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David Rosenberg, strategist at Gluskin Sheff continues to be staunchly bearish. He digs into his trench even further it seems with each point the S&P 500 climbs. Today he lists the contrasts between now and 1982 to argue why this is not a secular bull market:
- P/E Multiples were 8x, not 26x.
- Dividend yields were 6%, not sub-2%.
- The stock market was trading at a discount to book, not a 2x premium.
- Monetary policy was aimed at reducing money growth and inflation rates, not
creating both as is the case now.
- Fiscal policy was aimed at reducing nondefense spending, not accelerating it.
- Deficits were peaking and coming down, not surging to 10%+ relative to GDP.
- Global trade barriers were being torn down; not erected.
- Deregulation back then was in; today it is all about re-regulation and
- Union membership was on the way down; today it is back on the rise.
- The dollar was entering a Plaza Accord bull market, not a mercantilist bear
- Credit, household balance sheets and participation rates were expanding, not
- Tax rates, income, capital gains and dividends, were declining then; rising now.
He also compares the batch of government bureaucrats and politicians now to back then:
In 1982, Ronald Reagan was President (two consecutive terms as Governor of
California), Don Regan was Treasury Secretary (35 years of financial sector experience), Martin Feldstein as the Chief Economic Advisor to President Reagan (the dean of business cycle determination), and Paul Volcker was Fed Chairman (9 years of prior financial sector experience). Compare and contrast to Barrack Obama (junior senator from Illinois for 3 years); Timothy Geithner (21 years experience in government, three years as a lobbyist); Larry Summers (no private sector experience; 27 years of academia and government) and Ben Bernanke (no private sector experience; 30 years of academia and government).
Which team do you think deserved the higher multiple — the one with actual experience in the real world or the one immersed in academia and government?
To play devil’s advocate, no two bull markets are equal in every way. It is a stretch to require a secular bull market to require experienced politicians for example. But cheap (or at least, reasonable) valuation is a condition that is difficult to explain away.
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