We Are Still Going Sideways

Vitaliy Katsenelson's picture


Here are slides of my updated/revised presentation on sideways markets.  Over the last three months I’ve given talks on sideways markets three times, to CFA Societies in South Florida, New Zealand, and Atlanta.  It is very hard to be excited about the US stock market.  I read that Rich Bernstein, former chief investment strategist at Merrill Lynch, is very optimistic about US stocks; he believes we are at a point similar to where the market was in 1982 – at the beginning of the 1982-2000 secular bull.  After you’ve gone through my slides, you’ll understand why it is so hard for me to share Rich’s excitement.

Stocks were so expensive in 1999 that 12 years of economic growth did not cure the excesses of overvaluation.  In fact, 12 years into this sideways market, valuations are still 30% above the historical average, while in 1982 they were about 30% percent below average!  Also, historically, stocks spent a good amount of time at below-average valuations before sideways market turned into a secular bull market.

I hear that everyone is bearish, then I recall a line from a movie – would you rather believe me or your own eyes?  Well, my own eyes tell me that the market is up this year, so not everyone is bearish.  Higher taxes and lower government spending (which is good in the long run) are destimulating for the economy, so it is reasonable to expect slower growth going forward.  Then you look at corporate profit margins, which are at an all-time high (see my presentation).  Lower top line growth and declining corporate margins will lead to subpar earnings growth, so stocks are still expensive.  No, I don’t share Rich’s excitement about the stock market.  All that being said, there are stocks that we are excited about, though it is becoming more and more difficult to find them.

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DarthVaderMentor's picture

Going sideways is what a drunk does just before going down. Ditto for markets.

orangegeek's picture

Endless growth - while over 40M Americans are on foodstamps. 


It's been said many times - this market is detached.  SP500 weekly shows end of primary wave 2 soon.




Ben and Barry keep pouring their daily billions in to keep this house of cards up - fair enough - but stupid things like this that don't make sense always come to an abrupt end.

moneybots's picture

I watched a bit of Cramer last night, for the first time in ages.  He was talking about how that market was going to take a rest and move higher.


One of the things that has been mentioned here, is that the retail investor has been driven from the market.  1982 was the year of the "Death of Equities".   The question is, are we at the death of equities moment, where people have given up on the market, after two serious crashes in a decadeand are pulling out even as the maket approaches the all time high?

The FED has been able to engineer the market back up to where it is.  If the FED keeps pumping money, why would the market not continue to rise after an intermediate pullback?

Martha Stokes notes that of the market participants, retail comes in at tops.  Is it that retail has wised up, or is it that retail thinks they have wised up, but will see the market continue to go up past the old all time high, then wind up chasing it?


The 1982 secular bull market began at 777 on the DOW.

The 2008 bear market low was 666 on the S&P 500.


Those are numbers that have significance to people and i don't think it coincidence that the market turned at those numbers.




ebworthen's picture

"I read that Rich Bernstein, former chief investment strategist at Merrill Lynch, is very optimistic about US stocks; he believes we are at a point similar to where the market was in 1982 – at the beginning of the 1982-2000 secular bull."

Biggest laugh I've had yet today (over Rich Bernstein).

As if Ronald Reagan were President, we still made can openers, and generations had not been robbed.


geno-econ's picture

Merrill Lynch is on binge to attract wealth management clients big time.  Recieved calls for presentations, lunch and dinner invitations from competing ML offices in past month attempting to sell management services for fees. They are also targeting specific groups (seniors, new retirees ,401Ks and IRAs ) and non-bank clients (Schwab,Fidelity). Primary pitch is they are taking fiduciary responsibility seriously, are committed to your local needs and responsibilities, and can tailor investments to your needs including annuities. bond funds, home equity etc.  Unfortunatly they will pick up a stray widow or naive investor and do well making commissions and fees. If you get a call from ML , just remind them of the Countrywide debacle, Bank of America financial bailout situation, and that the fiduciary responsibility requirements  are written by their lawyers to protect ML, not you.  Obviously ML knows with a diminishing middle class, the retail trade is dead and remaining investment money is with wealthier seniors and upper class earners  

SheepDog-One's picture

Rich Bernstein is either totaly insane and delusional to compare this market with '1982', or he's looking to dump assets.

Shizzmoney's picture

"Remember Jerry: It's not a lie - if you believe it" - George Constanza

Species8472's picture

Not 1982, we are more like 1972


rsnoble's picture

Now here we have another 2 months of debt ceiling bullshit which will help drag this mess of shit along.  And then we'll have a pop when they realize not raising the limit will be the destruction of the US.  They are already working on what they are going to do to keep this overpriced garbage propped up after the next debt ceiling announcement as there's no way to pump this crap any farther.  This is like a giant balloon with all the banksters blowing in it that is the size of jupiter now, even though their lips are permanetely sealed to it the back pressure is just to great and those bastards are going to get blown away.  Of course since we're taxpayers we'll be going with them. Oh well. Now or later.

Fuh Querada's picture

.......lower government spending (which is good in the long run) are destimulating for the economy...

What lower government spending are you talking about?

..."All that being said, there are stocks that we are excited about, though it is becoming more and more difficult to find them"...

That is drivel rivalling Phoenix Crapitall Research.

