Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

NEW$ & VIEW$ (16 JULY 2014)

U.S. RETAIL SALES STRONGER THAN PORTRAYED IN MEDIA

Retail sales climbed 0.2% in June, the smallest gain since January, the Commerce Department said Tuesday. Excluding autos, retail sales climbed a sturdier 0.4% last month.

Outlays at restaurants, clothing outlets and department stores picked up, while purchases of cars, furniture and building materials fell.

That reversed the performance seen in earlier months when sales of home goods and furniture rose, a reflection of Americans still making trade-offs while constrained by weak wage growth. (…)

Tuesday’s report did show retail sales were higher in May than previously estimated (+0.5% vs +0.3%), leading to a quarter of moderate growth after an abysmal winter. Many economists subsequently upgraded their estimates for second-quarter growth of gross domestic product. Most projections now hover around a 3% annual pace, which would serve only to reverse a first-quarter contraction of 2.9% that many economists blamed on severe snow storms and cold weather.

Uneven Showing

Just kidding The truth is that sales are pretty strong. Non-auto sales less gasoline & building materials, which go into the GDP calculations, gained 0.5% (+4.2% Y/Y) after gaining 0.3% in each of May and April. That is a 4.5% annualized rate in Q2. Ex-autos, sales rose 0.4% after advancing 1.0% in the previous 2 months. That is a 5.7% annualized rate. Core retail sales have been accelerating smartly since December as this chart (Doug Short) shows.

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Another good, revealing chart, this one from CalculatedRisk:

The momentum is continuing into July:image

This is not in retail sales:

Christie’s Sells $4.5 Billion of Artwork Christie’s International said it sold $4.5 billion of fine and decorative art during the first half of the year, up 22% from the same period a year ago.

Yellen begins to see the reality:

Fed’s Yellen Hedges Her View on Rates

“If the labor market continues to improve more quickly than anticipated by the [Fed],” she told the Senate Banking Committee, “then increases in the federal-funds rate target likely would occur sooner and be more rapid than currently envisioned.” The Fed has held its benchmark short-term rate near zero since late 2008.

While continuing to stress that “a high degree of monetary policy accommodation remains appropriate,” Ms. Yellen’s acknowledgment that rates could rise sooner than planned marks a notable new hedge. She made a similar comment at a news conference in June, but without pointing out that the unemployment rate and other job-market measures were improving more quickly than officials expected. (…)

She pointed to low levels of labor-force participation and slow wage growth as signs of continued “significant slack” in the job market.

In answers to senators’ questions, she added the Fed has been fooled in the past during this economic recovery by “false dawns.” (…)

The Homeownership Rate for Millennials Has Hit Bottom

More millennials became homeowners last year, a sign that the homeownership rate among America’s young adults may have hit bottom, according to a new analysis of Census data published Wednesday.

While still historically very low, homeownership among 18-to-34-year-olds increased last year, even as it declined for 35-to-54 year-olds, according to a report by Jed Kolko, chief economist at Trulia Inc.TRLA -2.91%, the online real-estate information company.

Mr. Kolko’s analysis also says demographic changes among young adults, including delaying marriage and parenthood, account for nearly all of the declines in homeownership among young adults. Many of those changes, he says, were well underway even before the recession hit.

This undercuts the popular narrative that millennials have been irrevocably scarred by the housing bust. Rather, it suggests the subprime-mortgage bubble of the past decade fueled purchases that otherwise wouldn’t have taken place due to demographic changes that were already well underway.

The analysis, meanwhile, shows that homeownership rates for 35-to-54 year-olds remains at new post-crisis lows, even after adjusting for demographic changes.

The Trulia report calculates the homeownership rate slightly different from the Census. Where the Census counts the number of owner-occupied households divided by the number of total households, Mr. Kolko counts the number of owner-occupied households divided by the number of adults.

The Census tally shows the number of households that own instead of rent, which means that the homeownership rate can drop if the number of new renters outnumbers the number of new owners, even when both are increasing. For example, if more millennials move out of their parents’ basements, with the majority renting to rent apartments, this will lead to a decline in the homeownership rate.

Mr. Kolko’s adjusted version, what he calls the “true” homeownership rate, eliminates this distortion by looking at the entire population and not just those that have formed households.

