I woke up this morning to see this image on the top headline of Drudge Report. It's a picture of Donald Trump's face on the $20 bill with a caption screaming about soaring stocks.
It's been my experience that when stories start to reach the top headlines in the media outlets (and particularly non-business media outlets), there's a good chance they are close to being fully discounted.
That's not to say the stock market won't go higher over time. It will. It always does and I have explained why a number of times here in the past. The stock market is nothing more than a growth function -- it reflects the growth of profits, income, living standards, technology, innovation, etc. Therefore, like all growth functions, it rises over time. Growth is the natural order of the universe. When the universe starts contracting as opposed to expanding like it's doing now, I will let you know. In the meantime, expect growth to be the "norm."
However, just because growth is the natural order doesn't mean it's not a good idea to raise cash every now and then. The fact of the matter is, it's getting hard to find stocks that show decent value. Everything that I look at is expensive from a valuation standpoint. Price/earnings ratios are elevated, and while that alone is not enough to keep a stock from going higher (many playing the momentum game now), I don't like to get involved when things get like that. I've been fully invested since August 2015 and I am raising cash now.
I'll wait for a market pullback to restore some value, which I am sure will happen. There are always opportunities to buy and to buy in a prudent and smart way if one is patient. Patience is the key.
In the meantime, I sit and wonder where all these bulls were back in February and March, April, May, June, July, August, September, October and November leading up to the day after the election?
The answer? They were nowhere. Go back and read my blog post from Jan. 8, where I predicted that the stock market would make a major bottom in January. Or how about my story from Jan. 15, where I said RBS' call to "sell everything" was going to be the worst call of 2016. I also mocked a few other "Masters of the Universe" at the time. There were many more times in the ensuing months, right here on Real Money, where I stated emphatically that you should buy the dips; that the fiscal flows were strong and, therefore, supportive of the economy and the markets.
Very few were saying that; as a matter of fact, most were bearish or selling. Now they are all bullish.
The problem is, right now the fiscal flows are weak. We are negative year-over-year. Credit growth is weak: Total loans and leases at commercial banks are rising at the slowest pace in two years, as is consumer credit.
Money doesn't just make the world go round, it makes the markets move, too. We had strong fiscal flows and credit growth all this year, but after September that stopped. Maybe it could resume once Trump takes office and puts his stimulus into action. I have no idea. We'll see. We've got to see what he gets past Congress.
Right now, however, this entire rally is built on one gigantic bubble of bullish expectation and it's mostly coming from people who were frightened or even selling stocks out of fear of a Trump victory. I think that should tell you something.