The Long Term Investor

Here is a little article outlining the past CRAZY year that we ALL just went through.

It's been a year since markets crashed. Is another reckoning around the corner?

https://www.cnn.com/2021/03/07/investing/stocks-week-ahead/index.html

(BOLD is my opinion OR what I consider important content)

"London (CNN Business)It's been nearly a year since the coronavirus pandemic ended the S&P 500's longest-ever bull run and sent stocks everywhere into a violent nosedive. The turmoil was a fitting start to a year of frenzied activity.

The virus continues to wreak havoc on our daily lives, but markets have long since forgotten the painful reckoning.
The big bang: March 12, 2020 handed Wall Street its worst day of losses in over three decades. The S&P 500 (DVS), Dow (INDU) and Nasdaq Composite (COMP) suffered double-digit declines, with the pan-European Stoxx 600 (SXXL) index logging its worst day on record.

The collapse felt particularly shocking because markets had been shrugging off the coronavirus for weeks, even as alarm bells sounded in various corners of the global economy.

But sentiment shifted abruptly when former President Donald Trump banned travel from most of Europe and the World Health Organization officially declared Covid-19 a pandemic on March 11.

It's been a wild ride since. The crash was short lived and financial markets, fueled by government stimulus, powered through a devastating global downturn to end the year at record highs -- a stark reminder of the disconnect between Wall Street and Main Street.

The latest: Many of the hallmarks of 2020 are still evident -- and not just in lockdowns, social distancing and working from home. The exuberance that's defined equity markets over the past 12 months has kept pushing stocks to all-time highs this year.
The rise of retail traders, who revved last year's rally, continues unabated -- as captured by the extraordinary GameStop saga and the recent launch of an ETF focused on stocks generating social media buzz.

The coronavirus is still with us, too, but investors are now banking on a swift and strong recovery as vaccine rollouts gather pace and the United States gears up for another enormous stimulus package.

Big risk: Like this time last year, equity investors may be underestimating the size of potential stumbling blocks. Ironically, a booming economy may not be good for stocks because it could increase funding costs for companies and rob equities of their main selling point: superior returns.

Bond yields have moved higher on increased inflation expectations, although from rock-bottom levels. Still, the shift has caused stock markets to wobble in recent days over fears that central banks could lift interest rates to prevent soaring prices and might rein in asset purchases sooner than anticipated, taking excess cash out of markets.

While a strong recovery is good for corporate earnings, higher rates make debt more expensive, which could become a problem for companies that have borrowed heavily through the crisis. Stocks also look relatively less attractive when bond yields rise.
Keep calm: The Federal Reserve has made it clear that it's willing to tolerate higher inflation if it means businesses are recovering and unemployment is in decline.

While predicting an increase in consumer prices this summer, Fed chair Jerome Powell said Thursday that inflation would need to be sustained at 2% and the economy reach close to maximum employment before the central bank would consider increasing interest rates.

Given that the US labor market is still short about 10 million jobs since the pandemic hit, it may be some time yet before rates get picked up off the floor.

"The backdrop will remain supportive for equities in 2021," head of equities at London & Capital, Roger Jones, told me. "Longer term structural headwinds to inflation -- demographics, technology advancement and high levels of debt -- are stronger than ever. Additionally, equities can cope with inflation as long as it's not sustained above the 3% level," Jones said.

The European Central Bank could have a new problem
A sustained increase in consumer prices may seem a long way off in Europe, where economic activity remains severely constrained by lockdowns, stimulus is limited and the outlook for GDP growth this year has weakened.
Despite all this, inflation has ticked up in the region and if bond yields keep rising policymakers could eventually be forced to take action.

What's happening: The European Central Bank meets Thursday and investors will want to know how it's thinking about inflation. They'll also want some reassurance from ECB President Christine Lagarde that the central bank has no plans to tighten financing conditions.

"The ECB will primarily try to downplay the recent increase in bond yields, calling it small in magnitude, driven by technical factors and focusing on real yields," head of research at ING Carsten Brzeski wrote in a note Friday.

Brzeski expects the ECB to stress that asset purchases could be increased if necessary and move to frontload stimulus in the coming weeks to keep funding conditions favorable.

Still, as recent volatility in bond markets indicates, a lot can change in a few weeks. Once economies reopen, a sudden rush for goods and services could lead businesses to hike prices. Excess savings in Europe will also juice the recovery if households spend some of that extra cash.