The analysis shows that the “true” homeownership rate fell to 13.5% in 2012 from 17.2% in 2005. It ticked up slightly to 13.6% in 2013, though it is still lower than at any time since Trulia’s tally begins in 1983. The magnitude of the decline in the “true” homeownership during the housing bubble is actually larger than the decline reported by the Census’ published figures, which show the homeownership rate fell to 36.8% in 2012 from 44.1% in 2005.

The second part of Mr. Kolko’s analysis shows that almost all of the decline in the homeownership rate is due to demographic shifts and not the recent recession. For example, the marriage rate among young adults has dropped by more than a third since 1983. Deferring marriage means more Americans may also buy homes later in their lives. Young adults are more diverse. The share of non-Hispanic whites fell to 57% last year from 73% in 1983. (…)

The good news, he says, is that “there probably hasn’t been a huge shift in millennials’ attitudes towards homeownership…since today’s millennials are roughly as likely to own homes as people with similar demographics two decades ago.” The bad news, of course, is that these demographic shifts aren’t likely to reverse, leaving little room for young-adult homeownership to increase.

Finally, Mr. Kolko finds that the true homeownership rate for 35-to-54 year-olds is still declining. Moreover, after adjusting for demographics, which haven’t been as pronounced for this part of the population as they have for millennials, the homeownership rate is at its lowest level in at least two decades. “The real missing homeowners are the middle-aged,” says Mr. Kolko.

This shouldn’t be a huge surprise. Most millennials weren’t buying homes eight years ago, when the foreclosure crisis hit, but many Americans who are 35-to-54 years-old today were much more likely to be purchasing homes last decade.

Yet:

Mortgage Applications Decrease in Latest MBA Weekly Survey

The seasonally adjusted Purchase Index decreased 8 percent from one week earlier to the lowest level since February 2014.

China GDP shows progress on rebalancing Shoppers contribute more to growth than investment

China’s economy grew by 7.5 per cent in the second quarter, topping expectations and suggesting stimulus efforts to stabilise growth have succeeded in offsetting the impact of a weak property market. (…)

Charts

Fiscal spending rose 26 per cent year-on-year in June, according to government data.

Industrial production, a key driver of China’s economy, rose by 9.2 per cent in June, the strongest pace since December, the National Bureau of Statistics said.

Fixed asset investment grew at 17.3 per cent year-on-year in the first half of the year, up from 17.2 per cent in the five months to May. Real estate investment continued to suffer, however, with growth slowing to 14.1 per cent in the first half from 14.7 per cent in the first five months. The resilience of overall investment even in the face of falling property investment suggests that state-backed projects have helped to fill the gap.

The 3.6 percentage points of overall growth generated by investment in the first half, however, was less than consumption, which contributed 4.1 percentage points. (Net exports contracted 0.2 per cent.)

The flagging property market is expected to drag on growth in the second half: inventories of unsold flats was up 30 per cent year-on-year by end-May, according to a report by E-house China. (…)

Charts  Charts

On a seasonally adjusted basis, GDP expanded an annualized 8.2%, an acceleration from 6.1% in the first quarter

Chinese credit grows fastest in 3 months

New credit totalled Rmb1.96tn ($316bn) in June, the highest monthly total since March and nearly double the amount from the same period last year, according to Financial Times calculations based on data released by the People’s Bank of China on Tuesday.

Broad M2 money supply increased by 14.2 per cent in June, ahead of the consensus forecast of 13.5 per cent.

Local-currency bank loans rose by Rmb1.08tn in June, well above expectations of Rmb915bn. Off-balance-sheet credit also rose sharply. Trust loans, the largest component of China’s so-called shadow banking system, rose Rmb91bn, up from Rmb40bn in May.

Strong El Nino Seen Unlikely by Australia as Pacific Cools
EARNINGS WATCH

(…) J.P. Morgan and Goldman reported that some clients had turned more active in the quarter’s final weeks, helping the banks avoid a steeper drop. Both banks still posted double-digit trading-revenue declines, and neither offered investors much comfort that the June pickup would continue. (…)

Goldman became the first big U.S. bank to boast higher quarterly revenue than it reported for a year earlier. The New York firm said total revenue climbed 6% to $9.13 billion, while net income rose 5.5% to $2.04 billion, or $4.10 a share. Analysts polled by Thomson Reuters expected per-share earnings of $3.05 on revenue of $7.97 billion.

