http://screen.yahoo.com/60-minutes-reveals-untold-story-141240992-cbs.html
THE BIG SLEEP: Why The Stock Market Will Crash In A Few Months, Then Go Nowhere For Years
By Matthew Boesler | Business Insider – 1 hour 26 minutes agoToday, the S&P 500 closed at 1676. The median 2014 year-end target for the index among Wall Street equity strategists, according to a poll by Bloomberg, is 1900 — 13% above today's levels.
Thus, a new report from Société Générale's asset allocation team — which calls for a 15% correction in the stock market in the first quarter of next year, followed by a multi-year journey back to where the index sits today — may come as a bit of a shock.
SG Cross Asset Research/Global Asset Allocation
SocGen's new S&P 500 price targets.
In the report — titled "S&P 500: -15% in sight, then the big
sleep" — SocGen's global head of asset allocation, Alain Bokobza,
explains how an unwind of easy money policies at the Federal Reserve and
ongoing dysfunction in Washington will cause the stock market to
languish."Strategically, we advise investors to switch into eurozone and Japanese equities, where economic policy is much clearer, monetary policy very loose and positioning is low," says Bokobza.
The strategist lays out the case in the report:
Between now and the end of the year, any decline in the S&P 500 is likely to be limited given that the Fed is still injecting liquidity. We expect the S&P to be at 1600 by year-end, in line with our technical analyst’s forecast (1560+/-10pts).
SG economists expect the January FOMC meeting to be the most likely timeframe for tapering. They look for the first move to be $20bn (instead of the $5-10bn previously expected by the market).
We expect the drop to accelerate at the start of 2014 as the market starts pricing in the end of asset purchases (i.e. well before the market’s Fed tapering expectation). The S&P 500 should dip to 1450 on our estimates, down c.15% from the peak.
Keep in mind the S&P 500 fell by -16% after QE1 stopped and by -17% after the end of QE2.
From Q2 2014, the S&P 500 should start to recover slowly after a technical rebound (c.+7%), as 'Growth' returns to the forefront. We see the S&P 500 at 1600 by the end of the year, so 2014 should be rather flat.
In the two to three years that follow, the U.S. equity index should remain relatively flat, burdened by higher yields (rate hikes in mid-2015), a higher U.S. dollar and limited earnings growth (Return on Equity is already high), but supported by better economic prospects and a new shareholder value cycle, staving off a bear market.
The SocGen report calls Fed tightening "a cap on the U.S. equity market," pointing to liquidity as "the main driver of U.S. equities since 2008."
Simply put, stocks will not be able to handle higher interest rates.
" U.S. equities have been able to absorb the recent increase in the [10-year] bond yield without panic thanks to a high equity risk premium," says Bokobza. "The U.S. equity risk has dropped from 6.8% to 4.7% over the last 10 months. According to our proprietary risk premium model, U.S. equities can absorb only c.80 [basis points] more; i.e., a bond yield of around 3.4% (to normalise our risk premium at its long-term average)."
The surge in long-term interest rates that accompanied a big sell-off in the Treasury market this summer as investors anticipated a tapering of quantitative easing did not weigh much on the stock market, but the 10-year yield only made it to 3.0%.
Datastream, SG Cross Asset Research/Global Asset Allocation
Note: Red line = linear regression. Return on Equity = 12-month forward earnings/current book value
SocGen says the U.S. stock market — along with Switzerland's — is
the most expensive in the entire world, as the chart at left
illustrates."We continue to find some value in U.S. equities, but we particularly like financial sectors," writes Bokobza. "The rest of the market is now back to pre-crisis levels, trading at 3.2x book value. Over the last 30 years, the only period non-financial U.S. stocks traded higher was during the dot-com bubble (1997- 2001), when markets entered into a period of ' irrational exuberance'."
From a fundamental standpoint, SocGen argues that it's becoming increasingly difficult for companies to deliver on earnings expectations.
