors to sell their USA stocks, which, according to all fundamental analyses, are overvalued and to invest the profit in gold.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

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