Goldman leaned heavily on other businesses to offset the trading decline. Its investment-banking arm reported revenue of $1.78 billion, up 15% from a year ago. The firm had a record quarter in underwriting revenue, and merger-advisory revenue climbed 4.1%. Goldman’s own portfolio of equity and debt investments surged in value.

Goldman, which hadn’t offered a specific forecast earlier, reported that trading revenue in fixed income, currencies and commodities, or FICC, fell 8.6% from a year earlier to $2.22 billion. Citigroup on Monday reported its own FICC revenue had dropped 12%. (…)

J.P. Morgan, the largest U.S. bank by assets, posted net income of $5.99 billion, or $1.46 a share, for the second quarter, compared with $6.5 billion, or $1.60 a share, a year earlier. Revenue declined 3% to $24.45 billion, but both figures beat analysts’ projections as tracked by Thomson Reuters of $1.29 a share in earnings and revenue of $23.76 billion.

Revenue from fixed-income markets fell 15% from the previous year on what the bank said was “historically low levels of volatility and lower client activity across products.” (…)

J.P. Morgan finance chief Marianne Lake added that June brought “generally higher levels of activity.” But that momentum hasn’t carried into July so far, she said. (…)

Like other banks, J.P. Morgan reported that its investment bankers are picking up some of the slack for trading desks that are dealing with a sluggish environment. The bank’s equity-underwriting revenue jumped about 4%, and advisory revenue jumped 31%.

The New York bank again showed weakness in its mortgage business as it, like its peers, continues to reel from a sharp slowdown in refinancing. Mortgage originations of $16.8 billion fell 66% from the previous year.

But the weakness doesn’t suggest that consumers and businesses are on their heels. Average loan balances in the commercial-banking unit were $140.8 billion, up 7% from a year earlier and 2% from the previous quarter.

  • BofA’s Results Weaken Bank of America Corp. said second-quarter profit slid 43% as the banking giant was again weighed down by large one-time legal charges and a slump in mortgage originations.

(…) For the second quarter, Bank of America reported a profit of $2.29 billion, compared with $4.01 billion a year earlier. The results include a litigation charge of $4 billion, up from a year earlier charge of $471 million. On a per-share basis, earnings were 19 cents. Analysts polled by Thomson Reuters had expected seven cents a share including litigation. (…)

Excluding adjustments to the value of the bank’s debt, FICC trading revenue was $2.4 billion in the second quarter, up 5% from the year earlier, helped by a stronger performance from mortgage and municipal products, but partially offset by declines in foreign exchange and commodities.

Pointing up So far, 36 companies (11.3% of the S&P 500’s market cap) have reported. The beat rate is 64% per RBC Capital. So far earnings ex-financials are up 14.4% Y/Y, beating by 3.4% while revenues have surprised by 0.9%. Cum-financials but ex-Citi legal expense, S&P 500 EPS are up 6.5% Y/Y.

Star 30 MINUTES, that’s all it takes to listen to this excellent presentation by Dr. David Kelly, Chief Market Strategist for JPMorgan funds.

Not that his views are close to mine, just that he presents them so well with great charts, some of which I include today. His main points are that

  • The U.S. economy is set up for a rebound.
  • The direction of interest rates is up.
  • You should be cautiously over-weighted equities (my yellow light).
  • Valuations, while pretty close to historic medians, are still cheap when compared to fixed income yields given the S&P 500’s earning’s yield of more than 6% (on forward earnings).
  • International markets are improving on a cyclical and secular basis, with staying power looking ahead.
  • The Federal Reserve is out of “running room.”

Some great charts. World economies are improving:Interest rates will be moving up in the not too distant future:

This chart breaks down the sources of EPS growth over 20 years. Note how buybacks have not been such a big factor.

Maybe we should put more money in EMs:

More charts on world markets from Ed Yardeni:

Ninja Action on ‘Inversions’ Is Urged The Obama administration joined the growing debate over U.S. companies reincorporating overseas for tax purposes, urging lawmakers to pass legislation to limit the moves.

In a letter to leaders of the congressional tax-writing committees, Treasury SecretaryJacob Lew said lawmakers “should enact legislation immediately…to shut down this abuse of our tax system.” (…)

So far, Republicans as well as some influential Democrats in Congress have favored limiting inversions through a comprehensive overhaul. Some of those lawmakers believe a quick fix could worsen U.S. companies’ position.

