BACK TO THE FUTURE THE BULL RUMBLES FORWARD
The most stunning unnoted market phenomena right now are the parallels between the past eight years and the period between 1988 and 1997. History never repeats itself, but this rhymes. This bull cycle may last longer than anyone imagines—maybe the longest ever.
Some 1990s parallels were larger than now, some smaller and some surely coincidental. That said, substitute the 1990’s “S&L Crisis” for 2008’s “Home Mortgage Crisis,” and “Resolution Trust Corp.” (“fxing” that mess) for “TARP” (“fxing” this mess). By 1991, 911 fnancial frms had failed, for an infation-adjusted $547 billion. This time far fewer frms failed—for “merely” $421 billion.
Bear market and recession timing parallel (though bigger now). Switch Clinton beating Bush 41 for Obama following Bush 43. Then two years later the GOP gaining gridlock power (1995’s strongest GOP Congress since the ’50s; in 2015 the Republicans added the Senate for the strongest GOP Congress since the ’20s).
Europe’s über-long ’90s recession linked to fscal austerity tied to “converging” the euro. Europe saw two recessions this time—together as long as the ’90s quagmire—with austerity tied to saving the euro. Both times the PIIGIES sufered double-digit interest rates. euphoria or a new, big bad disruption, this grinding bull grinds on—likely years longer than fathomable. Of course, that isn’t certain.
Luckily the same types of stocks that lead late in long bull markets usually do best early in bear phases (before they’re recognized). What are those? Perceived high-quality stocks increasingly lead the way—often big frms with fairly reliable growth and often tech.
Nothing fts better than the globe’s biggest stock, and the second biggest. Their continued leadership will surprise: Apple, since it’s so big few can envision anything unexpectedly good happening, plus it’s disappointed all year. And Alphabet, since it has done so well already. But they should both lead due to the combo of size and quality growth. Apple is at 11 times my September 2016 earnings estimate; Alphabet at 22 times that of December 2016.
Big pharma fts, too, for similar reasons. Growth rates are below tech’s, but basic demand is more stable, since quitting your meds or substituting drugs isn’t easy. Lots of choice here, but two I like now are Switzerland-based
the biggest (in pure pharma, like Apple is overall), and it has disappointed recently (also Apple-like), and Denmark-based
since it has done so well (like Alphabet). NVO, to me, seems the most far-into-the-future predictable, which 2016’s market should love. It’s at 24 times and Novartis at 11 times my 2016 EPS estimates.
at $4.5 trillion, is by far the largest asset manager, my realm of endeavor. It’s superdiversifed, well run, the biggest in ETFS (exchange-traded funds, the sector’s hottest major subsector), while still strong in active management, ETF’S counterpart. Since Blackrock bills on a percentage of assets, a rising market pleasantly plumps sales and profts. But the stocks usually move before earnings. Hence BLK is a great opportunity at 18 times trailing earnings, with a 2.4% dividend yield.