The Most Miserable Bull Stock Market in History


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The Most Miserable Bull Market in History

Kris Sayce, Melbourne, Australia,

Originally Published 19 August in Money Morning

What do you think of when you think of a bull market bubble?

Euphoria. Excitement. Frenzy…buying stocks because everyone else is buying stocks.

Buying stocks because stocks are going up.

That’s what we think of when we think about bull market bubbles.

We don’t think of high unemployment, high inflation, and generally miserable consumers and investors who think the world is about to end.

And yet today’s market has more of the characteristics of the latter than the former. If the market really is in a bubble (as many claim), this must be the most miserable and depressing stock market bubble in the history of stock markets.

That’s why, for all the talk of a bubble in stocks, we just don’t buy it…

Bloomberg yesterday reported on Australia’s ‘misery’:

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens.

Australia’s misery index — the sum of unemployment and inflation rates — is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression.

As with any statistic, you should take it with a grain of salt. But don’t ignore it completely.

This all goes to support our view that interest rates aren’t going anywhere fast. Can you really imagine the Reserve Bank of Australia raising interest rates as the unemployment rate goes up?

It ain’t gonna happen.

Advance Australia the miserable

The idea of interest rates and money was all part of the broader discussion that took place during the World War D conference in Melbourne earlier this year.

The theme was money, war and survival in the digital age.

Well, you can’t get much more digital than money.

When many people think of digital money they think of fancy new innovations such as Bitcoin — this was a key feature of tech analyst Sam Volkering’s presentation at World War D.

But digital money can be much simpler than that. Digital money includes the debit and credit cards in your wallet.

In fact, think about that money sitting in your bank account. 98% of it is digital. Aussie banks only hold cash covering two cents for every one dollar they hold in deposits.

The rest is just digits on a computer. If anything bad happens to the Aussie banking system’s computers (such as cyber-terrorism — a theme covered at World War D by counterterrorism expert John Robb), your entire life’s savings could go up in smoke.

But most people don’t think about that. They figure that everything will be just fine.

But how sure can you be that things will be fine? After all, with the misery index at the highest level since 2008, doesn’t it suggest that there’s a whole lot of trouble brewing for the Aussie economy?

Two signs that this isn’t a bubble

It’s easy to feel that way.

And we don’t blame you if, like many Aussies, you feel a bit glum about things. It’s no fun to either be unemployed or live in fear that you could lose your job.

And it’s no fun to see inflation running at (officially) 3%…nibbling away at your hard-earned savings.

We get that. We get it that Aussies are worried about things.

So, in that case, how on earth can seemingly sane people keep saying that Aussie stocks are in a bubble and are set to crash?

We’re sorry, but it just doesn’t stack up.

At the top of this letter we mentioned — albeit flippantly — some of the signs to look for in a bubbly market. We can tell you right now, one of those signs isn’t depression and gloominess.

We’ll remind you of what we wrote yesterday. The Aussie market was up 4% this year, up until last Friday’s close. After yesterday’s up day, it’s now up 4.3% for the year.

Over the past year it’s up 9.2%. And over the past five years, it’s up 25%.

Those are all fine numbers. They’re good numbers for investors. But they are about as far away from bubble territory as you can get.

It’s time to leave the ‘misery zone’

We’re not sure what you look for when you invest, but we look for value.

We’re always on the lookout for stocks and markets that represent good value. They should be stocks and markets that have taken a bit of a beating.

It doesn’t mean the stock or market has to be at the bottom. We’re fine with getting into a stock or market that has begun to rebound. That’s why we enjoy small-cap stocks so much.

Regardless of whether it’s a bull market or a bear market, there are always opportunities for investors. It’s just a case of putting in the extra effort…locking a small-cap target in your ‘sights’, and then pulling the trigger to profit from the value.

The good news is that in today’s market there is plenty of opportunity. It’s not just the misery index that’s…well…miserable. Most investors seem to be darn well miserable too.

Despite the fact that the Aussie stock index has barely done better than a cash deposit over the past five years, investors seem convinced that the RBA is about to increase interest rates and that stocks will fall.

We can’t explain this mentality. The only thing we can put it down to is that most folks are still scared after the 2008 crash. Or maybe it’s the ‘winter blues’. Perhaps things will begin to change now that spring is around the corner!

That would be nice. The market is creeping back to the recent six-year high. At some point Aussie investors will begin to appreciate the value available in Aussie stocks. Once they do, it should be the catalyst to get this market cracking on to the 7,000-point level and beyond.

There’s no telling when that will happen. But most likely it will be when you least expect it. Perhaps that will be enough to drag the Aussie economy out of the ‘misery zone’.


Kris Sayce+
Port Phillip Publishing

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Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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