It is very hard to see how equities are going to avoid a significant downturn. The last three years of stock growth was mirrored by an increase in P/E. CFO's have been acting like homeowners in 2008, getting a home equity loan, and going on a cruise. And there are default swaps on all of it.
I am going to go out on a limb and say the Nasdaq goes sub 3500 in 2016. I think 3000 is a possibility. It's 4928 atm.
Have you ever seen a decent rationale for issuing debt for the sole purpose of buying stock or issuing dividends? It's a widely accepted practice, but I've never seen anyone explain it in a way that doesn't make me scratch my head. Even Apple, they of $150 billion in cash reserves overseas, issued something like $17 billion in debt in 2014 (or thereabouts) for no other reason than to up their dividend.
I think stock manipulation is the only reasonable explanation. What else could it be. FICC trading makes a lot of people a lot of money, so the more fixed income securities there are to play with, the more traders can buttfuck each other. The gun-to-the-head tactics of so called "activist investors" seem to be calling the shots in many of these cases, but I don't think they're going to be leaving many of their targeted companies in better shape than they found them. As the nihilistic saying in trading goes: I'll be gone; you'll be gone.
Seems to be to make money for the shareholders. Of course, Apple and company can say that they need to have an attractive dividend to increase investment, but the line between attracting investors and bleeding the company has probably been crossed in many cases. Still, the argument could be made that any corporation is just a money-making project, and if debt is cheap, then they should take advantage of it.
- It is very hard to see how equities are going to avoid a significant downturn.
It's worth noting that this is basically statistically certain. At some point, equities are going to take a dive. The problem is no one knows when, and if you stay out of equities for years while waiting for the dip you could miss years of gains. Better to keep a reasonable amount in equities and stick to a simple asset allocation.
I would be very surprised if this rally has years left. Of course, individual stocks can buck the trend, but for quite some time leading up to the rate hike, good news was bad news as there remained hope that rate hikes would be further delayed.
Here is an interesting ETF that tracks junk bonds.
The last six months look like a genuine downturn. As it seems that bond fueled buybacks and dividends will fall, it seems a major contributor to the bull market has been lost.
I don't see much reason for a continued rally at this point.