There are talking heads in the financial media hyping a message that 2009 is the beginning of the next great bull market for US stocks – just like 1983 was. As usual, this is coming from industry insiders that benefit if the market goes up i.e., mutual fund and other money managers (Known as the sell side because they have stuff to sell. Hey, it’s always a good time to buy my fund.). These are the same people that were “long & loud” in autumn 2007, and throughout 2008 (and lost 50% of their money because of it).

Here is their case:

That’s it. Not a lot of data to support their assertion.

Here is what they are conveniently overlooking:

So the case for this being the beginning of a major US multi-year bull market is unsupportable and wishful thinking. There is a fair amount of data above, but let me draw your attention to something.  There is a very strong historical relationship between central / federal government debt levels and stock market P/E ratios. As debt grows, P/E’s fall. The P/E ratio we currently see on the broad US market could easily fall 20% to get to average levels, and could fall 40-50% to levels that usually accompany our economic situation. The P/E could come down because earnings continue to post huge gains while the stock market prices remain unchanged.  Or – more likely – earnings growth remains anemic, and the stock market eventually reflects this (stock prices fall). For this reason we continue to wade into stock markets at a conservative pace. We are attempting to ride a portion of an irrational and unsupportable rally – but plan to apply hedges to minimize losses once large corrections appear imminent.