"While the profitability of U.S. companies is already relatively high, earnings momentum remains in negative territory and is decreasing," says Bokobza. "It will be increasingly difficult for U.S. companies to beat consensus expectations. Last year earnings growth expectations for 2012 and 2013 were revised down sharply from the double-digit level. The consensus expects 10% earnings growth for 2014 and 2015."
But what about the Great Rotation?
"There is more money in U.S. equities now than in 2007 (not the case for European equities)," writes Bokobza. " Everyone has found good reasons to buy U.S. equities, even if some of those reasons are incompatible with one another: economic recovery, monetary stimulus, energy revolution, safe haven area or simply a lack of alternatives."
"After gaining 170% since March 2009, we believe that US equities are a tired and crowded asset now."
EPFR, SG Cross Asset Research/Global Asset Allocation
Wind, rain pound India as massive cyclone hits
By SHONAL GANGULY
4 hours ago
A family carries their
belongings as they move to a safer place at the village of Donkuru in
Srikakulam district, in the southern Indian state of Andhra Pradesh
October 12, 2013. Rain and wind lashed India's east coast on Saturday,
forcing more than 400,000 people to flee to storm shelters as one of the
country's largest cyclones closed in, threatening to cut a wide swathe
of devastation through farmland and fishing hamlets. Filling most of the
Bay of Bengal, Cyclone Phailin was about 200 km (124 miles) offshore by
noon on Saturday, satellite images showed, and was expected to hit land
by nightfall. (REUTERS/Adnan Abidi)
Roads were all but empty as high waves lashed the coastline of Orissa state, which will bear the brunt of Cyclone Phailin. By midafternoon, wind gusts were so strong that they could blow over grown men. Seawater pushed inland, swamping villages where many people survive as subsistence farmers in mud and thatch huts.
As the cyclone swept across the Bay of Bengal toward the Indian coast, satellite images showed its spinning tails covering an area larger than France. Images appeared to show the storm making landfall early Saturday night near Gopalpur.
With some of the world's warmest waters, the Indian Ocean is considered a cyclone hot spot, and some of the deadliest storms in recent history have come through the Bay of Bengal, including a 1999 cyclone that also hit Orissa and killed 10,000 people.
Officials said early reports of deaths from Phailin won't become clear until after daybreak Sunday.
In Behrampur, a town about 10 kilometers (7 miles) inland from where the eye of the storm hit, the sky blackened quickly around the time of landfall, with heavy winds and rains pelting the empty streets.
Window panes shook and shattered against the wind. Outside, objects could be heard smashing into walls.
"My parents have been calling me regularly ... they are worried," said Hemant Pati, 27, who was holed up in a Behrampur hotel with 15 other people from the coastal town hit first by the storm.
The hotel manager said he would bar the doors against anyone trying to enter, saying there would be food, water and electricity from generators only for guests of the Hotel Jyoti Residency. "Nobody can come inside, and nobody can go out," Shaik Nisaruddin said.
Estimates of the storm's power had dropped slightly, with the U.S. Navy's Joint Typhoon Warning Center in Hawaii showing maximum sustained winds of about 222 kilometers per hour (138 miles per hour), with gusts up to 268 kph (167 mph).
The storm, though, remained exceedingly strong and dangerous. A few hours before it hit land, the eye of the storm collapsed, spreading the hurricane force winds out over a larger area and giving it a "bigger damage footprint," said Jeff Masters, meteorology director at the U.S.-based private Weather Underground.
"It's probably a bad thing it was doing this when it made landfall. Much of the housing in India is unable to withstand even a much weaker hurricane," Masters said.
He also said coasts would not be alone in suffering heavy damage. "This is a remarkably strong storm. It's going to carry hurricane-force winds inland for about 12 hours, which is quite unusual," Masters said.
Hurricanes typically lose much of their force when they hit land, where there is less heat-trapping moisture feeding energy into the storm.
