for quite sometime the perception has been that FA has never been
better....the only real scare thrown at that perception was the threat of higher interest rates last spring.....as long as the perception of good FA continues ...
Carl, the "perception" or perfect fundamentals is the problem. Inflation is low, the economy is strong, interest rates are low, and money keeps pouring into the market, so as long as these things are true the market will keep climbing. Fair summary? Two problems.
First, this argument ignores real fundamentals, i.e. value. The same argument is applied to individual companies (sales and earnings are still growing, so values should keep rising), but what if valuations are rising at 20-30% per year while earnings grow at a quarter to a half of that rate? That's not sustainable, regardless of whether earnings NEVER go down instead of up. It's the same bullish argument made in 1929 (according to Ben Graham that is - even my Dad was only seven months old then) - that the old rules about valuation don't matter - all that matters is growth - if it is growing, there is no natural limit to value.
Second, the fundamentals aren't so perfect any more. Major companies are reporting large declines in earnings AND declines in sales. Trailing 12 month earnings on the S&P 500 are actually 4.4% lower than they were just two months ago and only 2.6% higher than a year ago (and that's before all these big companies reporting declines this quarter). Inflation, as measured by the PPI and CPI may still be low, but there are clear signs of pressure, particularly in labor markets. And, as for interest rates, real rates are still high and it's beginning to look like the Fed may push them higher.
Final "perfect fundamental", all this money flowing in from the masses that will continue until the last baby boomer retires - BULL. The masses can turn just as sour on the market as they are sweet on it now. It's not like they couldn't decide one day to pay off some debts or put it into bonds or the bank. While smilin' and dialin' for Smith Barney in 1982-83, the vast majority of people I talked to (who were adults in the early '70s) wanted nothing to do with the stock market - they didn't want to gamble and kept all their money in CDs or munis. Why? They had been burned badly by the '73-'74 bear market after being told that the "nifty fifty" would never fail them.
Why am I beating this horse to death? Because these perceptions contribute to the mania that many looking only at charts would see as just a strong uptrend. This kind of environment doesn't develop very often, so I have to wonder whether charts alone would give us enough warning (if any) that the mania is about to self destruct. I hope that all the TA on this thread will prove my concerns unwarranted and that we will all become extremely "comfortable" by catching the coming BK.
BTW, if you like contrarian indications, how's this? Consensus Inc. shows Bullish Consensus at 80% last week. In mid January it was 42%. Oh, and only $709 mil flowed into stock funds in the week ended last Wed. Perhaps people need the cash to pay taxes on last year's gains.
Good fortune,
Bob |
