I rarely link to CNBC articles, but this one by Jeff Cox “For Investors, Missing Rallies, Not Taking Losses, The Biggest Fear” is worth a read. Here is the gist:
Consider the stock market to be a triple bacon cheeseburger with extra cheese, extra bacon and extra special sauce, complete with a super-sized order of fries on the side: A delicious meal, to be sure, but hell on the arteries and waistline.
Then consider investors to be the customers at our little fast-food bistro. They know coming here to eat could be extremely hazardous to their health, but they just can’t resist the lip-smacking gastronomic goodies being whipped up in the kitchen, which we’ll call the QE Cucina.
Perhaps the best line:
This is the market of guilty pleasures, where the only fear is that the lard, butter and deep fat fryers will be replaced someday with soybeans, broccoli and woks. As long as the goodies are being served up—in Wall Street’s case the liquidity provided from the Federal Reserve amid a backdrop of tepid improvement in some aspects of the economy—the lines at the restaurant will remain long and the food continue to be served.
It seems as though nothing can bring down this market, no amount of bad news. What is more disturbing is how many people are using metrics with no real historical value to determine that the market is undervalued or cheap? Everything these days is “relative to ‘insert asset class’ stocks are cheap”, yet when the measures being used are openly manipulated by the Federal Reserve – are they really useful?
Doug Short at his blog keeps track of different measures of market valuation at his monthly updated page “Is The Stock Market Cheap”. Spend a few minutes on his site and you may come to a different conclusion about the “cheapness” of the market.
The article ends with:
The cheapness of stocks in an environment of very little economic growth is highly debatable, but it’s a debate for which there is little appetite on cheeseburger-chomping Wall Street.
“I’ll worry about it tomorrow” is the Scarlett O’Hara-esque attitude of investors, Art Cashin, director of floor operations at UBS, told CNBC. “The market seems to shrug (worries) all off. It wants to go higher. It is money looking for someplace to go.”
Investors who are valuation sensitive should be weary right now.
Scott Dauenhauer, CFP, MSFP, AIF