"Once restrictions get lifted and fear of the virus retreats, it is reasonable to expect that prices will increase," ING economists including Brzeski wrote in a note last week. "Eurozone headline inflation could easily accelerate above the magic 2% level this year."

Big picture: At least for now, Europe's economy looks a long way from overheating. GDP contracted again in the final three months of last year amid fresh lockdowns and, with many of those measures still in place, growth is unlikely to fare much better in the first quarter.

A sluggish vaccine rollout and relatively modest stimulus will also weigh on Europe's recovery. In the absence of an increase in wages, the ECB is unlikely to react to short-term moves in inflation, Brzeski said.

MY COMMENT

This little article from LONDON is interesting. It pretty much parallels what we are seeing and thinking here. I find it interesting that in talking about the....MARKET CRASH....they NEVER happen to mention that the crash happened as a result of a VOLUNTARY closure of the economy. This was NOT some crash that happened due to a pandemic or some natural event that shocked the markets.....this happened due to our own action in closing down the economy for the first time in human history.

AS TO BONDS: I personally dont see anything good on the horizan for bond owners. I would CERTAINLY NOT be interested in buying any bonds or bond funds any time soon if ever. With the EXTREME LOW interest rates there is nowhere to go but UP from here in the rates. That means bond values will get HAMMERED in their normal inverse fashion. Anyone making a little bit of money on a bond yield will see any benefit TOTALLY ERASED by the drop in the value of the underlying bond or bond fund.

 

My view on long term investor results.

We know that the SP500 will provide a....total return...of about 10-11% per year long term average. We ALSO know that even the professionals CAN NOT beat the SP500 long term. A few of them will beat it in any one year....but it is extremely RARE for the same manager to consistently beat the SP500 over any longer time period.

I would personally consider any long term total return of 12% or above.....by any individual investor........as being EXCEPTIONAL. I have been over this figure....probably in the 14.5% to 15% range for a very long time. BUT......this result includes some LARGE capital gains in my account from a few........very specific......exceptional stocks.

We have many investors.....especially those below age 38..........that have NEVER invested in a normal time period. Anyone that started investing since 2009.....12 years ago.....so probably anyone under about age 38.....has NEVER invested in a NORMAL time period.
Anyone investing during this time period has had the LUCK to be investing during the GREATEST BULL MARKET in history. Even the pandemic year last year was an OUTLIER....with the SP500 returning a total return of 18.39%.

As a result there are a HUGE number of investors out there that have a TOTALLY UNREALISTIC view of what investing results should be. They are used to......extremely high....results and at the same time OUTRAGEOUSLY LOW interest rates.

THIS is why my investing goal is what it is..........first......to achieve a long term total return average of 10% per year. Second....the aspirational, short term goal....... to try to beat the SP500 each year. I know the first goal might seem low....but....to me.....it is a genuinely realistic goal. AND....anyone achieving this goal will end up with a MASSIVE gain over a lifetime of investing.

My first goal will DOUBLE my money every 7.2 years. Over many years now......I.......like everyone .........have been spoiled by seeing my money double every 5-6 years. NICE to see but NOT a realistic goal over the long term for MOST investors. If you expect this sort of return....there is a real danger you will end up CHASING RETURNS. AND....that rarely ends well.

SO.....I LOVE to see higher gains......but.....I am totally content to accept solid gains over the long term.....rather than......extreme gains.

 

Next week will be.....PUT UP OR SHUT UP......time for the markets on the Stimulus bill. It will be nice to see it finally done. I am tired of seeing in the media for the past 4 weeks......talk about how the markets are UP......or......DOWN today due to the Stimulus.

NOW....we are about to see the REAL thing and how the markets react. I am thinking....perhaps......a small one day rally. BUT....I dont discount in the least the old saying......buy the rumor and sell the news. At least the financial media can now SHUT UP about the coming impact of the stimulus......and.....move on to some other day to day....short term.....reason for what is randomly happening day to day in the markets.

The FUTURES like the stimulus......or something.....since they are up about 155 points. BUT the futures dont count for a hill of beans......lets see where we are at the close tomorrow. We need to break the back of this little correction. We will either do it this week or........at the minimum.....we will end the week one week closer to the end of the correction. I will gladly take either.

