Stocks are finally correcting from all-time highs and this is sure to get the bears excited. Obama’s approval rating is at record lows and the smell of war is in the air. We are behind by a cyclical recession, and this only adds fuel to the fire for the bears.

That said, I suspect that this rally in stocks is not appreciating as a secular bull market for some reason. Perhaps it is due to a relatively stagnant economy. Maybe it’s the global geopolitical unrest. Or maybe it’s just the notion that a record of anything means “overbought.” I’m not really sure, but jumping on board with stocks AFTER this correction (not dip) runs its course is probably one of the smartest things you can do as we approach the crisis window.

Alternatives and relative value

As an investor, you must think in terms of relative returns; You cannot perform value assessments in isolation. With stubbornly low bond yields, the main alternative to stocks is not at all attractive on a relative basis. This is Jesse Livermore’s argument that I made in 2010 and 2011; Namely, that when dividend yields cross short-term Treasury rates, it’s time to close your eyes and turn back.

I have mentioned that most of the national debt is an increase in interest. Well, the same goes for stocks and dividends: Most of the returns on stocks over time can be attributed to dividends, which accumulate over time. And persistently higher dividend yields on bond yields create increasingly distorted relative returns over time. The likely outcome? More pension money going from bonds to stocks. This is the 800 pound gorilla people.

Stocks vs Real Estate

So stocks are attractive relative to bonds. Well, if I compare stocks and real estate, it doesn’t even come close: I’d rather be in stocks. Stocks are much more liquid and easier to manage, which means that, in theory, real estate must outperform stocks to be attractive. Right now, the earnings performance on stocks and real estate is roughly equivalent, which in itself would favor stocks. But keep in mind that we are heading into a crisis environment, which is always conducive to liquidity.

There is a misconception that stock valuations are extreme. This is not true. If you take a look at Shiller’s P / E ratio below, you’ll see what I mean. Capital has yet to really focus on equities, which means this is far from being a bubble.

Conclution

I expect a pullback in stocks. In fact, it is long overdue. But we should see equities outperform nearly all asset classes in the next few years. It’s not the consensus game here, but that’s why you should seriously consider it. I will probably buy after this pullback.