Tag Archives: investment advice

Banquo’s Grain and U.S. Interest Rates

My Comments: I had no idea what or who is/was Banquo. Nor why ‘grain’ has any relevance. But I like to share the thoughts of this writer from time to time as his insights are often right on the mark. Remember what I said last week about the possibility of rising interest rates in the next three years.

The U.S. economy is strong enough to suggest higher interest rates ahead, but a number of factors suggest U.S. Treasury yields could move lower.

October 02, 2014 - Commentary by Scott Minerd, Chairman of Investments and Global Chief Investment Officer for Guggenheim Investments

Early in Shakespeare’s “Macbeth,” Lord Banquo asks the prophetic three witches, “If you can look into the seeds of time, and say which grain will grow, and which will not, speak then to me.” Banquo’s turn of phrase reminds us that if a farmer planted the wrong grain he could yield a poor harvest, or worse, he might even starve.

I thought about this recently when asked about the outlook for U.S. interest rates. Investors, like farmers, have a sense of the seasons that guides which grains, or investments, are more likely to yield favorable results. While I have no special divining powers, I can draw on our macroeconomic research team that employs the not-so-mystical forces of data and analysis.

Based on macroeconomic research, we estimate “normalized” real interest rates could justifiably be 100 basis points higher than they are today. The U.S. economy is certainly doing well enough to suggest higher interest rates ahead. With quantitative easing ending in the United States this month and the U.S. Federal Reserve preparing investors for a higher federal funds rate in 2015, the stage is set for U.S. interest rates to move higher. But that may not be the grain that grows: The reality is that, despite a strengthening U.S. economy, the greater risk is that interest rates head lower, not higher, in the near future.

Looking at the world today, there are a number of forces that could keep rates low. The first is the impact higher rates would have on the U.S. economy. Remember what happened following the “taper tantrum” last year? Before rates were able to reach historical norms, the average rate on a 30-year mortgage spiked almost a full percentage point in two months—the sharpest rise since the late 1990s—resulting in an abrupt housing slowdown, which slowed the U.S. economy materially. The impact of higher interest rates on the housing market and the broader U.S. economy is something the Fed is extremely mindful of, especially after the first quarter winter soft-patch where the U.S. economy contracted by 2.1 percent.

Next, U.S. Treasury yields are materially higher than those in any other developed market. The spread between 10-year U.S. Treasuries and comparable German bunds reached 157 basis points in September, its widest level since 1999. After inverting in late 2011, the Treasury/bund spread has steadily risen for the past three years as U.S. yields have moved higher while German rates have dropped. The spread between 10-year Treasuries and 10-year Japanese government bonds is now 189 basis points. With developments in the Middle East resembling something from the Bible’s New Testament Book of Revelation and turbulence continuing elsewhere from Ukraine to Hong Kong, the relative price value of U.S. government bonds versus other safe haven investments should continue to be a factor keeping U.S. interest rates low.

Elsewhere in financial markets, the U.S. stock market is vulnerable to higher volatility over the short term. I told my investment team in a meeting on Sept. 23 that, were I a trader, I would tell them to go short stocks, but I am not a trader, I am an investor, and the long-term trends of this bull market still look solid. To paraphrase Shakespeare’s witches, while in the near term something wicked may come this way to markets, the evil portends of this wicked season of volatility may sow new seeds of yet one more rally for U.S. stocks and bonds.

Chart of the Week :Foreign investors will likely look to the United States for higher yields on government bonds as foreign central banks increase monetary accommodation in their own economies. Historically, rising foreign purchases of U.S. Treasuries have pushed U.S. yields lower. So far in 2014, foreign buying has accelerated—a trend likely to continue, putting downward pressure on U.S. Treasury yields.

Short-Term Optimism, Longer-Term Caution

profit-loss-riskMy Comments: You by now know that I’m expecting a signficant market correction in the near future. However, when I say that, one has to wonder what I mean by “near”. An analogy I sometimes use is a comment by a currency trader I knew years ago. His idea of “near” was in the next 24 hours; for him a long term hold has 3 or 4 days.

U.S. stocks will likely move higher as pension fund managers go bargain hunting in an effort to put seasonal cash inflows to work.

October 23, 2014 Commentary by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Investments

Last week’s investment roller coaster was something we had been expecting—U.S. stocks delivered their usual bout of seasonal volatility right on cue. For now, recent spread widening in high-yield bonds and leveraged bank loans seems to be over, and it also appears that equities have regained their footing after a turbulent week.

