For some perspective on the post-financial crisis rally, today’s chart illustrates how much of the downturn that occurred as a result of the financial crisis has been retraced by several major international stock market indices. For example, the S&P 500 peaked at 1,565.15 back in October 9, 2007 and troughed at 676.53 back on March 9, 2009. The most recent close for the S&P 500 is 1,848.36 — it has retraced 131.9% of its financial crisis bear market decline. As today’s chart illustrates, China (Shanghai Composite), Japan (Nikkei 225), India (S&P BSE Sensex), Germany (DAX), France (CAC 40) and the UK (FTSE 100) are all above their financial crisis lows (i.e. above 0% on today’s chart) and three of the aforementioned countries (Germany, India and the UK) are currently trading above their respective pre-financial crisis peak (i.e. are above 100% on today’s chart). It is interesting to note that the US (epicenter of the financial crisis) has outperformed the other major stock market indices (* keep in mind that the German DAX is unique in that it includes for the reinvestment of dividends) while China has lagged to the point where it only trades 9.3% above its financial crisis lows — not that impressive of a performance considering that the financial crisis occurred well over four years ago.

Notes:
Where should you invest? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

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January 01, 2014 – New Year’s Day – Rose Bowl – Fiesta Bowl
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January 03, 2014 – Orange Bowl
January 06, 2014 – BCS Championship Game
January 12, 2014 – Golden Globe Awards
January 13, 2014 – Australian Open Tennis Tournament begins (ends Jan. 26th)

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It has been a terrific year for U.S. stocks.

If the Santa Claus rally kicks in, and the S&P 500 ends the year above 1,834, the year 2013 will end as the best one for the market since 1998.

In contrast, it has been all doom and gloom for emerging markets.

Even as the U.S. market has put the permabears in investors’ doghouses, emerging markets are likely to finish the year down 6%, compared with a (so far) 27% gain for U.S. markets and 19% for the rest of the developed world.

Having lagged the S&P 500 for over two years, emerging markets are coming off of their longest underperformance in recent memory.

….read & view more HERE

The year draws to a close. It will be one for the history books.

By the end of last week, 50 stock market records had been broken. And now the Dow pushes toward 17,000.

The overwhelming majority of investment advisors are bullish. Even longtime bears – such as Hugh Hendry, Jeremy Grantham and John Hussman – have decided to join the fun.

Here’s the Reuters report:

“I can no longer say I am bearish,” said Hendry today according to InvestmentWeek. “When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out.”

Speaking at the Harrington Cooper conference, Hendry argued that an ongoing currency war between the US and China will continue to force the Federal Reserve to keep monetary policy loose and easy.

“I may be providing a public utility here, as the last bear to capitulate,” he said. “You are well within your rights to say ‘sell.’ The S&P 500 is up 30% over the past year: I wish I had thought this last year.”

Hendry sounded pretty crestfallen. Here’s more from InvestmentWeek:

“I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years’ time.”

“I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.” 

As Hendry said, he is not the first bear to “warn” that stocks are likely to go much higher from here. Here’s a roundup of some recent quotes we’ve heard from the long-time bears: 

John Hussman: “…we should neither expect, rely or be shocked by a further blowoff…”

Jeremy Grantham, GMO: “My personal guess is that the US market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years…”

Richard Russell: “I continue to think that this bull market will end in an upside explosion.”

Bob Janjuah, Nomura: “I still see end Q4 2013, through to end Q1 2014, as the window in which we see a significant risk-on top before giving way, over the last three quarters of 2014 and through 2015, to what could be a 25% to 50% sell-off in global stock markets.”

Uncharted Waters

Is there no one else? No one else? What are we? Chopped liver?

Yes, dear reader, everyone is thinking the same thing. Which means no one is thinking at all.

True, take a look at almost any stock market chart and you will see something that looks like it wants to go up further.

But who knows?

We are sailing in uncharted waters. No maps. No GPS. No road signs. No familiar landmarks. Central banks are all engaged in experimental monetary policy – on an epic scale. Now the financial markets – and perhaps the economy too – are hooked on it.

Two weeks ago, the Fed announced that it would begin scaling back its bond buying. Instead of buying $85 billion of Treasury and government-backed mortgage bonds a month, the Fed will now only buy $75 billion a month.

It was like an alcoholic who tells his wife he is cutting back on his drinking: “From now on, instead of a quart of Jameson a day, I will only drink a fifth of Wild Turkey.”

There was something insincere, too, about the Fed’s additional note – that it would keep interest rates near zero as long as it damned well pleased.

Stay on the Sidelines

Whatever comes of this, our guess is that the drinking spree is not over. In the meantime, anything can happen.

So what do you do?

Stay on the sidelines, we urge.

