Buy and hold investors from the Aug.'00 high have made all of 1.32%/yr through May 2014

The August 2000 level of 2045 was the inflation-adjusted all-time high for the S&P500. Average annual returns adjusted for inflation have been a paltry 1.32% since then, indicating how steeply valued stocks were at the time: The Shiller p/e was 42.87. h/t politicalcalculations.blogspot.com

Average real rate of return from stocks since 2000 highs didn't turn positive until May 2013

Through April 2013 your real return annually was negative on average. August 2000 is the benchmark for the inflation-adjusted high for the S&P500 at 2045. Through May 2013 your real return annually turned positive on average. h/t politicalcalculations.blogspot.com

Bob Brinker was right in March 2003, but not until May 2009 at the earliest

Bob Brinker's gain since March 2003 when he called for his followers to fully invest in the stock market has been an impressive 7.14% per annum inflation-adjusted, on average, in the S&P500 index through March 2014.

Things didn't look anywhere near that good in April 2009, however, when his  return was still -0.45% per annum, inflation-adjusted, on average, for the 6 years plus one month. His returns had plunged at their worst to -2.32% per annum just the month before, through March 2009, because of the market crash, which of course he never saw coming and he never predicted. Bob remained fully invested into the teeth of the 2008-2009 banking apocalypse cum financial panic, and never told his followers to sell, as did Jim Cramer, infamously, the Monday after TARP was signed into law by President George W. Bush on October 3, 2008, a Friday, on national television no less. Who needs Monday morning coffee with that kind of news on NBC? I say Bob Brinker gets a lot of credit for that courage, and Cramer gets nothing but ridicule.

Bob Brinker's advice began to turn positive again in May 2009, as the stock market began to recover with the suspension of mark to market rules by the SEC in late March. Brinker never told anyone to get out of the markets, but soldiered on to where we are today. Was it prescience? Bull-headedness? Luck? Faith?

Here's what I think it was: Bob believes in secular markets, and he knew the secular high in 2000 was not matched in 2007 on an inflation-adjusted basis (1753), so there was no need for caution even though there might be a big correction. The financial collapse made him look like a fool for the size of it, but he knows that today even at 1967 the S&P500 remains well off the real 2000 high of 2045. We could just as easily get a big correction here before we march on to retest that real high.

Either way the market should retest the former high before the secular bear comes to an end, which means we have a bit more to go in point terms, but not very much.

I'm expecting a stock market sell order from Bob Brinker in the not very distant future as we get closer to 2045.

Anyone wanna bet we get as high as 2249?

h/t politicalcalculations.blogspot.com

Tonight's S&P500 remains 4.02% below the August 2000 inflation-adjusted all-time high

2045.09 is the inflation-adjusted all-time high, on August 1, 2000. 1962.87 is the current level of the S&P500, June 20, 2014.

1753.10 is the inflation-adjusted high on October 1, 2007 before the crash. We are currently almost 12% above that.

Your real rate of return with full dividend reinvestment August 2000 to May 2014 is just 1.32% per annum.

Your real rate of return with full dividend reinvestment October 2007 to May 2014 is 3.36% per annum.

Update: And your real rate of return with full dividend reinvestment between August 2000 and October 2007 was -0.51% per annum.

Shiller p/e vs. S&P500 p/e: Was either a guide to investing since 2008?

The merit of the Shiller p/e, which is backward looking, for timing investment decisions is cautioned against even by its supporters like John Hussman. It's something of a straw man to attack people like him for using it that way when they really don't use it to time market entry and exit points. Hussman views the indicator as one of a number of things which help him forecast 10-year returns going forward, a point lost it seems on people who don't read him carefully. High Shiller p/e levels in the present are part of an ensemble of indicators which to Hussman forecast low average annual returns over the course of the next decade.

That said, which has been the better indicator for timing a major allocation of monies to stocks in the recent past, the backward-looking Shiller p/e or the simple S&P500 p/e?