With the anticipated seasonal pattern of higher volatility in September and October now largely fulfilled, we anticipate more positive seasonal factors over the next two months. Over the last 68 years, the S&P 500 has averaged monthly gains of 0.9 percent in October, followed by even stronger increases of 1.2 percent in November and 1.8 percent in December.

The current dark cloud that hangs over Europe is a serious threat and something that investors should closely monitor. If the anticipated seasonal strength—which is typically driven by an influx of cash into pension funds that their managers are keen to put to work—is not forthcoming, investors should seriously question how much further the current bull market can run. As of now, we remain cautiously optimistic as we await some crucial economic data.

Economic Data Releases / U.S. Housing Market Data Is Solid

  • Existing home sales rose 2.4 percent in September to an annualized rate of 5.17 million homes, the highest in one year.
  • Housing starts rose 6.3 percent in September to an annualized pace of 1.02 million.
  • Most of the gains were driven by a 16.7 percent jump in multi-family starts.
  • Building permits increased by a modest 1.5 percent to 1.02 million in September.
  • The FHFA house price index rose a better-than-expected 0.5 percent in August, a five-month high.
  • University of Michigan Consumer Confidence rose to 86.4 from 84.6 in the initial October reading. The reading was the highest in seven years and was driven by better consumer expectations.
  • Initial jobless claims rose off a multi-year low for the week ending Oct. 18, increasing to 283,000, the fourth lowest reading this year.
  • The Leading Economic Index expanded by 0.8 percent in September. Nine of 10 indicators were positive.
  • The Consumer Price Index was unchanged on a year-over-year basis at 1.7 percent in September. The core CPI also remained at 1.7 percent. Falling energy prices were offset by higher food and shelter costs.

The Need for Speed — Is There a Limit to Moore’s Law?

Internet 1My Comments: OK, this has nothing to do with investments or estate planning or taxes or what I usually talk about. It has to do with computers.

My computer has sat on my desk now for about 5 years and it works great. But the software is getting a little long in the tooth. Not because it doesn’t continue to do what it was intended to do, but because the world in which it has to function has continued to evolve, and it can’t always catch up. And that causes me to have issues.

At some point I’m going to have to bite the bullet and spend money to upgrade some of the programs I live with every day. I don’t want to spend money this way, but I soon may have to. Either that or quit using my computer and that doesn’t seem like a rational decision.

July 22, 2014 By Sachin Shenolikar

In 1965, Gordon Moore, a co-founder of Intel, wrote a paper that made a big prediction about the future of computers: He claimed that their overall processing power would double every two years.

The rule became known as Moore’s Law.

Moore’s Law has been correct for the most part. The speed and ability of computers have increased exponentially over the past decade, resulting in major innovations in everything from mobile apps to cloud computing to healthcare. And they’re getting even faster.

But with this rapid progress, there lie big questions about how far Moore’s Law can go. Will computer speed keep doubling forever? And will the pace of change eventually reach a speed that’s faster than humans can handle?

Real Business spoke with R Ray Wang, founder and chairman at Constellation Research Inc., to find out what we should expect as big changes hurtle our way in the very near future.

Where do we stand right now as far as Moore’s Law?
Wang: We are still moving at that pace of change — very quickly. Some people believe that this [rate] will continue until 2020 and then taper off. You also have people like Ray Kurzweil, who’s talking about how the world’s going to move toward the pace of change all the way until the very end, where human beings and computing are merged into one. I don’t know if we’re going to get that fast, but we’re definitely at that pace of change that is [consistent] with Moore’s Law.

What are some things that you’re predicting in relation to this rate of change?
Wang: The big technology trends have to do with mass personalization at a scale that delivers extra relevance. Let’s say you passed a Starbucks 15 times yesterday and didn’t go in, but you have a Starbucks card. [The business is trying to figure out] what was going on in your head, because you’re at a Starbucks almost every day. Do we make an offer to get you to come back in? Do we note that one of your friends is sitting there, maybe we should connect you to him and say, “Hey your friend’s here, buy him a cup of coffee.” That’s what we’re talking about.

