Jun

5

Whatever the market does… will be. Whatever the market doesn't… will not.

Some may argue that the market is overpriced relative to SPX's p/e ratio which is trading at about +1 SD above it's mean, but p/e ratios have no predictive capacity, especially in high cap indices like the SPX, and since the 2008 crash have become seriously skewed because of their high values attained at that time.

So where does today's market fit in with past markets? Maybe the answer is, it doesn't. And, maybe this is the reason traders, pundits and analysts, are having such a hard time getting it right. And, why their models, which are all predicated on past price action, aren't working - because they're backward-looking. And there's the wrinkle, the ultimate post hoc fallacy of the "it's overvalued" crowd. It's an arbitrary judgment of past earnings, past price action, and past situations. Past performance does not dictate future returns - the future determines the future.

Traders are hard-pressed to explain the present, nevertheless the future. Markets are in uncharted territory and there have been structural changes to the markets, as a result of the crash and prolonged qe/ zirp contamination. The markets reaction to the taper is a glowing example of how fate can be twisted. Historically, bonds sold off and the curve steepened when the fed tightened. Instead, post-taper money, paradoxically flowed into both assets,as the curve flattened.

Stock prices are rising, earnings yield, dividend yields, and 10 year yields are rolling over. Debt levels are not-an-issue and liquidity is sanguine. One thinks that as long as treasury yields are kept in the basement, there should be a continued risk-on, yield grabbing skew to stock prices, irrespective of fundamentals, past economic models, or aggregate financial ratios - and maybe valuations will follow- or not.


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