“I don’t want to be part of legislation that ramps up the competitive disadvantage of being a U.S.-based company or makes U.S.-based companies more attractive targets for foreign takeovers,” Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said in a recent statement.

Finance Committee Chairman Ron Wyden (D., Ore.) also hasn’t pushed for a quick fix. In a Wall Street Journal op-ed in May, he said that “this loophole must be plugged.” But he indicated that he is still hopeful for a comprehensive tax rewrite that would limit inversions on a retroactive basis.

In the Treasury letter, Mr. Lew criticized corporations that move overseas to avoid the relatively high U.S. corporate tax rate, while continuing to operate from U.S. soil and benefiting from U.S. legal protections, infrastructure and basic research.

“What we need as a nation is a new sense of economic patriotism, where we all rise or fall together,” Mr. Lew wrote. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

In its letter, the administration also endorsed making the curbs retroactive, to May 2014.

NEW$ & VIEW$ (14 JULY 2014)

U.S. GDP: THE PROBLEM IS PRODUCTIVITY

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David Rosenberg:

The economy is clearly showing its verve and only the trade gap is preventing real GDP growth from surging in excess of a 4% annual rate in Q2. (…) the labour side of the economy is behaving as if we have a 4% growth economy. That auto sales are at eight-year highs of 17 million units or that the ISM combinations are at a firm 55 merely add credence to that view (not to mention factory orders at a six-month high). (…)

The problem this cycle is with productivity growth which has been faltering badly.

Meanwhile, commodities are helping the 99%:

Prices for soybeans, corn and wheat fell sharply on Friday after the U.S. Agriculture Department projected bigger-than-expected harvests and stockpiles this year, extending months of market bearishness for three of the biggest U.S. crops by value.

Soybean futures dropped about 3%, wheat fell by more than 4%, and corn prices slid to the lowest level in nearly four years as the USDA, in its closely watched monthly World Agricultural Supply and Demand Estimates report, said favorable weather is expected to lead to big jumps in crop production this year, outpacing demand.

Cotton prices also fell Friday, ending at the lowest level in two years, because the USDA increased its estimate for U.S. production by 10% to 16.5 million bales in the year beginning Aug. 1.

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Wells Fargo Results Show Lending Fears

Overall, Wells Fargo posted a 3.8% rise in second-quarter net income from a year earlier to $5.73 billion. Per-share earnings of $1.01 met analyst expectations, but revenue slipped 1.5% to $21.07 billion. With the latest profit gain, Wells Fargo eked out its 16th quarter in a row of growth in year-over-year net income but broke a streak of record profits over nearly four years, based on data from FactSet.

Wells Fargo’s credit-loss provisions totaled $217 million, compared with $652 million a year earlier and $325 million in the prior quarter. Improving credit has bolstered financial results at banks across the industry, although that trend is expected to slow as lending rebounds.

Like many of its rivals, Wells Fargo, based in San Francisco, is awash with savers’ money—average deposits rose 9% to $91.7 billion in the three months ended June 30 compared with the same period a year earlier—but is struggling to deploy them because of the low returns on many loans and investments.

As a result, Wells Fargo’s net interest margin—a key profitability figure that measures the difference between what a bank makes on lending and what it pays depositors—narrowed to 3.15%, compared with 3.47% a year earlier and 3.20% in the prior quarter. It was the lowest net interest margin in at least the past three years, according to FactSet. (…)

John Shrewsberry, Wells Fargo’s chief financial officer, said in an interview the bank isn’t concerned about its lower net interest margin. “We won’t stop taking our customers’ deposits,” he said, adding that Wells Fargo would rather sit on the cash than risk putting it to work in investments that might later suffer losses. (…)

Wells Fargo—the country’s biggest provider of home loans—saw mortgage originations fall about 58% from the year-earlier quarter to $47 billion, driven by a persistent slump in refinancing activity that has outweighed any gains in loans for new home purchases.

Some 74% of home loans were purchase mortgages, up from 44% a year ago, suggesting home buyers may be beginning to fill the gap left by the end of the refinancing boom.