That level of connectivity is beyond the Internet of Things. Devices are [becoming] self-aware. Big data business models are providing information and insight that are changing the world, and changing how you would look at things. Today, if you’re driving around and run out of gas, there is a [mobile] service that will find the nearest gas station. More interesting is if you’re a gas station owner you may pay $5,000 dollars a month for [data on] people who are subscribed near you. You can then make an offer for a hot dog and a coke [to entice them to come to your business]. We’re seeing that kind of shift in the marketplace.

What should we expect at the peak of Moore’s Law?
You should expect a world that is moving toward systems that are intent-driven. Today we’re delivering on relevance, but we can build systems that are much more tailored to what you want or think you want to do.

What are the biggest challenges we face with Moore’s Law reaching its peak?
The only factor that is going to be in the way is, can consumers manage that much change so quickly? How fast can humanity respond, and will we revolt? Will we say no? We might have a movement of people that might just say, “Hey, we don’t want to do this.” We’ll go from digital natives to digital warriors to digital holdouts to a whole class of people that are completely digitally disengaged.

Do you think that could actually happen?

Wang: Very much so. They don’t want to be tracked, they don’t want systems to tell them what to do, they don’t want to be managed by a “big brother” system and approach. So, they’ll just say, “Hey, let’s disconnect” and go back to how things were.

That being said, do you believe there’s a limit to Moore’s Law?

Wang: The only limit to Moore’s Law is time and energy. We may run out of the ability to produce at that rate of change. We might run out of energy sources to keep up with Moore’s Law.

The surprising thing about Moore’s Law is that these things are happening very quickly, and we’re not always aware of what that means. We don’t always see the implications, and I think it’s really important to privacy, identity, and security for people to really understand the implications and what it all means.

Seasonal Factors Ready to Turn Positive

S&P500-1993-2014My Comments: This post is about investments and what may happen to your money going forward.

My gut told me the downturn in the markets over the last three weeks suggested it was the start of the market correction that all of us expect. You only have to glance at this chart of the S&P500 over the past 20 years to conclude it is inevitable. However…

Here are comments from someone far better attuned to the markets than I am who suggests there is still a lot of upside left. I guess it just means the inevitable downturn will be more dramatic and painful. You had better have a parachute when it happens.

October 17, 2014 / Commentary by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners

After a volatile week in markets, U.S. equities are now oversold and investors should be alert for seasonal factors that should soon turn positive.

The yield on 10-year U.S. Treasury notes this week broke below 2 percent intraday for the first time since June 2013, fulfilling a view I expressed in commentaries published in September 2013 and again in August. With this yield achieved, I don’t see an imminent rise in rates and view market talk about possible continuing quantitative easing by the Federal Reserve as overblown.

The recent decline in yields has less to do with U.S. economic fundamentals, which remain sound, and more to do with technical forces driving rates lower as a result of capital flows out of Europe. With inflation expectations falling, U.S. 10-year Treasury yields still look attractive even at close to 2 percent, relative to comparable German bunds at around 80 basis points and Japanese sovereign debt at around 50 basis points. In reality, U.S. long-term yields should continue to be well supported, with limited room to rise higher and the possibility that they could move lower.

In U.S. equities, the market is going through its usual seasonal gyrations and now appears to be oversold. The seasonal patterns of higher volatility in September and October that we anticipated have largely been fulfilled and seasonal factors should shift dramatically over the next two months. The buy signal for stocks normally coincides with the first game of baseball’s World Series (Oct. 21 this year), and between then and year end we will likely get a U.S. equities market rally.

The S&P 500 Index today reminds me of 2003, when stocks fell 4.2 percent in September before strong data pushed stocks 15 percent higher by June of 2004. The S&P then lost about 7 percent between June and August of 2004, when the Fed hiked interest rates, before gaining more than 15 percent in the next year.

In the coming months, a number of indicators will offer signals about how long the rally in U.S. stocks and bonds that began in 2009 can continue. One such indicator will be the so-called Santa Claus rally. As the old adage goes, “If Santa Claus should fail to call, bears may come to Broad and Wall.” While it is too early to say, the coming rally in U.S. equities may be the one to sell into.

Stop Tinkering With Your Retirement Portfolio

InvestMy Comments: I can’t tell you how many times over the past 40 years that a client has talked with me suggesting something is wrong with his investments. It usually comes after a long run up in the markets and he or she thinks his portfolio is lagging. And almost every time we’ve made a change, it has resulted in something worse. We moved away from good stuff into bad stuff.

