GO-GO YEAR OR STOP & GO YEAR 2014?

We are the anniversary of five years bull market. Fiesta. It means anything? Really not, it only means if we look at the rear mirror we have seen nice performances year by year. All five years were go-go years, meaning with smaller or bigger corrections the market came up steadily and closed in December on higher price than in January. That was the past. Look at now into the future and forget the rare mirror approach. 

There are many arguments why the market shows lower strength in Q1 2014 than was for instance last year. The market is not performing well in recently. Doing up and down movements with high volatility. So in our view we are expecting stop & go year which means close to zero performance on major US indices.



I wouldn’t say the market is pricey, I only say fair pricey and at this level the downside is getting more risky. The SP500 is currently trading at 16.7 times forward earnings estimates. In other words, investors are ready to pay 16.70$ for every dollar of corporate profit. That’s more expensive than the average price over the past century. In the .com bubble in 1999, at the end of bull market, the S&P 500 traded at an expensive 27 times forward earnings. So I wouldn’t say it is a bubble, just note it is in the middle, not cheap and not terrible expensive.

We put bigger stake on European markets because they have 10-20% discount on P/E ratio and the emerging markets has at least 30% discount comparing the Wall Street. We are bargain hunters and don’t like to see above 20 P/L ratios and now that is the amount in US. We do prefer good bargain and undervalued markets which now seems to us the Europeans and Brasil or Turkish markets. There are many good set up points now around us.

The BFM Assets Team.