As the markets have moved sideways and consolidated the past month, my portfolio has limped along with them losing roughly 35% since mid July, but treading water since October. I try to remain objective about my leveraged short positions, but sometimes I get lost in the current euphoria of a 60% run-up since early March and doubt my myself, but that's only to be expected. For every Meredith Whitney or Bill Gross in their bearish predictions, there are plenty of bulls to take the opposite side of the trade. Where this market will go is anybody's guess.
This morning I read the Carnegie Management Group Hotline which is free to anybody with an Internet connection. They do have stock and ETF recommendations, but you must be a premium subscriber to access that. For my purposes, just reading what they had to say today was good enough for me. The hotline said: "The media and the market 'experts' would like for us to believe that the economy has bottomed and the next bull market is underway. That is simply not possible. Dividend yields are near all-time lows. The S&P 500 P/E ratio for reported earnings is an astronomical 140--the highest level in recorded history according to Standard & Poor's.". I have read on some blogs that the P/E for the S&P 500 is near 140, but I've never seen it in writing from an accredited source. I checked the S&P Web site and they have the 2009 P/E at 88 which is sky high. Where they got the 140 from, I don't know, but it was probably in the way that they read the data and calculated it. In any event, the P/E ratio is well above it's historical norm and things tend to revert to the mean. This doesn't imply that it can't go higher, just that it's going to go lower at some point.
The Carnegie Management Group Hotline also had some more interesting data: "Every decade, the markets face a grave three-year cycle....do you remember:
The recession and bear market of 1920, 1921, and 1922?
The recession and bear market of 1930, 1931, and 1932?
The recession and bear market of 1940 and 1941?
The recession and bear market of 1950, 1951, and 1952?
The recession and bear market of 1960, 1961, and 1962?
The recession and bear market of 1970, 1971, and 1972?
The recession and bear market of 1980, 1981, and 1982?
The recession and bear market of 1990, 1991, and 1992?
The recession and bear market of 2000, 2001, and 2002?"
Just because there is a pattern here, does not mean that the pattern will repeat itself, but there is a precedent. If this piece of information is worth anything, 2010 and 2011 could mean tough times ahead which would be great for my ETF allocations. However, I remind myself of what Warren Buffett said: "Beware of past-performance 'proofs' in finance: If history books were the key to riches, the Forbes 400 would consist of librarians.". For some reason, Warren Buffett always sobers me up.