That’s not to say that changes should never be made. Some changes are for the best, like when you think the markets are likely to crash and you want some assurance that the manager you’ve chosen has the ability to move to cash when the you know what hits the fan. Most of them use the tactics described below.

My management team of choice these days will definitely miss some of the upside. But they will also miss most of the downside. That’s why they are my team of choice. If you want guarantees, you have to move your money to insurance company products, and for that you will pay a price in restricted access. But for some of your money, it’s very OK, as it allows the rest of your money to go with the flow.

By George Sisti, CFP (oncoursefp.com ) / Oct 9, 2014

Having just attended the annual convention of the Financial Planning Association, I think it’s appropriate to compare goal focused financial planning to the market focused, no-plan, portfolio tinkering strategy that most investors employ.

Good financial planning starts with the assumption that the future is uncertain, future rates of return are unpredictable and that diversification is the essential element of any prudent investment strategy.

Good financial planning takes time. Gathering and analyzing client data, discussing financial goals and developing a plan to attain them shouldn’t be rushed. An analysis of risk tolerance, insurance coverage, income, expenses and employee benefits should precede any portfolio allocation recommendations. Finally, clients should receive an Investment Policy Statement which summarizes what has been accomplished and explains the investment strategy being employed.

Upon completion of this process I am often asked, “How often will you look at my portfolio?” Many clients are bewildered when I answer, “As infrequently as possible.” The never ending babble coming from the financial media leads many investors to believe that their portfolios require constant tinkering. Most don’t realize that allowing their adviser to tinker with their portfolio will likely do more harm than good.

Perhaps it would sound more reassuring if I answered, “As often as I look at my own.” My portfolio consists solely of index exchange-traded funds, ETFs, and is designed to meet my financial goals at an acceptable level of expected volatility. Consequently, I never tinker with it and ponder its allocation only during its annual rebalancing.

You can control your portfolio’s inputs but not its performance; which will be determined primarily by its asset allocation. Its growth will be directly proportional to how well it was funded and inversely proportional to how much you tinkered with it. Like a good employee, it shouldn’t require continual oversight.

I can compare this to two automobiles I have owned — a 1974 Chevrolet Vega and a 2007 Acura. By 1978, the Vega was burning a quart of oil every 250 miles. I had my head under its hood every week to add oil or tinker with something that wasn’t working. Thankfully, those days are over. I’ve never opened the Acura’s hood. It runs flawlessly and has had no mechanical problems. About once a year, I take it to the dealer for service. He opens the hood and tinkers as required. I drive the car home and am content to keep the hood closed for another year.

Unless there are major changes in your personal circumstances, an annual portfolio review and rebalance should be sufficient. For the next 12 months you can concentrate on the more important and enjoyable things in life. Excess portfolio peeking leads to excess portfolio tinkering which inevitably leads to lower portfolio performance.

To many investors this sounds too simple, too good to be true. (It is simple, but it isn’t simplistic — there’s a difference.) Many believe that stock investing is a rigged game. Institutional money managers use elaborate software and powerful computers that constantly monitor a multitude of market indicators to generate buy and sell orders.

Misguided investors believe that they have to adopt similar strategies to level the playing field. But whether you count on your fingers or use sophisticated software, attempting to predict the market’s next move is a loser’s game — for both amateur and professional investors.

Instead of goals based financial planning, many financial advisers offer products and trading strategies that turn retirement investors into short-term speculators. This despite the fact that study after study shows that more frequent trading leads to lower returns. Too often the big winners in the “outsmart the market” game are, in John Bogle’s words, the croupiers in the Wall Street Casino.

Today, many investors are frightened and confused by the noise and conflicting advice emanating from the financial media. Consequently many are underfunding or poorly allocating their retirement accounts. A good financial plan containing a comprehensible investment strategy is the best defense against our natural tendency to make shortsighted, emotional investment decisions. Most financially secure retirees will admit that they rarely looked at their portfolios during their accumulation years.

Like it or not, most of us are our own pension plan managers. It’s a difficult task that few investors are capable of accomplishing without professional help. Unfortunately, this professional help is rarely client focused. Too often it is market focused and characterized by frequent portfolio tinkering based on forecasts of questionable value. It’s time for investors to say, “Enough already!”

