This Market Mocks Discipline

 | Sep 13, 2013 | 2:18 PM EDT
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I found myself stymied this morning on "Squawk on the Street." David Faber, Carl Quintanilla and I were all talking about what's about to happen in Washington -- that we could be looking at another federal government shutdown. Judging by the rhetoric that's precisely what is going to happen. We'll be staring right down the barrel of another federal fiasco fewer than three weeks from now.

I then turned to Carl and said that when that occurs we are going down  because there's no way this stock market can handle that kind of pressure from Washington. We're going to hear about social security checks not going out and possible U.S. government debt downgrades and these will all weigh on the stock market.

So he asked me a logical question: do you just sell now?

I thought about it for a second and said, "you know, I have been advising people to so some selling but, candidly, I've been wrong."

Then David asked what will I be thinking as we get closer. I told him here's how it works. I will say do some selling right into the event and the market will keep going higher and I will then say, that's it, I can't stand it, just go buy something and that will mark the top.

Of course I was being facetious. Sure, the market's stronger than I expected. But it is also frothier than expected and I don't like froth. Take Ulta Salon (ULTA), which ran up $18 today after it reported a better-than-expected quarter. Now, I know there were people who thought that Ulta might miss. It's a very-highly-valued retailer and it's heavily shorted. But this rally today, these 18 points, weren't only about a short squeeze. There are tons of portfolio managers who simply can't resist owning a retailer that actually had a better-than-expected quarter.

If you don't believe me, check out the runs in Lumber Liquidators (LL), another richly-valued retailer that has been beating numbers handily and has ample runway to grow.

Candidly, I just don't like this kind of activity. I don't like it when stocks go up 18 points on some better-than-expected news. But we have been having exaggerated moves to the upside for days now.

Today, Safeway (SWY) has been roaring almost $2 because it was upgraded by Credit Suisse. Sure, it was a Sell-to-a-Buy recommendation, which hints that maybe something's going on that's bigger than a potential earnings surprise. But the real truth is that people are just incredibly enthusiastic about stocks, much more than I have seen in some time. We saw it yesterday, too, when Walgreen (WAG) made a gigantic move, one of the best in the entire S&P 500, when Goldman Sachs slapped a Conviction Buy on the name. That, too, is a little ridiculous.

Perhaps the whole coloration of the stock market has changed. Perhaps skepticism is being suspended, not unlike the way it was in the 1980s and the 1990s. But, to me, this is a little too much. Still, as I completed the discussion with Carl and David, it became clear to me that these same worries that I articulated today could have been made any time in the last few weeks. It left me boxed in. My discipline says you can't chase. But the market's mocking discipline now on a full-time basis.

My conclusion? I can't suddenly embrace froth when I see it, not when the government's on the eve of shutting down and Washington's been the proximate cause of all of the big selloffs we have had in the last few years. That means I have to just trim and wait. I trust I won't end up screaming, "That's it! I can't take it anymore! Go buy anything you want!" But I have to tell you, for me, September, which is supposed to be a mighty tough month, has only been tough for those who have been too negative. This market's not favoring the disciplined now, and as someone who thinks discipline is the key to successful long-term investing, I am staying cautious, hoping and betting that we will get a better opportunity to buy the stocks I want so much but just can't chase because that's just not my style.

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