FormerSanDiegan, I disagree, based on what I read from Barry Ritholtz at The Big Picture/ Cash has outperformed since 2000.
“• The Dow has only 10 stocks above their January 2000 highs, and of those 10, four are responsible for dragging the index higher – Boeing, United Technology, Altria and Caterpillar.
• Despite the recent move towards big cap and tech, be aware of the pundits who have been advising you of this for the past 5 years have been very, very wrong. (We made the suggestion to shift to big caps over the summer). The Nasdaq 100, for example, is still down an eye-popping 65% from its 2000 highs.
• The 3 bullet points above are why most investors are not feeling like they are at 6 year highs; Unless they hold only Dow stocks – or the 4 mentioned above – most investors portfolios remain far below their 2000 peaks.
• Cash has outperformed the Dow since January 2000; Even considering reinvested dividends; cash STILL out performs the Dow.
• The Dow’s Real (inflation adjusted) performance, even with dividends reinvested, is significantly below breakeven.” The Big Picture blog, 10/3/06
Chris Johnston has a post about this on his blog: Is there Trouble Brewing in Paradise? “There is a trememdous lag developing between the DOW index and the S&P 500. Notice how we are at new highs on the DOW, yet are quite a ways behind the old highs in the S&P 500.
This is a bearish sign for the indexes. I have been looking for a rally all year and we have finally seen one. I had been expecting it to happen later in the year. Maybe this big divergence means we will see a drop off into the fall setting up the real buy point. Notice how closely correlated all the way up to the 2000 high these two indexes were, which is the relationship that should be in place.” – quote from iamafuturestrader.com, 10/4/06
Chris is talking about “the real buy point” being in the fall. I don’t see where I misquoted anyone. In an e-mail to me on 10/1/06, he said “the blue chips leading a rally is not really what we want. It generally indicates people going into safe things and precedes a decline.” I’m not going to guess what he is expecting.
For me, I’m glad I’m in cash. Soon enough, the housing-led slowdown will lead to a recession, just as it has done every time in 40 years. Car sales are off 5%, another recession indicator. The yield curve is inverted, signaling 80% chance of recession. Nothing has changed to make me recall my recession forecast.