You need a personal financial plan; one containing a comprehensible investment strategy that is based on your personal goals, not what the market did yesterday or what someone thinks it will do tomorrow. Take a pass on the continuing barrage of new products offered by the Wall Street Promise Machine.

Use low-cost index funds to create a diversified portfolio. By doing so, you’ll give less money to Wall Street’s asset eating dragon; you’ll have more working on your behalf and maximize your chances of attaining a comfortable retirement.

Social Security Cost-of-living Adjustments Projected to Increase Slightly in 2015

Social Security cardMy Comments: Those of us old enough to be taking SSA benefits have experienced minimal increases in the last few years. That’s because the ‘official’ numbers for inflation have been low. There is an argument they should be even lower as a way to keep the so-called SSA reserves from going to empty. In my opinion, that would be a stupid way to correct the problem.

Most of us who are interested in this issue know there are much less painful remedies available. With the SSA system now in place for over 80 years, much of the US economy has adjusted with large segments of the population relying on it as we age. To disrupt that could have dramatic consequences.

If you are near 62 or beyond and have not yet signed up for benefits, get in touch with me for a comprehensive analysis of how and when to put yourself on the receiving end of a monthly check. You’ll be surprised how big a mistake it can be if you do it wrong.

By Mary Beth Franklin / Oct 1, 2014

Social Security benefits are likely to increase by 1.7% in 2015, slightly more than this year’s 1.5% increase but still well below average increases over the past few decades, according to an unofficial projection by the Senior Citizens League.

The Social Security Administration will issue an official announcement about the 2015 cost-of-living adjustments for both benefits and taxable wages later this month.

Based on the latest consumer price index data through August, the advocacy group’s projection of a 1.7% increase in Social Security benefits for 2015 “would make the sixth consecutive year of record-low COLAs,” Ed Cates, chairman of the Senior Citizens League, said in a written statement. “That’s unprecedented since the COLA first became automatic in 1975.”

Inflation over the past five years has been growing so slowly that the annual increase has averaged only 1.4 % per year since 2010, less than half of the 3% average during the prior decade. In 2010 and 2011, benefits didn’t increase at all, following a 5.8% hike in 2009.

Although the annual adjustment is provided to protect the buying power of Social Security payments, beneficiaries report a big disparity between the benefit increases they receive and the increase in costs. The majority of Social Security recipients said that their benefits rose by less than $19 in 2014, yet their monthly expenses rose by more than $119, according to a recent national survey by the advocacy group.

Social Security beneficiaries have lost nearly one-third of their buying power since 2000, according to a study by the organization. Low COLAs affect not only people currently receiving benefits, but also those who have turned 60 and who have not yet filed a claim. The COLA is part of the formula used to determine initial benefits and can mean a somewhat lower initial retirement benefit.

A 1.7% increase would increase average Social Security benefits by about $20 next year and boost the maximum amount of wages subject to payroll taxes by nearly $2,000 above this year’s $117,000 level.

Despite the fact that Social Security benefits are not keeping up with inflation, COLA reductions remain a key proposal under consideration in Congress to reduce Social Security deficits. A leading proposal would use the “chained” consumer price index — which grows more slowly — to calculate the annual increase.

The group warned that the “chained COLA” proposal may come under debate again soon. The Social Security Trustees recently forecast that the Social Security Disability Trust Fund is facing insolvency by 2016, and that changes to the program will have to be made to avoid a reduction in disability benefits.

The organization supports legislation that would provide a different measure of inflation by using the Consumer Price Index for the Elderly, which would likely result in higher annual increases than under the current method.

The 4 Drivers Of Stock Market Prices

profit-loss-riskMy Comments: In recent posts I’ve suggested there is a looming crash in the markets that will negatively impact all of us, except perhaps those of us with the ability to go to cash and go short when the crash happens. To hedge my comments, I’ve said “sometime in the next 3 years.”

Here is an article that suggests otherwise. If you don’t speak “economics”, this is relatively easy to follow and understand. Enjoy…

Greg Donaldson / Oct. 7, 2014

We have found that very few investors understand what really drives the stock market. In our view, the four primary drivers of market valuations are earnings, dividends, interest rates and inflation. If you can quantify what is going on with those four variables, our models indicate that you can predict about 90% of the annual movement of stock prices.

