The Dow Industrials Average is up over 1,000 points in the last eight days. It’s up nearly 2,000 points since the start of December (less than six weeks ago). Go back to the start of October, and we’re talking about more than 3,000 points as old-school companies like Boeing, Caterpillar, and Wal-Mart surge higher.
You’ve probably heard people say it’s like the dot-com bubble all over again. And with the price-to-earnings ratio for Dow stocks pushing 24, the comparison is not so far-fetched. Stock prices seem to be going higher today simply because they were higher yesterday.
Look around and you’ll see plenty of people warning that the stock market and the economy have reached dangerous levels. Just yesterday, New York Fed president William Dudley said: “Current U.S. fiscal position is far worse than it was at the end of the last business cycle… If the labor market tightens much further, it will be harder to slow the economy to a sustainable pace, avoiding overheating and an eventual economic downturn.”
Fed Chief Janet Yellen recently said: “I would simply say that I am very worried about the sustainability of the U.S. debt trajectory… It’s the type of thing that should keep people awake at night.”
“The four main US stock barometers have touched a series of record highs, and concerns among investors about ostensibly lofty valuations have prompted many to offload US equities,” Hermes Investment portfolio manager Michael Russell said.
In a note to investors, superstar investor Jeremy Grantham wrote: “The data on the high price of the market is clean and factual. We can be as certain as we ever get in stock market analysis that the current price is exceptionally high… This sudden dramatic improvement in the performance of equities, driven by investors who don’t want to miss out rather than an actual fundamental uptick in the economy will likely be followed closely by a bubble-bursting crash in the next six months to two years.”
A recent study by Morgan Stanley concluded that stocks are “trading independently of one another to a degree not seen since the height of the tech bubble.”
Yep. There you have it. It’s a bubble. The crash begins in 5… 4… 3…
Not So Fast!
Now, before I address the bubble, let me ask you a question. Are you excited by stocks right now? Are your friends, coworkers, or family members regaling you with tales of their stock market conquests?
I’m guessing probably not. If anything, I bet you’re hearing more about crypto than Cisco. And that’s fine. The cryptocurrency run has been very exciting. But as far as I can tell, excitement is really the only thing driving Bitcoin and the others. Minus the thrill factor, I cannot see where cryptocurrencies fit into the economy five years from now.
Not so for Cisco (recommended to Wealth Advisory readers 16 months ago at $31, now breaking $40)…
Stock ownership in the U.S. is at extremely low levels. Only 49% of Americans own stocks, and that includes 401(k) plans. And just 14% of households have direct ownership of stocks (as in they buy them rather than simply contributing to a retirement plan). Back in 2001, nearly 22% of American households owned stock directly.
So yeah, no wonder there’s no excitement for stocks. But check this out…
You wanna know why there’s income disparity in the U.S.? You wanna know why the rich get richer? This chart has your answer.
The conclusion is simple: If you want a better future, get a Roth IRA retirement account and buy stocks. If you’re already ready retired, get Roth IRAs for your kids or your grandkids. Do this, and you are giving the greatest gift there is: a better life. And a tax-free one, too.
Distributions from a Roth IRA are tax free, as in no capital gains tax. You can have a stock sit in a Roth IRA for 20 years, throw off tens of thousands in dividends and capital gains, and you will owe zero in taxes.
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About That Bubble
I’m the editor of a long-term investment newsletter called The Wealth Advisory and also a trading service called Real Income Trader. I watch the market every day. Even on vacation. I saw the news about Intel’s processor chip problem on the beach in Akumal, Mexico. I got word to my Real Income Trader readers to buy some Intel put options (a downside trade). The next day we cashed out a 54% profit.
I’m not telling you this to brag. I’m telling you because I want you to know that I’m good at what I do. On November 8, 2017, I told you to buy oil stocks and solar stock First Solar (NASDAQ: FSLR) because solar does well when oil rallies. First Solar was $61 at the time. It hit $75 last week.
On December 6, I told you there was a dip to buy. The Dow is up 1,500 points since.
I’ve been telling Wealth Daily readers to buy Bank of America (NYSE: BAC) since I added it to the Wealth Advisory portfolio at $9. It’s breaking above $30 today.
Now, here’s something you might find surprising. I’ve got about 10,000 subscribers to The Wealth Advisory. And there’s probably 400,000 people getting Wealth Daily. No, the fact that 10,000 people pay to get my insights isn’t the surprise, but nice try :). It’s the number of you who are reading my stuff — and paying to read it — and yet aren’t investing.
I fully understand that market/economic/business stuff is interesting. I am fascinated by it. But come on. Let’s get some rubber on the road here. Because I am happy to tell you that stocks aren’t in a bubble right now. Prices are simply reacting to a surge in global growth.
It is a truly unique moment in time, because pretty much every economy in the world is growing. Except probably Venezuela. A lot of it has to do with China. I know, it wasn’t that long ago people were really worried about China. But exports are growing 10%, and China’s oil imports grew 10% last year. China imported record amounts of iron ore, copper, soybeans… you name it.
Look, I’ve railed on Caterpillar (NYSE: CAT) plenty as the company was posting year after year of falling sales. But there’s a reason the stock has doubled in the last 14 months. It’s the same reason U.S. Steel (NYSE: X) has doubled since May. Global growth is cooking, and things are on the upswing here in the U.S., too.
Wal-Mart and AT&T are giving raises and/or bonuses after the tax bill. Rising rates mean companies are looking to invest to make money, because borrowing to buy back stock isn’t attractive anymore. More and more people are coming back into the job market and getting work.
I won’t tell you this sweet spot in economic history will last forever. It won’t. And I won’t tell you it’s straight up from here for stocks and there won’t be any more sell-offs. Because there will. (After last week, I won’t be surprised if stocks aren’t rallying today as you read this. Ha! Market’s closed.)
But I will tell you that making money in stocks is about time as much as anything. So don’t waste another day. Get invested.
Until next time,
Briton Ryle
@BritonRyle on Twitter
The Wealth Advisory on Youtube
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
