Thursday, May 30, 2013

Stock Market 2013: Better Late Than Never

(Drivebycuriosity) - Yesterday "USA Today", a newspaper which caters Joe Sixpack, put the bull market on their front page (allstarcharts). They wrote "bull run gets solid footing" and proclaimed that the boost from home prices and consumer confidence proves that the rally is more than a Fed-induced ‘sugar high`.

The idea, to give the stock market rally a broad audience, didn`t get much applause from the self-proclaimed pundits. The reactions from the financial blogosphere varied from skeptical and cynical to outright negative. Abnormal Returns, which has a popular and regular link collection, wrote "Uh oh. USA Today has figured out the stock market is on a tear" (abnormalreturns). Slopeofhope wrote "welcome our new bullish overlords" (slopeofhope). And the important blog "The Reformed Broker" lamented "A very troubling cover on USA Today…" (abnormalreturns).

How arrogant.

My comment is: Better late than never. Yes, the stock indices have tripled since they left the panic stricken depression hole in spring 2009. But, that doesn´t prevent the rally from continuing.

I believe that everyone should own stocks because in the long run stock prices go up. Stock investors participate in the economy which in the long run is getting better and better. 

I further believe that we are experiencing now a very long period of climbing stock prices, comparable to the phase 1982 to 2000. Then the Dow Jones multiplied 10 times!

I see at least 5 reasons for this perpetual bull market:

1. During the recessions of the years 2001/02 and in 2008 companies restructured and reduced costs significantly in order to survive. Now they are much fitter and more efficient than before. This learning process will continue and translates into a long term trend of rising company profits.

2. We are experiencing a new technological revolution, meaning rapid innovations in computing (including mobile devices like iPads & iPhones), engineering, robotics, nanotechnology and other fields. All these processes are further enhancing the efficiency of the companies and create new markets. These trends should fuel economic growth and therefore generate gains on the stock markets over many years to come.

3. The global economy will get a lot of tailwinds from the emerging markets thanks to the catching up process of China and other emerging markets. In Asia, Latin America & Africa  live billions of talented & diligent people who want to reach the US and European living standards and are working hard.

4. Inflation rates are at historical lows. Hence central banks don´t have to raise interest rates sharply to break inflation which have often caused a recession in the past. Hence the low interest rates will continue for years and inspire investments that will add to economic growth.

5. The governments in the U.S. and in Europe have been cutting their spending significantly (austerity policy). This means less political influence and less bureaucracy and creates more scope for private investments.

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