One of the funnier shows in the Seinfeld comedy series was “Serenity Now.” The show centered on that phrase (serenity now) as George’s father, Frank Costanza, repeats the phase numerous times every time he gets upset (see it here: serenity). This morning, however, we are using the phrase in reference to Leon Tuey, who states in a recent Edmonton Journal article (link) when referring to his “winter getaway” in Rancho Mirage: “I do absolutely nothing here. I watch the stock market all day long, just as I do at home in Vancouver.” “I get absolute peace and quiet here. A lot of people say, ‘Aren’t you lonely?’ And I say this is exactly what I seek: solitude, so I can think better.” Indeed, “serenity now.”
In said article, Tuey, a former guru at Canadian-based BMO Nesbitt Burns, said he believes this secular bull market has years left to run. While other pundits garner more headlines, Tuey has a habit of being right much more often than he is wrong. Now in his 80s, he is more content with making money for his clients than grabbing headlines. Extremely interesting to Andrew and I were his comments about this secular bull market. To wit: “As Tuey sees it, the first leg of the bull market began in October 2008 and ended in May of 2015, when stocks hit what were then new highs. The second leg began in February of this year, and he expects it to be the longest and strongest leg of all.”
Coincidentally, it was on October 10, 2008 we noted that 92.6% of all stock traded on the New York Stock Exchange made new annual lows. In our notes dating back into the 1960s that has never happened. It’s like an eight standard deviation event; it is not supposed to happen in your lifetime. At the time, we also stated the bottoming process had begun. It was in October 2008 the vast majority of stock bottomed. However, the financial stocks kept going down into March 2009, which is what carried the S&P 500 lower into its intraday low of ~666 on March 6, but we digress.
Students of stock market history will recall secular bull markets tend to have three legs. If Mr. Tuey is correct, we are barely into the second leg of this bull market, which as previously stated, he thinks is going to be, “The longest and strongest leg of all.” Of course that “foots” with our thinking that there is at least another seven to eight years left in this secular bull market. In fact, Tom Lee, sagacious captain of FundStrat, recently published a chart showing the potential for this “bull” to extend into the 2029-2034 timeframe. That seems a touch long to us, but heck, if that’s what the markets give us, we will certainly take it! I did find Tuey’s closing comments, in Gary Lamphier’s article, intriguing: “The second key point is that for the past 100 years or more, the more severe the economic downturn, the more powerful and enduring is the subsequent bull market. When you’re faced with financial Armageddon as the U.S. was back in 2008, the Fed eases much more aggressively than ever before, and they stay accommodative for much longer than normal.”
To be sure, all of this fits with our thesis the equity markets are transitioning from an interest rate-driven to an earnings-driven secular bull market. To that point, many of y’all know we are on an email “string” with folks like Arthur Cashin, David Kotok, Dennis Gartman, Bob Pisani, etc. It is a freewheeling exchange of thoughts that provides very interesting insights. Last Thursday, the savvy Bob Pisani wrote this:
President-elect Trump's proposed nominee for U.S. Treasury Secretary, Steven Mnuchin, said on our air yesterday that the administration was still targeting a reduction in the corporate tax rate from 35% to 15%. The current 2017 estimate for the entire S&P 500 is roughly $131 per share. Thompson estimates that every 1 percentage point reduction in the corporate tax rate could "hypothetically" add $1.31 to 2017 earnings. So do the math: if there is a full 20 percentage point reduction in the tax rate (from 35% to 15%), that's $1.31 x 20 = $26.20. That implies an increase in earnings of close to 20%, or $157. What does that mean for stock prices? The S&P is currently trading at a multiple (PE ratio) of 17, high by historical standards. Applying that 17 multiple to earnings of $157, we get a price on the S&P 500 of roughly 2,669 for 2017. That is 469 points or roughly 20% above where it is today.
