While the markets are overbought and due for a pullback, here are the reading links for this week:
- Predicting how high the S&P500 can go (video)
- The myth behind high GDP growth and Emerging markets : Over the long run, stocks in the world's hottest economies have performed half as well as those in the coldest.In stock markets, as elsewhere in life, value depends on both quality and price. When you buy into emerging markets, you get better economic growth -- but, at least for now, you don't get in at a better price.
- Electronic trading and commodity prices : Electronic trading is the reason oil is showing such a high correlation to dollar and equities.
- El-Erian: Rally Won't Last
- Chart of the day: Dow Theory buy signal. This rally, while it will have its fits and starts, is the beginning of a new trend, not just a bounce. It is a significant opportunity.
- Hussman : Biting A Bullet : Our defensive stance here is driven by a combination of poor price-volume sponsorship, moderate overvaluation, strenuous overbought conditions, Treasury yield and commodity price pressures, as well as a variety of other factors that have historically combined to produce a weak overall return-to-risk trade off.
Taking the rally in stocks as an indicator of economic recovery (which the LEI largely does), and then taking the presumption of an economic recovery as a reason to buy stocks, all strikes me as circular reasoning.
Frankly, projected 10-year returns here are at levels that typically characterized market tops, not bottoms, prior to about 1990. Stocks are emphatically not cheap here.
- Secular bear, cyclical bull: The bottom line? Only one of the seven foundations of a secular bull market is in place. Three more are neutral, and the remaining three are bearish.
Davis therefore concludes that we are more likely to be in a cyclical rather than secular bull market.
- Goldman’s 23% Return Doesn’t Add Up.
- Betting on Black Swans.
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Have a good week!