Today's Shiller p/e is a very high 26.06, 57.65% above its mean level of 16.53. The S&P500 p/e is 19.32, 24.56% above its mean level of 15.51. By both measures, today would seem to be a costly time to invest new monies in the stock markets.

How about during the March 2009 period when stocks tanked to their lows during the financial crisis?

The Shiller p/e actually told you to invest, hitting 13.32 on March 1, just days before the markets bottomed. In fact between October 2008 and June 2009 the indicator remained at or below 16.38, in other words below mean level, while the S&P500 inverted bell curve fell from 1100 to 683 and rose to 940. With the S&P500 now over 1900, any time during that woeful period looks in retrospect like a great time to buy. The trouble was that people didn't have any money to invest, being fully invested as usual, riding it all the way down after riding it all the way up.

The S&P500 p/e on the other hand was quite high on March 1, 2009 at 110.37, 612% above its mean level! It most definitely told you NOT to buy then, when you should have bought then. This indicator didn't hit its lows for the period, at the 13 level, until the late summer of 2011 and then only briefly, when interestingly enough the S&P500 was trading near 1100 again, in retrospect another very good time to buy. But at that time the Shiller p/e was above mean, at about 20, and you might have been forgiven for not taking the bait. But because you didn't you've missed an 800 point climb in the S&P500.

You have to go all the way back to the late 1980s to get an S&P500 p/e ratio consistently below 15, and even earlier to the mid-1980s for the Shiller p/e. All of which is to say that stocks have been rather expensive for quite a long time in general, coinciding with the generational focus on it as the way to make the big money for retirement.

In other words, we're in a bubble, and we blew it.

Real returns from stocks since April 2000 have been just 1.3% per annum

Stock market investors who think market peaks like now are good times to add large sums to the equity side might want to consider what would have happened had you gone all in with new monies in the spring of 2000.

Today's real S&P500 for April 1, 2000 was higher than it is today: 2,022.46 then vs. 1951.27 now. The real S&P500 would go on to exceed that level only once: on August 1, 2000 at 2,037.97. It's been a pretty rough ride since then even with the spectacular 5-year run we've just had, added in.

Ironman here provides an excellent tool to calculate your returns in the S&P500 since April 2000 to April 2014, the most recent date available. They are horrible: just 1.3% per annum real, 3.68% not adjusted for inflation.

By way of contrast, Morningstar reports that Vanguard's Total Bond Market Index Fund through yesterday has produced a nominal 15-year return of 5.34% per annum.

S&P500 Hits New All Time High At 1885.52 Today

The Shiller p/e hit 25.99, and the spread to the all time real price high of the S&P500 in August 2000 at 2018.27 narrowed to 6.6%.

Bonds Beat Both Stocks And Cash For The Last 15 Years 1999-2014

The return from cash in the Vanguard Prime Money Market Fund has been 2.3% per year for the last 15 years, according to Morningstar. Note that the return over the last one, three and five years of that period has been effectively zero, which is what you get also from gold at all times and in all places . . . plus the shine.

The return from stocks in the Vanguard S&P500 Index Fund has been 4.2% per year for the last 15 years, according to Morningstar. Note that the one, three and five year returns have been three to five times the 15 year return. The S&P500 is currently very richly valued, and in real terms its level is about 7.1% off its all time high in August 2000.

The return from bonds in the Vanguard Total Bond Market Index Fund has been 5.15% per year for the last 15 years, according to Morningstar. At the current NAV of 10.71, the price of the fund is richly valued, about 2% above what looks like the historical high end of normal at around 10.50 per share.

Your 15 Year Real Return From The S&P500: Just 2% Per Year 1999-2014

The inflation-adjusted return from an investment in the S&P500 from January 1999 to January 2014 is just 2% per year.

At that rate it takes 35 years to double your fortune in real terms.

Calculate your return here.

