More and more it's all or nothing at all, and I know why the market goes to extremes. The artificiality of prices does provide opportunities to those that are unemotional and have a sense of value. And while the S&P Index is about 20% overvalued, many stocks are even more richly priced.
"Call me a joke, call me a fool
Right at this moment I'm totally cool
Clear as a crystal, sharp as a knife
I feel like I'm in the prime of my life
Sometimes it feels like I'm going too fast
I don't know how long this feeling will last
Maybe it's only tonight
Darling I don't know why I go to extremes
Too high or too low there ain't no in-betweens
And if I stand or I fall"
-- Billy Joel, I Go To Extremes
The market, she is a fickle temptress.
Incalculable and unpredictable and with greater and greater frequency, it moves out of the darkness (March 2020) and into the light (from then on!). And vice versa, from light into darkness (December 2019).
Knowing Little About Value and Everything About Price
I welcome change but, we are likely in a market where price often bears little resemblance to truth as natural price discovery is prevented or marred by policy, fiscal and monetary, as well as by the changing market structure from active to passive investing, the later which worships at the altar of price momentum.
The sharp influence of policy, structural market changes and reckless trading communities -- that exaggerate price movements, up and down -- provide dating and investing opportunities.
This artificiality in price provides an attractive relationship with Ms. Market -- and it should be embraced dispassionately -- as traders and investors with a good sense of humor (!) and value can take advantage of the price extremes that are exaggerated by these factors.
This discussion must be supplemented by mention of the increased influence of the cowboys and cowgirls on Reddit, following @stoolpresidente (David Portnoy) and WallStreetBets (read: GameStop (GME) and AMC (AMC) stupidity) which has become a third influence to the exaggerated, short lived and artificial price action and movement.
And it must also incorporate the foolishness of many previously sober "talking heads" who have acquiesced and have provided pom poms to an impetuous and incautious trading community that looks increasingly less educated than any such body of traders in the past.
For some time Ms. Market has traded well above my calculation of intrinsic value -- again, propped up by excessive fiscal and monetary policy as well as benefiting from the positive momentum embraced by passive strategies and products and by so many YOLO ("you only live once") traders and investors who worship at the altar of price.
My advice? Avoid the beauty contest of price momentum that has arguably led to relatively large extremes of overvaluation today. I see extremes currently in opening trades (travel and leisure), value (like banks), cyclicals and in other areas.
For sometimes it feels like the market is going too fast... and I am fearful how much longer this feeling will last!
(This commentary originally appeared on Real Money Pro on June 18. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)