Stock Market 2014: Here Comes the Dumb Money

| + More Articles
  • Like on Facebook
  • Share on Google+
  • Share on LinkedIn

Before this year’s gigantic rally, I wrote about the unexpected risk of a double rip. At the time, all the talk and concern were over the likelihood of a “double dip” recession due to the sequestration, tax increases, Obamacare, and an endless list of other politically charged worries.

Perma-bear Nouriel Roubini has already incorrectly forecast a double dip in 2009, 2010, 2011, and 2012, and bond maven Bill Gross at PIMCO has fallen flat on his face with his “2013 Fearless Forecasts”: 1. Stocks and bonds return less than 5 percent; 2. Unemployment stays at 7.5 percent or greater; 3. Gold goes up.

Well, at least Bill was correct in one of his four predictions that bonds would suck wind, although achieving a 25 percent success rate would have earned him an “F” at Duke. The bears’ worst nightmares have come to reality in 2013, with the S&P up +25 percent and the Nasdaq climbing +33 percent, but there still are 11 trading days left in the year, and a Hail Mary taper-driven collapse is in bears’ dreams.

pe-ratio-dec-13

Source: Scott Grannis

For bulls, the year has brought a double dosage of gross domestic product and job expansion, topped with a cherry of multiple expansion on corporate profit growth. As we head into 2014, at historically reasonable price-earnings valuations (P/E of ~16x – see chart above), the new risk is no longer about double-dip/rip but rather the arrival of the “dumb money.”

More Articles About:

To contact the reporter on this story: staff.writers@wallstcheatsheet.com To contact the editor responsible for this story: editors@wallstcheatsheet.com

Yahoo Finance, Harvard Business Review, Market Watch, The Wall St. Journal, Financial Times, CNN Money, Fox Business