Crossing Wall Street Review – March 10, 2017
By Eddy Elfenbein, editor of the Crossing Wall Street and portfolio manager of the AdvisorShares Focused Equity ETF (NYSE Arca: CWS)
Thursday marked the eighth anniversary of the start of the great bull market. Not only is this one of the longest and largest bull markets in history, it’s also one of the most hated.
I have to confess, I didn’t personally experience many of the other great rallies, but I doubt they were greeted with as much hostility as the present bull run. Over the last eight years, the S&P 500 has gained 246%. Yet it seems that from Day One, people have claimed that it was crazy bubble induced by the Fed, and was due to pop any moment.
In this week’s issue, I want to look at some of the issues affecting Wall Street at the moment. It looks as if Janet Yellen is going to raise interest rates next week, but suddenly, the stock market isn’t so worried about inflation. Also, for the first time this year, oil dropped below $50 per barrel. The Trump Trade is suddenly on the ropes! What does it all mean? We’ll also look at some of our Buy List stocks. But first, let’s look at this hated rally.
Commentators love to proclaim that the stock market, and every market really, is a bubble. Hey, it’s an easy call to make. You’re rarely held accountable if you’re wrong. Also, you have an easy out. If the market goes higher, then you can always say that the bubble and ensuing crash will be that much worse. The crash is always just around the corner.
I’ll let you in on a little secret. The stock market is rarely a bubble. Don’t get me wrong—the market takes its lumps. You can expect a 20% selloff every few years. But that’s not necessarily a bubble.
For example, the big bad bear market of 2007 to 2009 wasn’t, in my opinion, preceded by a bubble. By that, I mean that I don’t believe equity valuations were excessive. Prices largely reflected fundamentals. The problem is that the fundamentals crashed. Sure, there was a bubble, but it was in real estate. Or more precisely, it was in credit, which manifested itself in real estate. But stocks? Nope, nothing crazy.
For those of you who remember 1999-2000, now that was a bubble. The valuations had no bearing on reality. The flimsiest companies were going public. Why? Well, they were being funded! No one wanted to be left out. “Your company is nothing but a URL and a sock puppet? Here, take a few billion dollars.“
That’s what a bubble is all about. The tech bubble was so intense that it actually pulled money away from sensible value stocks. I remember that several REITs were yielding over 10% or 12%. My point is that a bubble isn’t merely elevated valuations but totally crazy, insane valuations. That happens, but it’s rare.