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This is not irrational exuberance yet



October 19, 2009 – Comments (4)

It is getting close, but we are not there yet. Currently, the market is definitely overpriced but its mood is still best described as rational exuberance. Here I must strongly disagree with GoodVibe's call and suggest instead that the final parabolic stage of the rally is still ahead of us. Those of you who are calling the top here have no idea just how far the euphoria takes the market once it sets in. How about Coca-Cola at a PE of 40? MSFT at a PE of 60? at a PE of -4, the minus sign because earnings are negative and the low absolute value because the denominator is so big numerically? Don't worry, ladies and gentlemen, we'll see all of that and even more. And of course it will all end in another crash, but the bears' challenge meanwhile will be to survive to see that day. Very few of them will. Most of them will have their accounts liquidated after a series of failed attempts to short the market at what appears to be the top.

4 Comments – Post Your Own

#1) On October 19, 2009 at 5:34 PM, Sozurmama (< 20) wrote:

I'm seeing quite a large chunk of investors who are scared as hell to get in. I see people on the news and on nearly every blog  warning about the next leg down...hell im even worried.

That's not how i define exuberance either :)

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#2) On October 19, 2009 at 6:17 PM, miteycasey (29.04) wrote:

I don't like to make calls because you usually end up eating crow and it's here for all to see, but I can easily see the S&P500 around 1400 before it has a down turn.

A few reasons for the market to keep going.

1) The fed is still propping up banks allowing them to show profits and keep forclosed homes off the market.

2) APPL, enough said.

3) Windows 7

4) Christmas

I think this rally will go until Q4'09 or Q1'10 reports come out. If things haven't improved we'll see a fall. The question on my mind is by then will 'real profits' from banks, home builders, and dry goods be showing up. If they are there by March then this rally could go to the moon. If not, it's a long way down to 850.



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#3) On October 19, 2009 at 6:35 PM, jstegma (28.74) wrote:

Let's face it, even the bulls aren't that bullish at these levels. 

The Christmas shopping season is coming pretty soon.  That will turn the tide on the market.  Sure, there's been a recovery from the days when the money market funds were about to have to break the buck, but it's not much of a real recovery.  Christmas time will remind us that the recovery is a lot more hope than change we can believe in.

So feel free to hang out your stocking at the tail end of the rally and see you get in there.  Bull?  Bear?  I don't know, but just hurry up and take it out to the trash.

"I guess the cookies and milk didn't agree with Santa, kids."

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#4) On October 19, 2009 at 7:52 PM, CMFStan8331 (97.30) wrote:

The market is a long way up from the lows and there certainly is a risk of a major pull-back.  However, a lot of the prophets calling the top now are the same folks who were saying you'd have to be crazy to go long back in March. As investment advisors, I find less than persuasive their dire predictions that have lost vast sums of money for anyone who actually acted on them.

Both perma-bears and perma-bulls will always be right eventually, but most will not perform well as investors because they fail miserably at timing the market.  If you're employing a strategy that's heavily dependent on timing to work, that's not such a good thing. 

I'm smart enough to know I'm not one of the geniuses who can make a living timing the market.  I'll stick with a balanced approach that participates in the rally, takes incremental profits and always keeps significant cash on hand for all contingencies.

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