Last time, we talked about the Barnyard Forecast, which is a model that signals the probable direction of the market. While the Barnyard Forecast does correctly predict the market’s direction 6 to 18 months from now with about 80% accuracy, it is not a short-term predictor nor does it have any valuation component. Therefore, we use select valuation models to ascertain the relative attractiveness of stocks.

Almost all of these models use some component of the above mentioned variables. Within those four variables, there are two that stand out above the others as being the most important drivers. We’ll take a look at each factor and then conclude with what it means for stocks.

Earnings

Most investors look to earnings as the primary guide of what a company is worth. In theory, that makes sense. If Company A is earning $500 and Company B is earning $1,000 — wouldn’t you rather own Company B?

The problem with earnings is that they can be engineered by creative corporate executives. In times of recession, earnings are particularly volatile. Earnings can be calculated in a variety of different ways, which adds additional complexity. We don’t think earnings should be completely discounted in valuing companies or the stock market as a whole. However, the unpredictable nature of earnings often gives very bad signals at turning points in the market.

Dividends
We have found dividends to work much better than earnings. Over the past 50+ years, dividends have had approximately three times more predictive power than earnings.

Let’s say you own two rental properties. One rents for $100 per month and the other rents for $200. If both rents are increasing at 3% per year and both will continue to rent for the next 20 years, which rental property would be worth more to you? The one that will pay you the most in rental income over its useful life… right?

John Burr Williams was the first to apply this theory to stocks. He said the value of a stock today is the sum of all future dividend payments discounted back at some required rate of return. In other words, the more a company pays out to its owners in the future, the more valuable that company is to its owners today.

Not only does that theory make “real world” sense, but it also holds up statistically. In our models, we’ve found that dividends are the most important driver of stock prices by a wide margin.

Interest Rates
Interest rates are a primary concern for most stock investors. The general level of interest rates essentially represents the “opportunity cost” of investing in stocks.

If your bank account were to start offering 10% per year on your savings account, you would probably prefer to “invest” in your savings account rather than in the stock market. If your bank account is only paying 0.1%, however, the attractiveness of investing in stocks increases.

Many investors would be surprised, however, that interest rates are not the most important factor in determining long-term stock prices.

Inflation
Inflation is actually a much more significant predictor. How can that be? There are several reasons for this.
Interest rates can be artificially set by the Federal Reserve. Inflation can be influenced by Fed policy, however, it is primarily a result of real world economic activity.

Inflation is also one of the primary drivers of interest rates. If inflation is rising, it has the effect of diminishing the real rate of return for a bond investor. In that environment, a bond buyer will demand a higher rate of interest to compensate for the loss of purchasing power.

In addition, inflation is impacted to a large degree by economic growth. When the economy is growing at a faster rate, the Federal Reserve will generally tighten monetary policy, which raises interest rates.

The importance of inflation is also reflected in several of our models. We have a price-to-earnings (or “P/E”) Finder model that we use to determine the appropriate P/E ratio for stocks. In that model, inflation has been a much better predictor of P/E than interest rates, GDP growth or earnings growth expectations.

Outlook for Stocks
If you can understand these four variables, you can get a fairly accurate gauge of the valuation of the market. At this moment, all of these variables are very positive for stocks.

• Dividend growth for the S&P 500 has been over 10% year-to-date. We believe this will continue to be strong in 2015. Companies are beginning to understand how valuable their dividend checks are to shareholders and have begun to emphasize dividend growth as a priority.
• Earnings are expected to grow by over 10% in 2015. Time will tell whether that will come true or not. If it does, we anticipate the market will reward the companies for their continued strong performance.
• Inflation remains very low. With little capacity pressure from either employment or plant and equipment, we don’t see much of a chance that inflation gets higher than the Fed’s target of 2.5%. The economy is simply not growing fast enough.
• With inflation low and the Fed continuing their stimulative monetary policy, interest rates are likely to remain low. The 10-year Treasury continues to trade at the low end of our 2013 prediction of between 2.5% and 3.0%. We don’t anticipate that rates will get much higher than that over the near term.

As we talked about last week in our Barnyard Forecast, monetary policy conditions are very favorable. Aside from a major geopolitical shock, stocks don’t face any major red flags going into 2015.

The most current reading from our S&P 500 valuation model indicates that the fair value of the market is about 1,950. As this is being written, the S&P 500 is trading at about 1,952. From both a directional perspective and a valuation perspective, our models are saying that stocks are still the place to be.