In the format of our weekly Succinct Summations, here are the overall Bull and Bear Cases for the markets:

For the Bulls:

1) Assuming deal (House still needs to pass whatever Senate sends over) , DC just bought itself another 3-4 months.
2) Celebrate the Yellen put which will likely be no different than the Bernanke and Greenspan one.
3) 2014 consensus eps is expected to rise 10.6% y/o/y putting the market multiple at a reasonable 14x 2014 estimate.
4) Interest rates have headed higher because the economy is getting better with ISM manufacturing at more than a two yr high, vehicle sales doing well, jobless claims are low, European economies stabilizing and with China hanging in.
5) If bonds keep selling off, we’ll see rotation into stocks.
6) Companies have record cash levels to buy back stock and increase dividends.
7) With interest rates still historically low, there is no other place but stocks.
8) This rally gets little respect.

For the Bears:

1) My Vegas odds are 2:1 that the conversation on Shutdown and debt ceiling over the past 3 months will be fully repeated in the next 3-4 months. The explosion in the national debt is now getting very scary.
2) We’ve already priced in QE so many times this year as evidenced by the P/E expansion notwithstanding the diminishing returns of QE. Stock price increases in 2013 are so far above the dollar size of Fed purchases and the growth in the actual economy and earnings.
3) With nominal GDP at 3% and profit margins now peaking, there is no chance we’ll see 10.6% eps growth in 2014 and with margins 70% above its historical mean, stocks are very overvalued at current levels on normalized eps.
4) Interest rates have headed higher because the Fed is losing control of the long end of the curve. Even with full speed QE for a while longer, the 10 yr yield is still 100 bps off the May low. All the Fed is doing now is just monetizing our budget deficits and then some.
5) The US economy is not getting better. It’s still stuck in the 1.5-2% range. ISM services down sharply in September, housing gains moderating, retail sales sluggish and now government spending a drag.
6) Higher interest rates are kryptonite to markets and an economy that are addicted to low rates. Rotation concept is nonsensical as for every seller of a bond there has to be a buyer of it and there is someone selling that share of stock that is bought. It’s the aggressiveness of the buying and selling that matters.
7) Corporate debt is at record highs and companies are still reluctant to spend on property, plant, equipment and labor.
8) Cash is an asset class if fundamentals are challenging and stocks are richly priced.
9) Outside of perma bears, there are no bears. Everyone wants to buy the dip as measured by the weekly Investors Intelligence data.




Peter Boockvar, Chief Market Analyst
The Lindsey Group LLC
Main: 703-621-1170

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “The Bull and Bear Case”

  1. chartist says:

    I think I will go along with David Tepper who made $2.2 billion running a hedge fund last year: QE will cause further PE expansion to the 18-20 range, meaning the market moves higher.

  2. [...] Peter Boockvar: The Bull and Bear Case for equities – now in convenient bullet-point format!  (TBP) [...]

  3. Concerned Neighbour says:

    I’m beginning to think these regular debt limit crises are bullish for the “markets”. The S&P has now surged 70 points in a matter of days due to the prospect of a solution from the Senate. (You might argue it’s due to the Yellen nomination, but that was telegraphed a long while ago. Then again, stocks could be pricing in infinite QE in perpetuity for the nth time). Of course, the Senate was never the problem, but that doesn’t seem to matter. You have to wonder if the central bankers look at the beast they created and think, “We may have gone too far”. No evidence of that yet, of course.

    As for your list:

    Bull Case #1. In a rational forward-looking market, a 3-4 month extension is of little value, especially given there will be no elections in the meantime to shift the balance of power.

    Bull Case #2. If Bernanke used a helicopter, Yellen promises to create vast fleets of the things. Temporary stock market stimulus in perpetuity. This is all that matters, apparently.

    I agree with your bear case points, but again, Bull Case #2 trumps all.

  4. [...] The bull and bear case.  (Big Picture) [...]

  5. VIX For The People says:

    Additional one for the bears: High level of securities margin debt.

  6. [...] Rocket fuel (TRB); see also, the bull and bear case (TBP) [...]

  7. [...] Over here is a decent summary of bull and bear cases for the equities market. Not a lot to read, so you can quickly glance over the points. [...]

  8. [...] The bull and bear case.  (Big Picture) [...]

  9. alexwordpress says:

    Peter, nice article. I also enjoy your occasional appearances on CNBC. I was wondering if you could address the following question.
    Both Bull and Bear cases mention QE and easy monetary policy. One of the themes you hear over and over is that markets cannot have a meaningful correction while QE is on at the current rate of 85B / month because all this liquidity get pumped into the stock market by market participants (primary dealers) who sell treasuries and MBS to the FED and get cash in return. But is that true? Does the entire amount actually go into the stock market via this plumbing mechanism? Unless the FED actually buys stocks when they drop (which it doesn’t seem like they do), isn’t that still possible for markets to drop while QE takes place?
    To summarize the question, does the QE actually provide a sea of liquidity which immediately goes into stocks and makes it mathematically impossible for them to drop in a meaningful way, or is it more sentiment driven, where a perception of safety (Fed’s put) induces bidding of speculative assets?

  10. alexwordpress says:

    Apologies, I guess the question above should have been addressed to Barry, not Peter.

  11. [...] Now that we’ve got the political issues put to rest for a short while, what are the other factors driving the market? Peter Boockvar offers a solid summary of the bullish and bearish cases. [...]