From Porter Stansberry with Sean Goldsmith in S&A Digest Premium:
Whenever two of our analysts disagree on something, it always generates an uproar from our readers. And my bearish call for 2014 conflicts with the stance of two of my colleagues…
First off, I (Porter) think it's important that people know the analysts at Stansberry & Associates are all independent. That means we often have different ideas about things.
Right now, specifically, I'm bearish on the market... My friends Drs. Steve Sjuggerud and David "Doc" Eifrig believe the bull market has longer to run.
I have tons of respect for what Doc says and the analysis he has done. And I have tremendous respect for what Steve does. But with all due respect, I just have a different opinion.
Even though we are looking at many of the same numbers, I have a different view of the market. My view is predicated on a belief that the Federal Reserve is going to stop quantitative easing. When that happens, interest rates will go higher and stocks will go lower. It's important people understand that's the catalyst for my view.
My research team and I have studied 2,000 stocks across 39 different sectors for my last issue to understand what stocks did when the Fed stopped quantitative easing. In every case, every single sector we studied declined on average. So the stock market does not like the Fed stepping out of the bond market... That has absolutely been the case.
Today, Steve's view is that asset prices will all go a lot further than we expect. And he could easily be right, but that's just not my view. Doc's view is that with short-term interest rates low, the odds favor stocks in general.
So in both cases, I just disagree with their perception of what the future will bring. I have plenty of respect for their abilities... And they could be right.
But with the median price-to-earnings (P/E) ratio for stocks at a record high, I don't believe stocks are cheap. You can make an argument that stocks could get more expensive. That can always happen. But in my view, you cannot call them cheap.
And the market is being driven by the Fed pursuing policies that were unseen in America ever before. We've never, ever had the government print $3.5 trillion. So you can't deny that the market is in some way being driven by a policy that's not sustainable.
In my view, that means stocks are no longer safe. When stocks are no longer safe and cheap, why would I make big allocations to them? I might want to hold onto what I've got and see what happens... And that's, of course, what we're actually doing in the Stansberry's Investment Advisory model portfolio.
Likewise, we recommended a stock that we actually think could go up despite a stop in quantitative easing. So it's not as though I'm saying every single stock in the whole world will crash. I'm saying I believe absent quantitative easing, you'll see higher interest rates. And with higher interest rates, you'll see lower valuations for stocks in general.
And because stocks are trading at a record-high median valuation, I believe that most stocks are going to decline. It would not surprise me at all to see an across-the-board 50% decline in the median valuation of the S&P 500. And it wouldn't surprise me at all to see some stocks fall by more than 50%. And that means it will be a tough environment for most investors next year.
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