Why are you so pessimistic?

There is so much pessimism in the market right now and it’s so hard to escape from it. It feels that if one is not bearish, then he must be missing something or he is just a blind bull. I know, there are problems in the world. But was there a time when everything was rosy?

Anyway, today I would like to write a post around a tweet of mine that brought quite a lot of attention. I wrote about the same topic on June the 3rd [1] and now I would like to add few thoughts to challenge you by asking what if we are in the first stage of a multi decade long bull market, similar to the ones that started in early 50s or 80s?

What about a historical view to get some perspective? $SPY $SPX $ES_F pic.twitter.com/qWskD8XpMf

— Domen Butala (@DomenButala) August 30, 2017

From the chart above we see that the assumption above could be right. There are few things would like to expose in this post.

The first one and we can clearly see it from the chart above is that bull markets in ’50-’60s and ’80-’90s had corrections. Even as severe as the ’87 stock crash. Therefore we should expect them going forward and they are not the end of the world. We also had one in ’14-’15. Could we have another one? Sure. Would this end the bull market in this long-term perspective? Only if we get a bigger than median type of a correction if you ask me. For more info please read my post from two weeks ago [2].

The next one is demographics. Everyone is expecting a big equity crisis ahead because the baby boom generation is due to retire. One of them is also Raoul Pal who I highly respect. Let me share his tweet with you.

This is the single most important chart in the world… https://t.co/2cjinbecdX

— Raoul Pal (@RaoulGMI) August 28, 2017

Which is a RT of zerohedge’s tweet below.

Percentage of US population older than 65 pic.twitter.com/dE5BbmQ0iV

— zerohedge (@zerohedge) August 28, 2017

Yes, people in the western world are getting older. But what Raoul pretty sure wanted to say is that the retirees to become will soon start selling their pension stocks therefore brace yourself.

If you read my earlier post mentioned above you already know that the investment rate in stocks in the US is at 20-year low. So, what if the US investors were not ignorant and waited until the last-minute before the retirement and they used the ’01-’13 bear market to get out of stocks and are one step ahead of  the demographics callers?

I have no evidence, except the fact I just mentioned earlier, to back this up, and I don’t think anyone else has it either. But if you know anyone who could have more insight in this, please do let me know.

The last thing I would like to expose is PE ratios. By this measure market is over valued. No one is arguing that and thus everyone is expecting the market to sell off. But what if  the earnings rise? What if we get a steady inflation pick up and this benefits companies’ earnings numbers? I am not a value guy and I don’t study earnings so am not an expert in projecting them, but we started seeing this in Slovenia (EU) already at least. What if more companies start experiencing the same? Can you imagine that? Man, that would be awesome..

And let me finish with this tweet. Just food for thought…

Not old enough to know but were people in '82 also as pessimistic as today? https://t.co/ZX022gwQCX

— Domen Butala (@DomenButala) August 28, 2017

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