John Hussman Is Right: High Valuations Since The Late 1990s Have Coincided With Smaller S&P500 Returns

Here's Hussman:

Yes, several reliable valuation measures have hovered at much higher levels since the late-1990’s than were generally seen historically. But that in itself is not evidence that these historically reliable valuation measures are “broken.” It matters that those high valuations have been associated with a period of more than 13 years now where the S&P 500 has scarcely achieved a 3% annual total return.

Here's Ironman's chart of S&P500 returns for the 15 years ended October 2013 showing a real, that is inflation-adjusted, total annual return with dividends fully reinvested of . . . 2.88%:

click to enlarge

Here's Morningstar's chart showing how much better you'd have done in intermediate term bonds like Vanguard's VBIIX, 5.88% nominal per year over the last 15 years (roughly 3.4% real), and that's including this year's bond slaughter:

click to enlarge

Here's the Shiller p/e as of this morning, clearly and excessively above the mean level of 16.50 for most of the time from the 1990s:

click to enlarge

Hussman says investors should expect poor returns from stocks going forward:

[S]tocks are currently at levels that we estimate will provide roughly zero nominal total returns over the next 7-10 years, with historically adequate long-term returns thereafter.

Real 10-Year Cost Of Being In Cash

With an average annual return of 1.77% in the last 10 years, July 2003 to July 2013, the cost of being in cash in VMMXX comes down to the inflation-adjusted return because inflation has averaged in excess of the nominal returns to cash: 2.43% annually over the period. That results in an average annual real return of -0.644% in cash. Ouch. By contrast, the real rate of return of the S&P500 has been +4.63% annually June 2003-June 2013, dividends fully reinvested. Going back 38 years to the inception date of VMMXX, 6-4-1975, the S&P500 has returned a real rate of 6.83% per annum. Cash has returned a nominal 5.58%, but with inflation averaging 3.95%, the real rate of return in cash has been just 1.568% per annum since 1975.

Your Real Return In Stocks Since 2000? Just 0.32% Per Year!

Sad, but true.

Check for yourself, here.

Why you shouldn't feel "forced" to own stocks.

"The perception that investors are 'forced' to hold stocks is driven by a growing inattention to risk. But Investors are not simply choosing between a 3.2% prospective 10-year return in stocks versus a zero return on cash. They are also choosing between an exposure to 30-50% interim losses in stocks versus an exposure to zero loss in cash. They aren’t focused on the 'risk' aspect of the tradeoff, either because they assume that downside risk has been eliminated, or because they believe that they will somehow be able to exit stocks before the tens of millions of other investors who hold an identical expectation that they can do so."

-- John Hussman, here

Rosie May Be Right: Cash May No Longer Be Safe

David Rosenberg points out that financial repression could go on as long as 2018, here:

[T]he Fed said in its December post-meeting press release that it will not budge from its 0% policy rate until the U.S. unemployment rate drops to 6.5%. It is currently around 8%.

We have done estimates based on various assumptions and found that achieving this Holy Grail likely takes us to the opening months of 2018 or another five years of what is otherwise known as financial repression.

People think their money is safe in cash, but it isn’t.

Following on that, just compare cash in the form of Vanguard's Prime Money Market Fund with stocks in the form of Vanguard's Total Stock Market Index Fund over the last five years and you will see that while cash was relatively safe compared to stocks for the four years up to May 2012 with stocks mostly underperforming cash, since then stocks have firmly broken out, as of about May 31, 2012 (the dot on the chart grabbed from Morningstar).

The only problem is that with a Shiller p/e today of 24.26 it's an awfully rich time to be investing in stocks which have reached new all-time highs.

And the alternatives don't look very attractive either.

At this hour the gold/oil ratio stands at 15 indicating that relative to each other their prices may have normalized but both at high levels relative to the long term.

Housing prices also are at the far upper end of the long term trend prior to the bubble.

And the bond market is within 2% of its highest valuations and also remains expensive to buy.

In my humble opinion the smartest thing to buy under these conditions is any long term debt one may be carrying at a rate of interest higher than about 3.5%. To retire it one would have to deploy capital, i.e. savings, but you can hardly lock in say 6.25% for twenty or twenty-five years anywhere else more easily than by retiring a 30yr-mortgage taken out at that rate in 2007. Bonds have returned less than 5% annually over the last ten years, and one year returns have fallen below 3.5%.