 

I like this little article....as we wait for the open for the day and for the week. I prefer to think of it as the open of the next 3-10 years.....that puts things in a little more context.

Rising interest rates are a good sign for stocks: Morning Brief

https://finance.yahoo.com/news/stoc...g-interest-rates-morning-brief-105525383.html

(BOLD is my opinion OR what I consider important content)
"History says rising rates are bullish for stocks

The recent bout of volatility in the bond market has investors concerned about what a sustained rally in interest rates could mean for stocks.

Rising interest rates mean rising borrowing costs, which doesn't sound great for stocks. Also, higher yields arguably make bonds more attractive as an investment, which doesn't sound great for stocks either. And so it's not too surprising to see stocks trade lower (^GSPC) in the past month as yields (^TNX) have surged.

However, financial markets are a bit more complicated than that. And it's the case that there are plenty of sound reasons to be bullish even in light of higher rates.

Demand for stocks is strong

Lower stock prices belie robust demand for the asset class.

"Equity mutual fund and ETF inflows have totaled $163 billion since the start of February, the largest five-week inflow on record in absolute dollar terms and third largest in a decade relative to assets," Goldman Sachs' David Kostin observed on Friday. "Even though the recent backup in rates has weighed on equity prices broadly, the pace of inflows into equity funds during the last few weeks has accelerated compared with the start of the year."

This isn't some historical anomaly either.

"History shows that equity funds generally experience inflows when real rates are rising," Kostin added. "During the past 10 years, the most favorable backdrop for equity fund inflows has been when both real rates and breakeven inflation were rising. This is intuitive given that the dynamic typically occurs when growth expectations are improving."

Furthermore, Kostin forecasts massive equity inflows from households and corporates, which both were hoarding cash during the most worrisome periods of the coronavirus pandemic.

"We expect households will be the largest source of equity demand this year. Accelerating US economic growth has been the most significant driver of equity purchases by households during the past 30 years," he said. "Corporate demand for shares is driven primarily by net buybacks, which is calculated as gross buybacks less share issuance. Buyback authorizations total $126 billion YTD, 50% greater than the same time last year and the largest total at this point during the year on record."

Kostin estimates net equity demand of $350 billion from households and $300 billion from corporates this year.

History says rising rates come with higher stock prices

"From our perspective, rising interest rates can mean that the bond market is correctly anticipating future economic growth and staying ahead of inflation — things that typically benefit stock prices," BMO Capital's Brian Belski said to Yahoo Finance on Wednesday. "A closer inspection of the data reveals that investors should welcome, not loathe, higher interest rates if history is any sort of guide."

In a recent note to clients, Belski observed that during seven prolonged periods of rising rates since 1990, the S&P 500 climbed at an average annualized rate of 15.1%.


"The economy is recovering because earnings are going up; the fundamentals are improving," Belski said. "So of course, interest rates are going to go up."

All that is to say that one worrisome variable like rising interest rates is no reason to think stocks should fall. Especially, when you can argue that variable is moving for other bullish reasons like an economy that's perking up."

MY COMMENT

YES....more of the same.....the economy in general will continue to reopen and BOOM going forward. The RECORD low interest rates will....hopefully....rise over time. Rates are too low and need to go higher. For investors....that have some concept of history......there is nothing magic or critical to the current EXTREME low rates. A typical tempest in a teapot. Most of us have invested and made very good money over our entire lifetimes with rates....WAY HIGHER.....than we see today....which....were considered normal.

The greatest difference I see today with investing is the......MEDIA....not the regular media but the financial media which has followed the current business model of ALL media which is to write and report in the style of supermarket tabloids.....the ones that routinely used to show a photo on the front page of some...ALIEN.....from some foreign galaxy meeting with the President on the white house lawn.

ADD in the mania of INSTANT GRATIFICATION......and....you have the "modern" trader.

I PITY anyone that is going to follow the current media focus on bonds and yields.....and....actually buy some. Since it is....actually....a market.....someone has to buy all those bonds. Most reflect nothing more than short term trading by speculators. BUT.....anyone that puts money into a bond fund, or into a Treasury, or any other form of bond "investment"....rather than speculation......is DOOMED to a net loss over time as the yields rise and the value of that bond plummets. the NET result will in all likelihood be a LOSS.