By Friday evening, some 420,000 people had been moved to higher ground or shelters in Orissa, and 100,000 more in neighboring Andhra Pradesh, said Indian Home Secretary Anil Goswami.
L.S. Rathore, the head of the Indian Meteorological Department, predicted a storm surge of 3-3.5 meters (10-11.5 feet), but several U.S. experts had predicted a much higher wall of water would blast ashore. Meteorologist Ryan Maue of the private U.S. weather firm Weather Bell said that, even in the best-case scenario, there would be a surge of 7-9 meters (20-30 feet).
A storm surge is the big killer in such storms, though heavy rains are likely to compound the destruction. The Indian government said some 12 million people would be affected by the storm, including millions living far from the coast.
There were few reports coming out of Orissa in the first hours after the storm's landfall.
Phailin had already been large and powerful for nearly 36 hours, with winds that had built up a tremendous amount of surge, Maue said. "A storm this large can't peter out that fast," he said.
The 1999 cyclone — similar in strength to Phailin but covering a smaller area — threw out a 5.9-meter (19.4-foot) storm surge.
Several hours before the storm hit, about 200 villagers were jammed into a two-room, concrete schoolhouse in the village of Subalaya, about 30 kilometers (20 miles) from the coast, while local emergency officials distributed food and water. The roads were almost empty, except for two trucks bringing more evacuees to the school. Children shivered in the rain as they stepped down from the vehicles, following women carrying bags jammed with possessions.
Many had fled low-lying villages for the shelter, but some left behind relatives who feared the storm could wipe out lifetimes of work.
"My son had to stay back with his wife because of the cattle and belongings," said 70-year-old Kaushalya Jena, weeping in fear inside the makeshift shelter. "I don't know if they are safe."
In Bhubaneshwar, the Orissa state capital, government workers and volunteers were putting together hundreds of thousands of food packages for relief camps.
Stranded tourists who had come for Orissa's beaches and temples instead roamed the hallways of boarded-up hotels.
"It seemed strange, because it was a beautiful sunny day yesterday," said Doris Lang of Honolulu, who was with a friend in the seaside temple town of Puri when news of the cyclone's approach reached them.
The state's top official, Chief Minister Naveen Patnaik, appealed for calm.
"I request everyone to not panic. Please assist the government. Everyone from the village to the state headquarters have been put on alert," he told reporters.
Surya Narayan Patro, the state's top disaster management official, had said that "no one will be allowed to stay in mud and thatched houses in the coastal areas" when the storm hits.
By Saturday afternoon, the sea had already pushed inland as much as 40 meters (130 feet) along parts of the coastline.
Officials in both Orissa and Andhra Pradesh have been stockpiling emergency food supplies and setting up shelters. The Indian military has put some of its forces on alert, and has trucks, transport planes and helicopters at the ready for relief operations.
The storm is expected to cause large-scale power and communications outages and shut down road and rail links, officials said. It's also expected to cause extensive damage to crops.
In the port city of Paradip — which was hammered in the 1999 cyclone, also in October — at least seven ships were moved out to sea to ride out the storm, with other boats shifted to safer parts of the harbor, officials said.
U.S. forecasters had repeatedly warned that Phailin would be immense.
"If it's not a record, it's really, really close," University of Miami hurricane researcher Brian McNoldy told The Associated Press. "You really don't get storms stronger than this anywhere in the world ever."
To compare it to killer U.S. storms, McNoldy said Phailin is nearly the size of Hurricane Katrina, which killed 1,200 people in 2005 and caused devastating flooding in New Orleans, but also has the wind power of 1992's Hurricane Andrew, which packed 265 kph (165 mph) winds at landfall in Miami.
India experiences two cyclone seasons a year, one in May before the annual monsoon rains and another beginning in October.
"Keep in mind, India's second cyclone season is only just beginning," said Masters, the American meteorologist. "We could see another big storm in October or November."
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