So many people do not believe in this market. So many think that it is unsustainable and that we are in a dangerous position, ready for a big rollover.
I want to address this reluctance to believe head on. I want to go over the top 10 objections to reasons why people always seem to have one foot out the door, even as anyone would have to admit that we've had one heck of a bull run from March of 2009.
The first objection I find has been that the bull has run for too long and it is on its last legs. Put aside for the moment that bulls don't die of old age, they tend to die from bond market competition, recessions, rate hikes or too much supply, the fact is we have had three serious corrections in the last eight years: one in 2011, when the S&P downgraded the credit of the U.S., a flash crash in August of 2015 initiated by a taper tantrum along with fears of a Chinese collapse, and then one in February of 2016, related to the collapse in oil and what it was doing to oil and bank balance sheets.
All three led to some dramatic exits and major breaks in the charts of the majority of stocks. So many stocks entered bear market mode in these three corrections, that it's almost like we have had three bull markets with some really horrifying interregnums. That's why I simply can't buy in to the senile bull thesis.
Second? Many contend that we are back in a 2000 scenario, when we are going to break down when earnings don't come through. I mentioned last week we are about to get earnings, but it is really important to point out that if you go back to 2000, three things occurred:
- We had a massive amount of secondaries, as the smart money fled to the hills. Can you recall any secondaries beyond the disastrous Twilio TWLO and Acacia ACIA numbers? I can't.
- We had endless preannouncements into earnings. Other than O'Reilly (ORLY) , can you recall any monstrous preannouncements? I can't.
- We had a gigantic jump in bankruptcies, many of which were customers of all the winners of the era, mainly telecom companies' clients and their supplies.
In other words, we didn't have an earnings shortfall. We had an earnings disappearance. None of that is happening now, even as the price-to-earnings multiples are literally one-tenth of what most were at that time.
Three: the Fed, the Fed and the Fed. We are still stuck in a world where many believe that we are only up here because the Fed has put us, and it is going to hurt us shortly in some way, shape or form.
Here are the issues with that: One, it would be fabulous if the Fed would just sell off its damn holdings. That would raise the long end, although not by all that much, but certainly enough to put some inflection in the curve. This will remove a principal and legitimate concern, as there is no place for such large holdings in a normalized environment.
Second, if you care about the banks' lending, you must give them more vim than they have. When you raise rates, that's what happens. Financials have quietly reasserted themselves here as leaders. No bear market has ever begun with the financials as leaders. Many have started when they are laggards.
Fourth: Trump hasn't delivered, and there is tremendous gridlock. It is true that there's been no progress at all in Washington on pretty much anything, including deregulation. But let's remember we had no trouble having a bull market with gridlock. And we aren't getting new regulations, which is incredibly bullish.
I would love to see tax reform and lower corporate rates and repatriation. And maybe we will get some in 2018. The White House keeps saying it is committed to tax reform and Trump simply hasn't yet turned on Congress, which is the roadblock. In retrospect, Trump was finished as a force when health care consumed the agenda.
Looking back, we have to blame the Speaker and Congress for making this the number one issue. It wasn't Trump's. Suffice it to say, though, we simply should not care about Washington doing nothing. A Washington that does nothing under Trump is a lot different and better for the markers than a Washington that does nothing under Hillary Clinton, because you know, eventually, when something does get done, it will be market friendly. We underestimate how important that forecast really is.
Fifth: The perception is that stocks have gotten wildly expensive. Now, here I do think there's concern. But here's the issue: you would think that if stocks were expensive, then value stocks would hold their value. However, value stocks are the principal source of pain. Plus, I have been examining literally hundreds of stocks that are not on the radar screen of people, humdrum stocks like Brink's (BCO) or Avery Dennison (AVY) or Federal Realty (FRT) , and they simply can't be considered expensive. While I mention those, it isn't anecdotal. So much of the movement in stocks has been broad-based, with vicious rotations being used to recharge whole sectors.
Sixth: There's tremendous fear of tech stocks. Why? I think it's because much of the advance is in the enterprise: Autodesk (ADSK) , Nvidia (NVDA) , Workday (WDAY) , Salesforce (CRM) , ServiceNow (NOW) , Skyworks (SWKS) , Analog Devices (ADI) , Lam Research (LRCX) , I could go on and on. People simply don't know what they do. So they presume they are expensive. There's a whole cohort of stocks of companies that are involved with the web that have to do with storage and internet of things and social, mobile, cloud, and artificial intelligence that they are beyond the ken of most investors, so they react with fear.
Seventh: There are a gazillion health care stocks that, similar to tech, just aren't understood, because they are part of the Medicare/Medicaid/insurance businesses that have had the run of the place for ages. They are the real runaway costs of health, and when health care costs skyrocket and are paid for not by a single payor but by a system, run incredibly inefficiently, everybody wins but the taxpayer.
Eighth: There have also been a bajillion energy companies created as part of what was a fabulous energy boom going into the crash of 2014. There's been almost no consolidation, and all of these stocks, even as they don't amount to a huge part of the S&P, are high-profile daily disappointments that carry a lot of psychological weight. I can't quantify this, other than to say that they are top-of-mind disappointers.
Ninth: The area of the market we can see best, retail, is a disaster because of Amazon (AMZN) , and we are at wits' end that it hasn't brought the entire market down. I say yes, there have been retail bankruptcies, but that the fear of Amazon has become so all-encompassing that bargains might soon be created. Stay tuned to the downgrades after Amazon Prime day tomorrow. I am more interested in buying than selling, at this point.
Tenth and final: We know President Trump decries fake news, but I think most of the commentary post-the coming of YouTube requires experts and so-called experts to be muted in their bullish discussions. Before YouTube replays, there was always the possibility that you would be reminded how bullish you were at the top. Now it's a given, so why would you ever come out and pound the table, knowing that if you are wrong YouTube could ruin you?
Hence the commentary is tepid and insipid, except when it comes to any hedge fund manager or strategist who is bearish. They are willing to be as aggressively negative as possible, because no one will chide them for being bearish. That's regarded as intellectually honest and over time they could be right. In the interim, they control the dialogue and the dialogue's gloomy because of it.
I don't think any of these objections will change any time soon. I think these 10 reasons why the bull is mistrusted should be acknowledged by all. That way, you don't have to have one foot out the stock door every single session.