Bob Bright, founder of Bright Trading, recently joined Joel Elconin on the first episode of PreMarket Prep’s "Last Half Hour Of Power" show.
Bright discusses how today’s market compares to the dot-com bubble of the late 1990s, his outlook for stock prices over the next decade and how successful traders must identify and utilize their personal trading edge.
Dot-Com 2.0? Bright said today’s stock valuations are similar to the late 1990s, but the global environment is totally different.
“A lot of the old timers think the PE is way too high, that the market is overdone. But you’ve got to look at the overall global markets,” Bright said.
When so many interest rates around the world are in negative territory, Bright said a PE ratio of 40 doesn’t look so expensive for investors trying to choose between stocks and bonds.
“Even the 10-year [U.S. Treasury] yield went up to 1.5%, but even at 1.5% so what? A 40 PE is still similar to 2.5%. So what do you want? A 40 PE or 1.5% on a 10-year?” Bright said.
Bright said a PE of 80 still gives investors a 1% return on their investment, which isn’t a ridiculous proposition in the current historically low-rate environment.
Don’t Fear Inflation: Bright also discussed inflation fears that recently spooked the market.
“I’ve been surprised for the past 30 years of why we continue to have inflation, and it’s very possible it’s because of what the [central banks] around the world want,” he said.
“It fools the taxpayer that thinks, 'Oh, I got a 6% raise this year and that’s good!' When you get a 6% raise and there’s 6% inflation on it and you have to pay taxes, guess who wins?”
Economists are calling for roughly 6% economic growth in 2021 and inflation levels approaching 2%. Bright said the current market conditions are a recipe for more volatility.
“We could have a Roaring '20s or we could have a major sell-off, yes. But in my opinion a major sell-off is probably limited to 20% or so,” he said.
“A major rally over the 2020s could make the 1920s look kind of pale.”
Finding Your Trading Edge: Bright began his market trading career after he was barred from playing blackjack at the Las Vegas casinos in the late 1970s because he was winning too much money counting cards.
“Whether it be trading the market or playing blackjack or playing poker or whatever game you want to play, make sure you have an edge. If you don’t have a perceived edge, why play? So every trade you make, you should think about where is my edge? And if you can’t figure it out, then you’re in the wrong game,” Bright said.
Bright said traders don’t need to feel like they need to be gambling all the time.
“The stock market is like any other game. It’s a mathematical game, and you have to realize where your edge is.”
The entire interview with Bob Bright can be found here:
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.