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本帖最后由 ctcld 于 2013-2-28 12:43 AM 编辑
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Remember the 1970s. In the early 1970s we began trying to extricate our country from a war gone awry - Vietnam. The debt accumulated from fighting this war put severe pressure on the U.S. government to raise money to pay for the war. So the U.S. government ditched the gold standard and began quantitative easing while holding Treasury rates below inflation. Snap - oil prices realigned and the first oil shock happened in early 1974 as the price per barrel went from $4 to $10 overnight. By September of 1974, the S&P dropped to 64 from a high of 118 in December of 1972. Then the market began a slow slog back toward its previous high, reaching 102 in January of 1977.
Flash forward to 2004-2008. The U.S. government was struggling with the Iraq war. To pay for the war it was running a perpetually loose interest rate policy below inflation in 2004. In the same time interval, the price of oil jumped from $40 a barrel to a high of $140 in the month of June 2008. Snap, the S&P 500 fell from a high of 1531 in May 2007 to 735 at the end of February 2009. Over the next 4 years, we now have experienced a similar retrenchment as 1974-1977. The S&P is back to its old highs of 1500 as we begin 2013. Additionally the Fed policy, and fiscal government spending policies in the U.S. remain aligned with 1977 - quantitative easing by the Federal Reserve with interest rates repressed below inflation.
Current S&P 500 PE Ratio: 17.24 +0.22 (1.27%)
4:36 pm EST, Wed Feb 27
Mean: 15.49
Median: 14.49
Min: 5.31 (Dec 1917)
Max: 123.79 (May 2009)
Price to earnings ratio, based on trailing twelve month “as reported” earnings.
Current PE is estimated from latest reported earnings and current market price.
The extrapolation analysis provides the following scenario information for portfolio planning:
The stock market over the next 4 years will likely trend steadily upward, but not dramatically so. Although off to a fast start in 2013, the S&P 500 is more likely to finish flat to down rather than up. Expect a 4.75% return plus dividends annually for the 4 year period, which relative to the expected decrease in bond returns is a better investment.
Inflation will rise over the time period, primarily in response to likely energy price increases in response to continual Federal Reserve accommodation policies debasing the U.S. currency. Slowly rising inflation expectations over the next two years will keep steady pressure upward on the 30 year Treasury rate.
Energy and commodities in general on a relative basis will be undervalued investments compared to the S&P and fixed income interest bonds in the early years of this time period. Prices can be expected to rise during the time period, with the real wild card being whether there is a potential major price shock upward in the 2016 time period of 2-3 times today's price level. The likelihood of some type of price shock is relatively high. This scenario has also been noted as one of the fears of certain Federal Reserve members.
Fixed income rates will rise steadily over the time period as the Fed slowly withdraws accommodation as it did in 1977 to 1980. But just as in the late 1970s, the Fed will remain accommodative. Expect the 30 year Treasury in today's rate structure to trend from 3.18% to the 5% level going into 2016. Overall returns for many longer dated fixed income investments in this time frame will be marginal or negative.
The wild card in this scenario is "will there be a showdown between the Federal Reserve's interest rate policy and energy prices?" If energy prices spike, the 1977-1980 time period history predicts that the Fed, because it is overly accommodative rather than tight as in 1974 and 2008, will not be able to come to the rescue by lowering rates. On the contrary, the extrapolation predicts that the next oil shock will require the Fed to actually raise interest rates, like Paul Volcker in the past, in order to stabilize the impact of the inflation seeds laid by the excessively loose policies leading up to the next shock. |
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