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After a disappointing May, markets in the U.S. swung back to positive territory after a continued rally on Wednesday and Thursday (although it fizzled somewhat by the close).Experts weighed in, with a few saying that the rally will be short lived. Two went so far as to say that the S&P 500 was headed back below 900.
Also on the table: talk of QE in the U.S.
Most analysts are in agreement that it’s coming, they’re just not sure if it will happen in a few weeks time.
'They Must Know Something That I Don't. Remember those seven words, they're the seven most deadly words in investing and valuation..... You value it when the stock is at $640, you come up with a value of $200. What's your rational side saying? Don't buy that stock, right? Then you hear this voice… they must know something that you don't....'
'The ECB was only set up with a price stability mandate, and its leaders are hence much more constrained than Federal Reserve officials. Simply put, the European armies were not set up with effective weapons. In the US we have bazookas, tomahawks and howitzers. In Europe, they can barely agree to fire a musket. This unfortunate set up for Europe means that they can become a serious negative externality on the world without any internal ability to fix the problem. Of course, then it becomes incumbent on the rest of the world to directly involve themselves in combating Europe's turmoil (sadly we have seen this movie a few too many times in the last 100 years).'
'With one month left in the Fed's 3rd stimulus program, the equity risk premium (ERP) is again expanding toward levels reached last summer. ERP retracements following the end of QE1 and QE2 were greater than 100%; a similar move appears to be underway...Using history as a guide, our ERP scenario analysis places the downside potential for the S&P between 1,100 and 1,200...While it may be too early for the equity market to discount this outcome, today's employment report makes the 1980 scenario (a stock market rally despite a bad macro environment) increasingly likely, in our view.'
'Of all his bearish predictions, his outlook for equities proved the most frightening; he believes that the S&P 500 will fall to 800 this year. That's based on his projections for $80 S&P operating earnings and a P/E multiple for equities of 10x at a bear market low. 'Look at the good news,' Shilling said optimistically. 'That's only 36 per cent lower than it is now. If we go back to the peak in early April it was 43 per cent lower. I mean, we're getting there!' '
'It took some supply shocks to raise both deferred and prompt prices; and the price increase induced a scramble for new supplies via what turned out to be an unprecedented surge in upstream capital expenditures starting in 2003 (see Figure 1). But it took nearly a full decade to start showing results. The results are just starting to provide evidence that the cyclical trough in the petroleum sector has now passed and the global petroleum industry has just started a new phase in which supply is likely to grow robustly.'
'Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events.'
'No wonder, growth and solvency remain so elusive for the programme countries, including in Ireland and Portugal where citizens have been generally supportive of their governments' policies. The possibility that the counter factual -- i.e., no access to external emergency financing -- could have yielded a worse outcome is no excuse for repeating the mistake in Spain. Indeed, This is more than just in the country's self interest. Given its size and crucial role in any revived eurozone (along with France, Germany and Italy), Europe cannot afford Spain to be a long-term ward of the state.'
''Monetary policy is not enough. It should not get our false hopes up that monetary policy is going to solve our problems,' the Nobel Prize winner and Columbia University professor told Betty Liu on Bloomberg TV. Instead, Stiglitz pushed for greater stimulus out of Congress, saying the government should get its books in order at a future date when a full scale recover took hold.'
'We're in a secular bear market that began in 2000 and will run till whenever it ends. We could guesstimate sometime between Thursday and 2017, somewhere in that range. And history shows that secular bear markets have major sell offs and rallies, very very significant moves, and by the time its all said and done you haven't made a whole lot of progress.'
'Yes, I certainly agree with that. This is the first time in 60 years that the dividend yield on the market exceeds long term interest rates. It's the first time in 60 years that you don't need gains in stocks to have a higher return than gains on bonds. You don't have to worry about the day to day volatility if the corporation has good coverage on its dividends, because it's going to pay. That's a very special position for the stock market to be in. And I agree completely with that for long term investors.'
'Obama's re-election odds have wavered after a string of poor jobs reports, with many polls putting the president within the margin of error for a win this November. But for Obama and Romney supporters, the best insight may be how the markets are performing come fall. Below we present a chart we've seen many times before (updated through Friday's close): Obama's re-election odds (as calculated by InTrade) against the S&P 500. The two are somewhat correlated -- showing an R-squared of 0.62 -- and stock market historian Sam Stovall says that equities predict the winner of the presidential ballot with 88 per cent accuracy.'
'We remain strongly defensive here, which will ideally be resolved by a sharp improvement in valuations followed by early improvement in market action, but we'll respond to shifts in the evidence however conditions change. I doubt that we'll be as defensive as we've been recently for a great while longer, but that's another way of saying that I expect significant market events in fairly short order.'
'Our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown. At a time when Fed officials are far short of their dual mandate of maximum employment and 2% inflation, financial conditions should be accommodative and GDP growth should be well above trend in order to re-employ displaced workers and avoid a gradual transformation of cyclical into structural unemployment. Instead, financial conditions are only roughly at average levels according to our GSFCI, and GDP growth is below its long-term trend. Moreover, both financial conditions and growth have been moving in the wrong direction, to a degree that we think warrants action.'
'I have pointed out that in 2011, China's nominal $GDP rose by 1.3 trillion, equivalent to creating an economy the size of Greece every 11½ weeks and an economy the size of Spain in not much more than a year,' O'Neill writes. 'The BRIC countries collectively contributed around $2.2 trillion, not too far off the equivalent of another Italy.'
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