The WSJ had an article about SPX price targets from brokerage firm strategists coming under scrutiny, or maybe fire is a better word. You probably heard that BofA bumped its equity strategist about ten minutes (slight exaggeration) after he reaffirmed his year end target of 1400. Some of the usual suspects are also mentioned for either sticking to their guns or giving up the ghost.
Many investors like to hear SPX price targets, so many financial firms oblige. I used to do a little more here myself with picking some number that was away from consensus that tried to incorporate some aspect of where I thought we were in the cycle. I was close to right a couple of times and too pessimistic a couple of times.
The simple issue here is that these forecasts tend to be wrong, a lot. We've gone over some of the dynamics of the perma bulls, the threat they pose and some of the conflicts they may have in "needing" to be bullish so it is somewhat surprising that BofA got rid of someone who appeared to be too bullish.
Price targets notwithstanding, if you zoom out a little, the US is a destination where the sovereign debt was downgraded, there is a demographics problem, the government is not functional, growth is below trend with no visibility for improving, there is too much debt and there might be a serious problem (I think there is a serious problem) with liabilities to retirees and future retirees.
If this description were about another country you would quickly move to research another investment destination.
Anyone capable of being able to think in terms of several years at a time (or even a little longer) would be better served looking to longer term trends that have a reasonable basis for working in the future or continuing to work as they have in the past. Obviously not all previous winners can continue to work out well.
Consider the above issues with the US (and any others you care to add) and ask yourself what is the simplest outcome. My answer to that question is not a Schiffian (as in Peter Schiff) implosion but instead an ongoing muddle where average growth rates are well below what we think of as being normal and being far inferior to many other countries in the world.
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5 comments:
I agree, but I do appreciate when analysts I respect make projections.
I am simply happy when I get up trends and down trends correct.
We are now japan and will be for a long time.
We're not even close to Japan. Immigration keeps our population growing, which is a big piece Japan is missing.
Our debt crisis is extremely similar to japans. Stock market bubble, followed by housing bubble, followed by govt wasting money on various stuff.
You are correct about immigration, but do not let that blind you vision. So maybe we will be done with this in 20 years and japan will take 30+ years? Not a huge consideration for me today.
BTW does the nasdaq 100 going above its 200 dma look like a leading indicator to anyone else?
Japan will take 30+ years? They've already taken 20 years. In 10 years, Japan is probably a zombie nation.
Japan's crisis is not just a debt crisis. Japan's crisis is a debt crisis that is different and larger than ours coupled with a very obvious incoming freight train of a demographic problem. We know what has to be done; we simply have to get the political will to do it. Japan might know what needs to be done, but they couldn't do it due to the domino effects it would have, it's 20 years too late, and even if they did it all today they'd still be a zombie nation in our lifetime
Anyway, sorry. Back to our regular scheduled programming
Stephen,
Many years from now we will still be talking about how and when the US will get out of this mess. Roger will be saying things like "I have recommended well over half of your assets should be out of the US for over a dozen years now." US equities have not hit bottom on an inflation adjusted basis (hard to predict how much they will print).
I have already agreed Japan is worse due to immigration, but that does not mean we will not be a lot more destitute as this progresses.
Just because Japan fell off a 100 story building should not make people feel so wonderful if we only fall off a 70 story building:) If readers end up losing their shirt I do not think someone telling them the train wreck in japan was so much worse will make them feel better.
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