Still, the bank offset the weakness in its mortgage business, which now accounts for roughly 8% of revenues, by stronger lending in other areas. Total loans grew 3.6% from a year earlier to $828.9 billion. Commercial and industrial loans climbed 10%, or $19.4 billion; auto loans jumped 11%, or $5.4 billion, and credit-card lending rose 10%, or $2.4 billion. (…)

Euro-Zone Industrial Output Slumped in May

The European Union’s statistics agency Monday said output from factories, mines and utilities fell by 1.1% from April, although it was up 0.5% from May 2013. That was the largest month-to-month drop since September 2012.

Economists said the scale of the decline was likely exaggerated by the fact that the May 1 public holiday was on a Thursday, with many workers also taking the following day off to create a longer, four-day break including the weekend.

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It may have been the calendar in May (BTW, energy IP was +3.0% in May), but what was it in March and December (both –0.4%). Last 3 months: –0.8%, last 6 months: –1.0%.

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Europeans apparently did not use the longer week-end to shop as May retail sales were unchanged after falling 0.2% in April. Last 3 months: +0.1%, last 6 months: +0.1%. Core retail sales: last 3 months: –0.4%, last 6 months: +0.4%.

Draghi Seen Delivering $1 Trillion to Banks in ECB Offer Mario Draghi’s newest stimulus tool will hand banks more than 700 billion euros ($950 billion) of cheap funding, economists say.

The European Central Bank president’s targeted lending program for banks will boost credit for the real economy as planned, and at the same time help keep the financial system flush with cash, according to the Bloomberg Monthly Survey of 45 economists.

The ECB has identified lending to companies and households as a key weakness in the euro area’s fragile recovery. The so-called TLTRO program, part of a wider package of measures announced in June, offers as much as four years of low-cost funding tied to bank lending that Draghi said this month could ultimately provide as much as 1 trillion euros.

Low rates change Germans’ housing habits

(…) A property boom in the German capital pushed up the value of the average apartment by 27.5 per cent from 2010 to 2013, according to property researchers bulwiengesa. Prices in towns and cities across the country have soared by a fifth over the past four years. Since 2012, the average time it takes to sell a house privately has fallen by almost a fortnight to eight weeks, figures from property website immobilienscout24.de show. (…)

“There are signs in the real estate market of price developments that are dangerous,” Wolfgang Schäuble, Germany’s finance minister, warned last month.

The Bundesbank, which along with the finance ministry and regulator BaFin, sits on the Financial Stability Commission, the body tasked with maintaining the health of the financial system, said earlier this year that property prices in the big cities were now overvalued by as much as 25 per cent.

Germany remains a nation of renters. The owner occupancy rate is just 53 per cent, according to Eurostat, compared with 78 per cent in Spain and a euro area average of 67 per cent. The rate has barely changed since 2010.

Barriers to home ownership, such as transaction costs of around a tenth of a property’s value, are high. Strong tenants’ rights and a vibrant rental property market also help in swaying Germans from becoming homeowners. But conditions are ripe for change. (…)

There are anecdotal signs that cheap money is already shifting attitudes, with the younger generation increasingly viewing property as a sound investment. In research on Frankfurt’s property market early this year, bulwiengesa reported mounting interest from people in their 30s. (…)

Canadian Dollar Drops as Jobs Loss Supports Central-Bank Caution
In Canada, a Central Banker’s Unusual Approach Head of Bank of Canada Looks Beyond Economic Models for Clues

Central-bank economic models failed to foresee the storm that devastated the global economy in 2008. Stephen Poloz, the head of Canada’s central bank, the Bank of Canada, is trying an alternative approach he thinks will have better foresight: actual human beings.

In a December speech he compared the world’s central bankers to “the sailors of another era who were driven far off course by a nasty storm. When things calmed, they found themselves in the Southern Hemisphere. Suddenly the navigational chart that they relied on—the night sky—was completely different.”

(…) Since taking over in June 2013, Mr. Poloz has pushed staff and himself to look beyond models for on-the-ground evidence to understand Canada’s economic challenges.

His director of Canadian research traveled to Calgary to quiz energy companies about the investment outlook and to Toronto to talk to big retailers about competitive pressures in setting consumer prices. (…)

One example: The central bank’s models said a U.S. economic recovery and a decline in the Canadian dollar should lead to a jump in exports and economic output. But it hasn’t.

