The Stock Market has reached a permanently high Plateau
It is Monday, 1/29/2018 at 4:59 am CST as this article begins taking shape after reflecting on the stock market trajectory and multi-year bull run. $INDU closed the Friday session at 26,616.71 after adding .85% or 223.92, the S&P 500 even better posting 1.18%
Among two of my all-time favorite snippets of Wall Street folklore are “shoe shine boy advice” and the “permanently high plateau”:
In the winter of 1928, Joe Kennedy, the father of former president John F. Kennedy, decided to stop to have his shoes shined before he started his day's work at the office. When the boy finished, he offered Kennedy a stock tip: "Buy Hindenburg." Kennedy soon sold off his stocks, thinking:
You know it's time to sell when shoeshine boys give you stock tips.
This proved to be a timely move considering that the stock market would soon resemble the fate of the airship Hindenburg itself.
Then there is Irving Fisher, the Yale economist was pulled into the herd mindset. “Stock prices have reached what looks like a permanently high plateau,” ~ posted in the pages of the New York Times.
I am grateful for knowing many people whom I consider brilliant thinkers. A couple of them have opted-in to this remarkable bull run.
One, a programmer by trade, developed an algorithm that told him when to buy and sell a basket of semiconductor stocks. I receive alerts from the system and am very impressed with his FinTech engineering. We’ve always enjoyed healthy conversations along the bull-bear spectrum and both agreed that before any major market correction the euphoria phase sets in. This is the last act offering the most absurd gains. Admittedly we all may feel “it’s like picking up quarters in front of a moving steamroller”, a thought from his perspective about his trading system.
Another esteemed colleague of mine projects that the repatriation of overseas cash and the tax cuts haven’t been fully baked into the market. As of this past weekend, he believes there is another 20% on top of where we are today and will be achieved through healthy earnings increases attributable to the stimuli.
Since, 2009 a comeback for the ages has been in play. The 5-year chart shows a parabolic move as of recent:
On the flip-side, someone else whom I’ve known my entire life with a multi-decade, proven track record for sound advice, backed by performance, said he is selling ALL equities and could not offer any alternative to where to put his money.
What to do? I am reminded by history and yet find myself perplexed. Tulip mania, the Panic of 1873, Crash of 1929 and .com bubbles serve as reminders that while you’re still at the party, you and everyone else around are drinking from the same punch-bowl.
On one-hand, there are still pockets of “value” in the market and on the other its amazingly clear the market should not go up indefinitely.
Infinite quantitative easing, machine learning and investing, suppressed VIX, FOMO, full-employment, elimination of the business cycle as we know it are all great for the economy and mainstream America, right? Bitcoin and blockchain technology should fuel markets higher by tacking on incremental value.
Are these factors suitable justifications for our real-time extraordinary popular delusion and the madness of crowds?
I look forward to the follow-up blog on this post.