Happy 6th Birthday, Mr Bull Market
06 March, 2015
I have fond memories of March 2009. I admit my memories have become fonder with each passing year ... a bit like my childhood memories, as I blot out anything negative and focus only on birthday cakes, holidays and family pets! March 2009 marked the beginning of what has been a six year bull market. Though it hasn't necessarily felt bullish throughout because for most of it, nobody has wanted to believe it and so we've been consistently told that it wouldn't last! But it has very definitely been a bull market and a big one at that.
At the start of this year, it looked like the bears might have been on to something. Markets were a bit rocky and the news globally was mixed at best. But then along came February and the bulls roared. Share markets climbed to new heights - the FTSE 100 hit a 15 year high; the Nasdaq is back to levels last seen in the dotcom era of 2000; the MSCI World, S&P 500 and Germany's DAX have all seen records broken and while Japan's Nikkei 225 isn't near an all-time high, it is at levels last seen 15-odd years ago. Even the Australian share market got its mojo back, despite the expectations of most commentators.
And this was all in spite of a very low oil price, the possibility of a Grexit (Greece leaving the EU), ongoing geopolitical concerns, and market valuations that were considered lofty and in some cases, were in nose-bleeding territory. Well, nose-bleeding based on the "old normal" theories and norms when interest rates were double those of today.
The record-breaking flurry has sent the naysayers into overdrive, with many citing similarities with the bursting of the tech bubble, and warning that the end is nigh and that markets will "revert to the mean" or that they're "running on fumes" and so on.
I know better than to suggest that this time is different - those are invariably famous last words. However, to my mind at least, a logical argument can be made to explain last month's flurry, and indeed the six year bull market. And what's more, the argument gives some confidence that the bull might have a bit further to run.
The fumes or fuel that has driven the bull market to date has come from central banks and yield-hungry investors. World bond prices have reached ridiculously high prices (low yields) as central bankers have electronically printed money and bought bonds. We now have a situation where you will earn just 2.25% per year for ten years lending to the Australian government, 1.8% lending to the US government for the same period, 0.3% lending to the German or Japanese governments, and you'll have to pay the Swiss government 0.1% per annum to have them hold your money that long!
Is it any wonder that investors decide to buy shares instead of setting aside their cash in unrewarding fixed income investments? And is that going to change in a hurry? The answer to both questions is no. While the earnings results that we've seen in the last two months have been solid rather than spectacular, they have featured high dividends, and rising dividend payouts, which have been music to the ears of investors seeking decent investment returns. The earnings results have also featured growth - real growth in revenues and earnings - which could sustain the lofty valuations that investors have been prepared to pay for a little while longer. I think the memories of 2015 might be fond ones.
I will leave the final word to Seeking Alpha columnist Louis Navellier: The Bible speaks of "seven fat years" and "seven lean years," but we can't forget that we had NINE lean years from March 2000 to March 2009, with the S&P 500 falling over 50%. It makes for some sort of cosmic justice for this recovery bull market to go on for nine years - until 2018.