You Heard It Here First
At "A Dash" we favor methods where there is plenty of data and reliance on the fundamentals. This means looking at things like forward earnings and valuation where there are thousands of data points over twenty-five years. We did not buy the perma-bulls in 2000 and we will not sell based on the perma bears now.
Others like to look at methods where they use things like the Presidential Cycle or other calendar-based methods. These analysts only have a handful of cycles in recent history so they are forced to go back to the "Dead Ball Era" to get enough data. (Is it really useful to ask what Taft or Harding or Hoover or Eisenhower did in the third year of their terms to spur the economy?) Those adhering to this approach uncritially accept rallies in a particular year, like 1999, that had nothing to do with the election cycle (Y2K buildup) or 2003 (apparent, albeit misguided, resolution of Iraq).
OK, that is the method they have chosen. The question now is the following:
What will be their prognosis for 2007?
Intellectual honesty would suggest that these analysts should now become quite bullish. As we end the "bad year" in the election cycle, things should look good for 2007. The sharpest election cycle studies suggest that the rallies begin late in the preceding year. That would be right now.
"A Dash" goes on record as predicting that most of the bearish analysts will find some reason to suggest that next year "will be different this time." We note that the bear cult did not apply this sort of year-by-year analysis to past cases, but we suspect they will suddenly do so for the coming year. They will suggest that the market, despite a multi-year compression of PE multiples, has already "baked in" a Goldilocks or "soft landing" scenario. They will maintain that they alone have adjusted for a housing decline in their economic forecasts, with the consensus suffering from some sort of myopia.
You heard it here first. We’ll be watching.