Fred Lange Of Lange Financial Services: Thoughts On Markets, Equities, A New Form Of Gridlock, Why He Has Been And Remains Bullish.
The Wall and Broad Report has been fortunate to receive market and trading thoughts and ideas from Fred and Rob Lange of Lange Financial Services ( LFS ) since its inception in mid 2010. It was just before the mid term election that got LFS discussing the benefits of Gridlock for the markets. Between August 2010 and December 2010 Fred Lange had us post on the blog his targets for the markets. As you will see from post dated December 2010 below, he was looking for 1550 on the S&P 500 and 14,000 on the DOW which were subsequently raised based on improving fundamentals and historical valuations. These numbers were much higher than prevailing forecasts. As time progressed, Lange Financial Services remained with their targets and also raised them. They also remained convinced in their belief that Gridlock would continue to help the market. See Post Below.
Now to the present time: In talking with Fred Lange recently, he said he remains bullish on stocks and cautious to negative on long term bonds for all of 2013, something we know in discussing it with him regularly. In addition, just yesterday he explained how the current political situations with the Bengazi scandal and IRS- Gate could prove to be in a way like Gridlock and be at least as good as the Gridlock was a result of the 2010 election. It seems like every technical trader/ investor has been looking for a correction since the beginning of 2013; they have been generally wrong. One thing Fred said years ago was ” if you listen solely to a technical analyst for your decision making then sooner or later you will be destroyed “. It takes fundamentals and technicals together with an emphasis on the fundamental analysis to be successful over the long term.
Furthermore, Fred believes that equities remain very attractive given the favorable economic and earnings forecasts well into 2014. Substantial cash remains on the sidelines awaiting opportunities for deployment in the equity markets. Additionally, central banks around the world have been and are expected to continue purchasing equities like they never have before.
LANGE FINANCIAL SERVICES
December 19, 2010
During the past five-six months we have fully believed that the stock market would move significantly higher into the election and 2011. This optimism heavily reflected the benefits of GRIDLOCK off-setting or tempering the excessively expansive fiscal and economic policies of the Obama Administration, Congress, and their subordinates. These beliefs were the cornerstone of our bullish views on the equity markets. In brief, some of the positives that have emanated from GRIDLOCK were:
1. Extension of the Bush tax cuts for both consumers and business for two years. Further the estate tax rate was lowered to 35% with an individual exemption of $5 million and $10 million per couple.
2. Death of the proposed supplemental pork laden $1.3 trillion Democratic spending proposal.
3. A noticeable increase in consumer confidence as evidenced by sharply higher retail sales.
4. Business is now also showing signs of rising confidence with the sharply increased expectation of higher capital spending. Corporations have $2 trillion on their balance sheets. GDP projections are likely to be increased significantly beginning in the third quarter of 2010 and well into 2011. Growth in developing countries promises to be significant as we enter the New Year.
5. Reciprocally, there is less caution or a less negative attitude on the part of consumers and business.
6. Prospect that the enormous spending and excessiveness will be toned down significantly by the new Congress.
We continue to view the outlook for the equity markets into 2011 very positively. We are projecting earnings for the S&P 500 at a record $100 for 2011 and $110 for 2012. These estimates could prove low if economic conditions become even more favorable than we currently envisioned.
Reflecting rising consumer business and investor confidence, a market valuation of 16 times projected earnings seems realistic as optimism builds as we enter the New Year. If these levels are attained, record levels in the popular market indexes would be enjoyed i.e. above 14,000 in the DOW and 1550 in the S&P 500. This projected valuation would compare quite favorably with the 20 times or more valuations that prevailed in the 1990â€²s and in the past decade. According to BARRONâ€™S the price/earnings ratio was 17 times as we entered 2005 when the S&P was also at 1200 rising to over 20 times in 2007.
Huge cash reserves are held currently by consumers and business. It is estimated that corporations hold $2 trillion in cash supported by huge borrowing potential. Consumers are believed to hold $8 trillion. Both liquidity factors strongly support the probability of a very favorable economic environment in the year[s] ahead. The pre-Presidential election year has historically been an up year. We are confident that the historic pattern will be enjoyed by investors in 2011. We continue to recommend an overweight position in equities.
Lange Financial Services