Mr. Poloz and his staff have been turning to exporters for answers. His conclusion: Some key sectors, like auto-parts manufacturing, have lost competitiveness, leading the U.S. to buy more from lower-cost producers such as Mexico and overseas. Thus a weaker Canadian currency and more U.S. growth aren’t helping them much and Canada’s economy has become uncomfortably more dependent on housing and household spending. (…)

About 10 subsectors, including machinery, equipment, building materials and aircraft, have in fact recovered as expected, or are doing even better. But 21 others, including the auto sector, food and beverage suppliers and chemical makers, are no longer as competitive as they were before the recession when they take their goods to market in the U.S.

As the researchers drilled down and talked to companies, they found that in some industries–clothing, textiles and furniture, for example–competition from lower-cost producers, including China, picked up steam. Trade deals also eliminated some textile tariffs. New entrants started to make bigger inroads; suppliers to the auto industry cited tougher competition Mexico and Korea.

Research on the subsectors published in a bank working paper in April suggested only about half of exporters will be helped by a lower Canadian dollar, since many sectors face longer-term competitive challenges. Many of the sectors that stand to benefit from a lower dollar, such as consumer products, are already among the sectors that have maintained their market share in the U.S. (…)

Another sign the bull market is nearing its end Analysis: Companies no longer want to buy their own shares, a worrisome sign

New stock buybacks fell to $23.2 billion in June, the lowest level in a year and a half, according to fund tracker TrimTabs Investment Research. In May, the total was just $24.8 billion, and the monthly average in 2013 was $56 billion.

That’s worrisome, according to TrimTabs CEO David Santschi, because “buyback volume has a high positive correlation with stock prices.”

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Just kidding The red arrows are from me to indicate that the correlation is far from perfect…even though the calculated correlation is 0.61. Note that since 2006, the correlation between EPS and the S&P 500 Index is 0.86 (0.97 since 1926).

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So, keep reading.

EARNINGS WATCH
Analysts Have Not Slashed Earnings Expectations for Q2 to Date

The estimated earnings growth rate for the second quarter is 4.6% this week, slightly below the estimated growth rate of 4.8% last week. Small downward revisions to EPS estimates for companies in the Energy and Financials sectors were partially offset by small upward revisions to EPS estimates for companies in the Health Care sector, resulting in the small decline in the overall earnings growth rate for the index during the week.

Although the growth rate for the second quarter has dropped since March 31, analysts cut earnings estimates for the quarter by the lowest amount since Q2 2011. The percentage decline in the Q2 bottom-up EPS estimate (which is an aggregation of the earnings estimates for all 500 companies in the index and can be used as a proxy for the earnings for the index) was 1.7% during the quarter (to $28.96 from $29.45). This decline in the EPS estimate was lower than the trailing 1-year (-3.9%), 5- year (-2.9%), and 10-year (-4.6%) averages for a quarter. In fact, this marked the lowest decline in the bottom-up EPS estimate during a quarter since Q1  2011, when the bottom-up EPS estimate only decreased by 0.6% during the quarter (to $22.08 from $22.20).

S&P’s most recent update (July 10) shows that of the 27 companies that have reported so far, 16 beat (59%) and 8 missed (30%). Fourteen of the reports were from consumer sensitive companies. Seven beat and 6 missed.

Q2 EPS estimates are now $29.12 (per S&P), down from $29.24 on July 1.

The earnings season gets in higher gear this week with 157 reports. Important week!

SENTIMENT WATCH

Today’s main narrative, courtesy of Barron’s (Climbing a Staircase of Fear):

“The worst-case scenario that anyone sees today is a short-term correction of 5% to 10%.” (…)

“People think the risk is contained at 10%,” Hayes says. “Maybe it will be greater than that.”

That’s exactly what concerns Wells Capital Management’s Jim Paulsen, who thinks the correction, when it comes, could look a lot more like a bear market than your run-of-the-mill selloff. “I’d feel a lot better about a correction if everyone weren’t waiting in line with me,” he says. “Whatever correction we do get could scare everyone who was waiting to buy the dip.”

But wait, Paulsen is not through:

THAT POSSIBILITY ISN’T SCARING HIM AWAY, however. The reason: He believes the bull market isn’t over yet. Not even close. In fact, he thinks the S&P 500 could ultimately trade as high as 3,000 five years from now. Before you scoff, consider: It would take no more than earnings growth of 4% annually and a willingness of investors to pay 22 times those earnings. And he doesn’t want to miss the upside. “The worst thing an investor can do is get too focused on the chance of a temporary correction and miss the rest of this bull market,” Paulsen maintains. (…)

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