Still, there is no substitute for savings.

The surest way to get a 10% return is to save one dollar of every ten earned.

Stocks Have Barely Beaten The Lowly Money Markets From The March 2000 Highs

For the full thirteen year period since March 2000 (when the S&P500 reached the last of six annual new high watermarks going back to 1995) to March 2013 (when the index had firmly revisited the 1500 level) stocks have barely beaten the performance of the lowly money markets.

Had you invested $10,000 in, say, the Vanguard S&P500 Index Fund, VFINX, you would have reaped an extra $3,900.02 (39%).

But the same amount invested in Vanguard's Prime Money Market Fund, VMMXX, would have netted you $3,370.96 (33.7%).

Charts from Morningstar using Vanguard data:

Your Real 5-yr. Rate Of Return In Stocks Has Been Poor, Actually

The real rate of return in the S&P500 for the five years from February 2008 to February 2013 hasn't been all that good, actually. Just 2.61% per year. And long term investors have had to stomach all the volatility just to get that measly return. Meanwhile investors in the Vanguard Total Bond Market Index Fund have received returns in excess of 5%, while being able to sleep at night.

Has it all been worth it, Ben?

Calculator available here.

Workers Depending On 2 Part Time Jobs Hits All Time High

figures annualized to show the trend

The latest monthly reading in December 2012 shows that a record 2.118 million Americans have part time jobs both for their primary work and their secondary work, 23% above the upper range limit of 1.72 million breached in 2006.

In both August 2000 and August 2002 the low point in the monthly measurement was reached: 1.398 million. The all time high now is 51.5% higher than that low point from over ten years ago.

Compared To Cash Or Stocks, Bonds Were Best In Last 5 Years

Not adjusted for inflation, the average annual return of the S&P500 Index has been about 0.84% over the last five years, October on October, dividends fully reinvested, but you didn't get much sleep.

The average annual return of the Vanguard Prime Money Market Fund has been about 0.76%, November on November, and you slept like a baby.

Stocks vs. cash has been nearly a wash, but the average annual return of the Vanguard Total Bond Market Index has been 5.88%, November on November. The big gains began in earnest late in 2008.

"Valuations Remain Unusually Rich"

So says John Hussman, here:

Valuations remain unusually rich on our measures . . . it should be of some concern (though it is clearly not) that the price/revenue multiple of the S&P 500 is now above any level seen prior to the late-1990’s market bubble. Prior to that time, the highest post-war peaks were in 1965 (which was not followed by a deep or immediate decline, but marked the onset of what would ultimately become a 17-year secular bear market), and 1972, just before the S&P 500 lost nearly half of its value.

The Shiller p/e bears him out (esp. the post-war peak on January 1, 1966 at 24.06 vs. nearly 23 today, and the post-war nadir of 6.64 in July/August 1982, a 72 percent decline in valuation over the course of the secular bear and the mother of all buying opportunities since the war):

The price for performance remains steep.

The Market Was Already Overvalued In October 2011, And It Still Is

So says Robert P. Seawright, here, and here:

[T]he market remains overvalued and, if anything, somewhat more overvalued than it was last October. As I have been saying for a long time ... – we are (since 2000) in the throes of a secular bear market, subject to strong cyclical swings in either direction. I continue to encourage investors to be skeptical, cautious, and defensive yet opportunistic. I suggest that they look to take advantage of the opportunities that present themselves while carefully managing and mitigating risk, which should remain their top priority.

Seawright presents the case for overvaluation using a variety of metrics, not the least important of which is the Shiller p/e. Long term investors remain skeptical of the present rally based on these metrics.

Nevertheless, the SP500 shot up over 100 points from 1099 between October 3-20, 2011, and is again above 1400 today, a nominal gain of over 27 percent in less than a year. That's a pretty long sucker rally.