Bernie, see my previous note about the risk pyramid. Almost anything on this list will be less risky than stocks
I'd say nobody knows the answer to this about Greece's vote, but the stock markets in the rest of Europe seem to want more growth and less of this depression mentality. I'd figure there'd be a bad day or two if Greece finally kicks the default pedal and then we move forward from there. But that's just a guess.
Perhaps not right away, but within the next year or so.
And a Greek exit will roil markets for sure
That said, we just posted a piece by our columnist Jeremy Siegel in which he makes the case for buying European stocks cause they're so cheap, Greek exit or no Greek exit. Note that Jeremy tends to be eternally optimistic
That's actually a great segue into our next question.
Note that many "European" stocks are worldwide companies whose growth isn't confined to their home country or region. That's the same with many U.S. and other foreign firms, too.
Jackie, no matter what Greece does, there are other problems as well, in Spain in particular, at the moment. Three years into this crisis, Europe's woes have become more of a chronic problem that flares up from time to time. When the economic reports in the U.S. are positive, which they mostly were until just recently, our market is better able to shrug off the problems in Europe.
Shelly, that's what I'm doing. Look, no one has any crystal balls around here--at least none that work well enough to make timing the markets worthwhile. I think the picture for corporate profits in the U.S. looks pretty good and stocks are pretty cheap, so I think once Europe blows over, investors will focus on the fundamentals and that stocks will do OK
Speaking of market timing, Anne, in one of your articles from the July issue, you say "trying to gauge how much gas the market has left misses the main point." What do you mean by that? (Manny and Jeff, feel free to weigh-in as well).
Our current forecast is for the stock market to return 12% to 15%. A month or two ago, that was looking awfully conservative; now it looks like a stretch (S&P has returned 5.7% year to date thru yesterday)
Shelly, if you'd bought stocks when the euro crisis first emerged at the start of 2010 you'd have done pretty well--assuming you didn't panic and sell at one of the many 'euro corrections' we've had since then. I agree with Manny--the fundamentals of the U.S. market look pretty good.
Regarding Anne's line, I think she was saying that our analysis may be more valuable than the specific market return forecasts. I certainly think that's the case. I'll elaborate in a second. Hopefully, Anne will have jumped in before my next post
Alright, we have a few questions coming in about bonds.
When I talked about trying to gauge how much gas the market has left I was referring the exercise of trying to pinpoint an annual (or semi-annual) price target for the S&P or the Dow. Unfortunately, the market rarely moves in convenient 6-month or 12-month chunks, and as we know, can be easily taken over by events. Better, I think, to look at whether stocks are reasonably priced--and we think they are, based on earnings prospects. In fact, the market is downright cheap, selling at just over 11 times expected earnings for 2013, vs. a 10-year average p/e of 14.5 times. Again, you want to think like a business owner, instead of a stock trader..
Jeff, Lynn's question is perfect for you. Take it away.
Depends what kinds of bonds, and what your alternatives would be. I agree that many top-notch dividend stocks are going to yield more than a typical intermediate bond portfolio, but then you can't be wondering about the daily news about jobs and Greece.
Following up on my last post, the simple way to make a market forecast is to take some reasonable earnings estimates and assign an appropriate price-earnings ratio. Lots of factors go into determining that PE, including interest rates, future earnings growth and your belief in the reliability of those estimates. But when all is said and done, PEs--what investors are willing to pay for each dollar of corporate profits--reflect investor sentiment, and this is so, so hard to predict.
That's great advice, Anne.
And Manny, I learn something new everyday!
While we're on the topic of bonds, here's another question from patmoody
Pat and Lynn, please refer to my comment earlier about the risk pyramid. Junk bonds lost a bit in May (they do tend to track stocks, though they're not as volatile), so yields are up. Corporate America is just swimming in dough, so I think junk is very attractive. You can invest in funds yielding 7% or so
Patmoody, I think most bond gurus would agree that Treasuries aren't a good deal now--miniscule yields and plenty of interest rate risk. But I've talked to plenty of experts who see good opportunities in corporate bonds, including high-yield..
Just wanted to add that we really dislike long-term Treasuries. It's been a great investment the past few years as yields have gone down (bond prices move inversely with yields), but yields can't go below zero and they could rise quite a bit (though maybe not right away)
Alright, we have time for one or two more questions
Great, we'll let Jeff take Jackie's question.
Energy MLPs are having a good year (again) and the best approach is to pick several of them that do different things, not necessarily depending much on LNG. The purest LNG investments are tanker stocks, and they are wildly volatile and have been known to cut dividends. The MLPs that do pipelines and processing and storage and suchlike are steadier.
Manny and Anne, want to tackle this last question about Facebook? (How could we go a whole chat without mentioning Facebook)
I think the IPO signified a Facebook bubble. Stock was priced too high, especially once it became clear, with the release of first quarter earnings before the IPO, that growth was slowing. We're advising readers to stay away from FB. As for tech in general, sure some stocks are expensive. But there are many great tech names--eg, Microsoft and Apple (both of which I own), Cisco, Oracle and Intel--that are trading at amazingly low multiples of earnings. A bubble was what we had in early 00, when many tech stocks traded at 80 to 100 times earnings or at infinite PEs, cause they had no or minuscule earnings. We're nowhere near that now
Alright, unfortunately we're out of time for today's chat
Facebook gets its money from advertising. It's a tech stock of a different stripe from all those good ones Manny names.
And we also published a recent piece on FB after the IPO
Thanks for all the great questions, everyone!
And Jeff, Manny and Anne, we really appreciate you being here today. Thanks for all the great advice.
Well, there's tech and there's Facebook. I think tech stocks in general have a lot going for them, with some pent-up corporate demand as a factor in their favor. Facebook has more to do with IPO hype than fundamental value. But stocks such as Microsoft, IBM, Qualcom, Oracle, Google may have more to recommend them. And of course Apple, in a category all its own.
Whew, have to type faster next time!
Bye. See you all next time
For all of you who did not get your questions answered, be sure to join us next week for a Jump-Start Your Financial Plan chat with three advisors from the National Association of Personal Finance Advisors (NAPFA). It will take place next Thursday, June 14 from 1pm to 3pm ET.
Enjoy the rest of your day and see you next week!