Pigs Get Fat, Bears Get Fat, Hogs Get Slaughtered

Good morning to all.  With the stock market over fourteen thousand and within one percent (155pts.) of its all-time high set in 2007 — just before The Great Recession — money is flooding into stocks and off the sidelines and the giddiness is palpable.  The indicies are on a blistering pace right now in just over a month, with the DOW up 6.91%, the S&P up 6.1% and, the NASDAQ bringing up the rear (mostly due to Apple’s meltdown) at 5.29%.  The market is up 120% from its 2009 lows and up 38% in the past 16 months.  It can take your breath away.  Before I forget, one stock written up in barron’s this weekend that you may want to take a look at is Gulfmark Offshore (GLF on NYSE) which got a very good write-up this weekend.

     There are lots of reasons behind this melt-up.  Economic reacceleration in China, stabilizing Europe (although I think there is too much complacency), corporate profits, improving housing and auto sales in the U.S. and, most importantly, a Fed that has decided to keep the “patient on IV fluids,”/easy money rather than reduce the level of “medicine.”  Perhaps it is appropriate that the Superbowl is being played in New Orleans.  As they say down there during Mardi Gras, “laisez les bons temps rouler.”  But with all three indicies up near 6% or better in about 5 weeks — this market is getting well ahead of itself IMO.  Unless of course you think we’ll see 75% gains in stocks this year.  I’ll take the other side of thast bet.  I think we will be higher at the end of this year than we are now; but, this pace is not sustainable and you would be well served to heed the time-tested saying in the subject line of this email.  If you have been in this market since the new year, you would be wise to take some profit here and reduce your footprint.  If you have the means to do so with you equity investments — think about buing some protection here with coverd calls.  It will allow you to stay in — if you can’t make the decision to get out — but, will protect your downside and help lock-in profit.
     This “January Effect,” has been global, with Japan’s stock market up 6.9%, Shanghai 5%, Philippines 6.8%, and even an economically challenged Europe saw their respective indicies up an average of 3.3% at the end of January.  Central Banks around the world are flooding the market with easy money and no one knows how this will end “when the music stops.”
     Friday’s melt-up occured on the heels of U.S fourth quarter GDP which came in surprisingly poor at -0.1% vs the forecast of +1.1%.  January’s non-farm payrolls also came in at 157,000 while, unemployment rose from 7.8% to 7.9%.  So, bad news was good news on the street as this data reaffirmed the thinking that the Fed isn’t going to end its easing stance and/or raise rates anytime soon.  The fear among some is that the Fed will make those decisions too late in the game and are creating an equity bubble like we did in housing before The great Recession. But for now, let the good times roll.  The path to least resistance still apprears higher in the short run.
     Of the 234 S&P companies that have reported thus far, 70% have posted profits and 67% have beaten revenue estimates.  The S&P is now trading at 14 times estimated 2013 profits while the DOW is trading at 13 times 2013 profits — neither is expensive by historical average standards — our current melt-up notwithstanding.  One issue of concern is that the bulls — 54% outnumber the bears 24% by more than 2-1.  When it gets overly bullish — that usually portends a pullback.  I still think February is going to be rough as we get get past earnings in the next two weeks and we approach the March 1 sequestration deadline.  It looks more and more likely that we actually see sequestration implemented.
     This current bull market is one of the most powerful in 50yrs. but is by no means the strongest nor the longest; but, we are getting past middle age for this current run:
06/26/1962 –  02/09/1966       79% gain over 1,324 days
10/07/1966 – 11/29/1968       48% gain over 784 days
05/26/1970 – 01/11/1973       73.5% gain over 961 days
10/03/1974 – 11/28/1980       125.% gain over 2,248 days
08/12/1982 – 08/25/1987       228.8% gain over 1,839 days
12/04/1987 – 07/16/1990       64.8 gain over 955 days
10/11/1990 – 07/17/1998       301.7% gain over 2,836 days
     Good luck with whatever you do and hopefully we have a good Superbowl.  V/R, R.C. Porter.
08/31/1998 – 03/23/2000       59.5% gain over 571days
10/09/2002 – 10/09/2007       101.5% gain over 1,826 days
03/09/2009 – 02/01/2013       123.7% gain over 1,425 days


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