Celebrating the DOW’s best monthly percentage gain since 2002, CNBC has begun banging the DOW 10,000 drum. Specifically, the network is asking guests whether they think we’ll be there by the end of summer.
In classic fashion, the prototypical CNBC guest these days is no longer talking about a “bottoming process.” (That was three weeks ago.) Now, seven weeks into a rip-roaring bull market, the guests are talking about… the new bull market.
We’re still sceptical. We’re certainly grooving on those “green shoots,” and we hope that the worst recession since the Great Depression is on its last legs. We’re also glad we didn’t panic and throw in the towel at DOW 6500 when the Wall Street Journal ran that DOW 5000 cover story (which put in the bottom, by the way.)
But we’re still not persuaded that stocks won’t suddenly head for the cellar again, especially as people realise that we still have a humongous bad debt problem on our hands. Also, stocks are now almost back to fair value (see Robert Shiller’s chart below).
So if you’re banging the drum about stocks soaring from here, you’re arguing that they’re going to charge right back to being significantly overvalued again.
At today’s levels, stocks are priced to return about 9%-10% a year over the next decade. That’s a much better return than they’ve been priced to return at any time in the past 15 years (other than 7 weeks ago). But we’d feel more comfortable about betting the farm if/when they’re priced to return, say, 17% a year, as they have been at the bottom of other major bear markets. That would be a single digit P/E…