LawsofPhysics's picture

1982?!?!  LMFAO!!!  Does this mean that we can expect to start seeing some bankers and wall street fucks going to jail after having all their private wealth taken.  We saw this during the savings and loan crisis.  Just the same, I won't hold my breath.  Wake me when the fucking guillotines are put back to use.

Setarcos's picture

Of course we are going sideways.

We live on a finite planet with finite resources which CANNOT support the exponential growth required by consumerism and financialism.

Shock and horror, even gold can never again have the "gold rushes" of Spanish conquests, nor the frantic Yukon and Australian searches for the metal of little practical use, but plenty of corruption, killings and bankrupt miners.

Of course we are going sideways, because there is only so much we can consume; such that even China is faltering and might send the "hole in the ground" (Australia) down the tube, even if we still have diminished 'mountains' of iron ore, bauxite and sundry other exploitable resources ... except for water, the water required for ALL exploitation.  (Australia is the driest habitable continent, but let no one imagine that other continents don't have water shortages too.

Of course we are going sideways now and WAY down before long.

ReactionToClosedMinds's picture

thank you Vitaly ... I purchased your Little Book in 2009 .... heartily recommend it to all

DarthVaderMentor's picture

Merrill has a lot of stocks they want to unload on their retail clients, They get the cash, transaction fees and you get to take the loss when the market collapses. 

Sambo's picture

Market will collapse when Bernanke stops. So the treadmill never shuts down; the joker keeps running....

joego1's picture

In 1982 the idea of investing in a stock actually meant that there might be people who were focused on running an honest business and who respected their shareholders as investors. High frequency trading was not invented and the global economy revolved around the U.S. Now we just have Las Vegas and the last man standing finance Inc. Fuck investing in this slew.


The American Retail Investor

In zero we Hedge

LawsofPhysics's picture

In addition, I seem to remember some rule of law and some bankers going to jail in the 80's during the savings and loan scandal.

joego1's picture

Sorry about the double post. Good Tequilla!

HowardBeale's picture

Uncanny how much this sleazebag looks like that other aspiring greatest skull-fucker-of-innocent-People, Hank--the I'd fuck my mother for a dime--Paulson. Uncanny. Take a look at some of the greatest mafiaso of our time: Lloyd Blankfein, Jeff Bezos (master stock manipulator of ALL TIME), Hank Paulson, et al. They actually look like some kind of sea creature genetic mutant rejects; and I would suspect it is some kind of genetic damage, akin to Down Syndrome, only in their cases, it removes all access to conscience: monsters, one an all.

joego1's picture

Not their fault really, its the agent orange resistant GMO corn.

HowardBeale's picture

"the agent orange resistant GMO corn"

As in the corn-pone uncle that fucked his sister under the agent-orange tree while ma was givin the Dow Chemical man a blowjob in lieu of the pesticide payment for crop dustin' kind of agent orange resistant GMO corn? Is that what chy'all mean? Lloyd Blankfiend is a product of incest and agent orange from the Dow Chemical man? There is surely somethin' genetic-lee modified about them boys Hank, Lloyd  and that Orange-skinnws Bezos...

Oldwood's picture

Yes and higher taxes are good in the long run. ah, what? Did I miss something?

OneTinSoldier66's picture

And since when did the Fed's lower their Gov't spending?


The Federal Gov't may have decreased the rate at which they increase spending, but it has not made any real actual cuts. So wtf?


If there is less being spent it's only because of manipulation of interest rates, making the interest rate artificial, as in not real, a fantasy, creation of a phoney economy.

HowardBeale's picture

" he believes we are at a point similar to where the market was in 1982 – at the beginning of the 1982-2000 secular bull.  After you’ve gone through my slides, you’ll understand why it is so hard for me to share Rich’s excitement."


You don't need to go through shit to know this fucking sleazebag whore is talking his book, as if you are living--as opposed to brain dead, which he apparently assumes anyone who reads his fetid opinion piece is--you know that the computer revolution, the internet revolution, and the Federal Reserve whoring revolution won't--and can't--occur twice in the history of the planet Earth. The  only conclusion one can come to is that those who think you are so dumb as to believe such an absurd outlook are seriously fucking brain damaged--or just to high on crack and whores to be paying enough atttention to realize just how fucking absurd their propoganda is.

Fuh Querada's picture

P/E multiples are what Ben f*****g says they are.

RopeADope's picture

PE multiples have to be pushed up higher so Social Security assets can be transferred to stocks. It worked so well for Bankia that America decided to implement this strategy.

DeadFred's picture

So I take it you don't agree? Colorfully said. Just wait, that 30 + 30% correction is coming soon.

Lucius Cornelius Sulla's picture

Of course Merrill Lynch is going to talk up stocks.  Its kinda like asking a Realtor if now is a good time to buy a house.  Its ALWAYS a good time to buy!

verum quod lies's picture

It should be titled: "We are Still Going Down". The nominal level of the stock market is not a very good indicator of the economy in general (and especially when the CPI has been effectively neutered), contemporaneous or forward looking for that matter. What is clear is that recently increased taxes and an ever increasing, un-Constitutionally inclined, and bankrupt  leviathan will not bode well for the economy (let alone a small business sector that is vilified and raped at every turn).