The hot-button word in the market this week is euphoria. The bulls say euphoria is nowhere to be found. The bears try to win their argument by noting that the stock market is higher, which of course is a bad thing, as it's a step closer to ruin.
Those who pontificate on the topic of euphoria should open a dusty Merriam-Webster, because the stock market being at record levels does not immediately imply tulip-bulb mania. While I have been cautious during the Fed-fueled rally, I have certainly not been afraid to recommend a stock or two for fear of having the call blow back in my face. As long as the market can shake off bouts of weakness and hold near support, being invested is a wiser decision than sitting with hands in pockets, wondering if the masses are in a euphoric state of mind.
Want a great example of euphoria? Let's take a trip down memory lane with Alan Greenspan, since Wednesday was his 87th birthday. The Dow smashing through its record on Tuesday sent me on a mission to dig up a list of quotes that I made from October 2007. Boy, was I such a dweeb, talking gross margins and free cash flow. Who cares about that stuff? (I'm kidding, but I have evolved since those days!)
These quotes from prominent economists and government figures concern certain peaks in various stock exchanges. The goal is to compare them to what is being heard today in the attempt to determine if we have reached a maximum point of euphoria. Where there is a maximum point of euphoria, there is the potential for a swift pullback on the littlest of news.
The focal point here with Greenspan is his change in his long-held opinion on equity values. If you follow public finance folks like a hawk (I do), you should know their outward positions on stocks and other markets. On March 6, 2000 (his 74th birthday), Greenspan stated:
"Lofty equity values and declining prices of high-tech equipment have reduced the cost of capital. The fact that the capital spending boom is still going strong indicates that businesses continue to find a wide array of potential high-rate-of-return, productivity-enhancing investments. And I see nothing to suggest that these opportunities will peter out any time soon."
On March 10, 2000 ... the Nasdaq peaked!
Personal Note on Euphoria
While I was in a car ride to a TV appearance, a WCBS report came on the radio discussing the Dow record. The driver turned to me and said: 1.) The Dow is at a record, I still thought it was going lower from a couple years ago; and 2.) Will my weekly paycheck increase as the Dow is at a record? So has stock market fever intensified or even spread? Nope. If it did, this driver would be having grand visions on profiting from stocks, circa 1999.
J.C. Penney, the Truth
Since I have this pulpit to speak, why not voice serious displeasure with the two J.C. Penney (JCP) downgrades that hit the wires on Wednesday? Both Oppenheimer and Citigroup reiterated strongly their Buy ratings the day after the company's report of a quarterly loss sent the stock plummeting; I kept a Sell rating that has been held since January 2012. As someone who was on the sell side and busted my tail so that I could tell it straight in order to help people make money, let me say that these actions on J.C. Penney only give stock research that much worse of a name.
Research, in my opinion, is the pursuit of information that the market has overlooked, and then conveying bold, ahead-of-the-pack information to those who seek to build wealth. If one is going to stay up all night to build a 10,000-step, multi-factor model that they could brag on to the fella seeking an associate position on the team, why not complement it with a wicked combination of conviction and common sense?
Stay away from J.C. Penney's stock, plain and simple.