“But wait,” protests a family member, perhaps speaking for the majority of dear readers.

“Staying on the sidelines has been hugely costly. I don’t know if I want to stay on the sidelines while this stock market continues to go up.”

Ouch!

More and more people are asking the question. And more and more are sure of the answer: No. Which makes us wonder if there really are any buyers left… or whether the buying is a result only of the Fed’s QE.

But as far as we know, as long as the Fed keeps pumping, prices for stocks, Andy Warhol doodles and Manhattan apartments will keep going up.

But that doesn’t mean any of them are good investments.

Stocks, for example, are an option on a bigger Fed-induced bubble. But they’re not cheap.

A simple look at the 12-month “as reported” P/E for the S&P 500 will tell you that. (More on this below from Chris…)

Could this continue? Yes, of course. Or, it could blow sky-high.

Yes – 2013 was one for the history books; 2014 almost surely will be, too.

Regards,

Bill

From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

How to Shop in the ‘Bargain Basement’

A look at the price-to-earnings (P/E) ratio for the S&P on a 12-month “as reported” earnings basis reveals that the index is trading at 20.3 times earnings.

The historic average is a multiple of 15.5.

That means the S&P 500 now trades at a 31% premium to its historic average.

Ed Note: Really good follow-up article to Marc Faber’s ‘Stocks Could Be Dead Money For A While”

It’s nearly official… 

In two days, the U.S. stock market will close its best year since 1997… up around 32%. 

Stocks moved up like clockwork this year. At a max, the market fell 6% from late May through late June. And we haven’t seen a major “correction” in stocks since fall of 2011, when the market fell 19% in a few months. 

This lack of volatility has a lot of folks scared. And it’s easy to see why… 

A shakeout in prices is healthy for any bull market. And without a downturn, investors continue to pile into stocks. Since it has been over two years since the last real correction, it’s easy to believe that we’re due for a price slump. 

Personally, I expect to see HIGHER prices over the next two years. And when the next correction does come, it won’t be a 2008-style crash. 

Let me show you why… 

As longtime DailyWealth readers know, I’m a bit of a number junkie. When you see folks in the mainstream media babbling on, they’re usually tugging on your emotions… “fear” and “greed” are the two emotions often hit when it comes to markets. 

But if someone stopped to ask for the facts – if they asked what history actually says – these arguments often fall apart. The mainstream media often sells a good story, not the facts. 

Well, with all the recent bubble talk about stocks, I set out to see what we should really expect out of the market over the next few years… based on history, of course. 

I looked at 60 years of data with a simple goal… find out how often stock downturns really happen. And more importantly, find out what determines their severity. I promise the results will surprise you… 

Since 1953, we’ve seen 16 “bear markets” in U.S. stocks. My definition of a “bear market” is simply a sustained period of flat or down stock prices. (Specifically, either a 15%-plus fall in prices… or at least six months of price declines.) 

With 16 bear markets over a 60-year testing period, we’re “due” for a bear market every four years. And our last bear market occurred just two years ago, in late 2011. 

Said another way, the idea that we’re “due” for a big downturn in stocks simply isn’t true. Based on history, we should expect another two years of gains before the next bear market. 

But here’s what’s even more important… 

When the next bear market begins, history says it won’t be a 2008-style bust in stocks. Here’s why… 

My testing uncovered an interesting quirk in our 16 bear markets. It turns out that when stocks fall during a recession, the fall tends to be much more severe. The table below shows what I mean… 

As you can see, bear markets last around twice as long during a recession. And they cause an average fall of 38% in recessions versus just 18% in non-recessions. 

In short, when the U.S. economy stinks, bear markets in U.S. stocks are much worse. And that’s great news today. 

You see, while the U.S. appears to be stuck with slow growth, there is no recession in sight. No major economists are signaling a recession today. And our favorite indicators say we’re in the clear as well. 

For stock investors, that means when the next correction does arrive, it won’t be 2008-style. History shows it will be more like the 19% fall we saw in 2011. 

And again, history is clear that we’re not “due” for that correction to happen today. 

When will the next downward move in stocks arrive? That’s a question no one can answer for sure. But when it does, I urge you not to panic like the masses. 

The next correction won’t be a crash. It’ll simply be a bump on the road to higher highs. And I’ll be happy to use it as an opportunity to buy. 

Good investing, 

Brett Eversole

Further Reading: 

Stock Markets

The key force in the stock market has been the “Spring Board Buy” of October 9th.

Effectively, that said that the worst of the potentially bad month was in.

The next force has been the rapid transition to a speculative surge that has replicated the

conclusion of the 2007 and 1937 bull markets. Overall, the common feature has been that

these were bull markets out of an historical crash. The next common feature has been the